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Opting out of workers’ compensation: Non-subscription in Texas and its effects

Author

Listed:
  • Lu Jinks

    (University of Illinois at Chicago)

  • Thomas J. Kniesner

    (Claremont Graduate University)

  • John Leeth

    (Bentley University)

  • Anthony T. Lo Sasso

    (DePaul University)

Abstract

Texas is the only state that does not mandate that employers carry workers’ compensation (WC) insurance coverage. In place of traditional WC, companies can choose to offer alternative “non-subscription” disability plans to workers. Little large-scale empirical research has studied the consequences of switching from traditional WC to non-subscription plans. We use a difference-in-differences estimator along with a novel machine learning approach to compare effects of switching to non-subscription plans for employees in Texas versus contemporaneously measured non-Texas-based employees for 25 large companies. Our results indicate that total medical payments dropped by roughly 40% from switching to non-subscription plans, consisting of reductions in hospital spending, physician spending, and other medical spending. Similarly, indemnity payments dropped by 70% and number of reported lost days dropped by 80%. Accumulating all sources of spending, we find that total expense associated with workplace injury fell by approximately 46% after switching to the non-subscription program.

Suggested Citation

  • Lu Jinks & Thomas J. Kniesner & John Leeth & Anthony T. Lo Sasso, 2020. "Opting out of workers’ compensation: Non-subscription in Texas and its effects," Journal of Risk and Uncertainty, Springer, vol. 60(1), pages 53-76, February.
    • Handle: RePEc:kap:jrisku:v:60:y:2020:i:1:d:10.1007_s11166-020-09320-x
    DOI: 10.1007/s11166-020-09320-x
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    References listed on IDEAS

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    1. Thomas J. Kniesner & John D. Leeth, 1989. "Separating the Reporting Effects from the Injury Rate Effects of Workers' Compensation Insurance: A Hedonic Simulation," ILR Review, Cornell University, ILR School, vol. 42(2), pages 280-293, January.
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    3. Krueger, Alan B., 1990. "Incentive effects of workers' compensation insurance," Journal of Public Economics, Elsevier, vol. 41(1), pages 73-99, February.
    4. Butler, Richard J & Worrall, John D, 1983. "Workers' Compensation: Benefit and Injury Claims Rates in the Seventies," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 580-589, November.
    5. Butler, Richard J. & Gardner, Harold H., 2011. "Moral Hazard and Benefits Consumption Capital in Program Overlap: The Case of Workers' Compensation," Foundations and Trends(R) in Microeconomics, now publishers, vol. 5(8), pages 477-528, April.
    6. Ruser, John & Butler, Richard, 2010. "The Economics of Occupational Safety and Health," Foundations and Trends(R) in Microeconomics, now publishers, vol. 5(5), pages 301-354, August.
    7. Alison Morantz, 2010. "Opting Out of Workers' Compensation in Texas: A Survey of Large, Multistate Nonsubscribers," NBER Chapters, in: Regulation vs. Litigation: Perspectives from Economics and Law, pages 197-238, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Workers’ compensation insurance; Non-subscription; Difference-in-differences; Triple differences; Machine learning; PDS-LASSO;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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