What's Wrong with Texas Worker's Compensation?

A September 4, 2015 article in the Texas Tribune brought to light the pitiful story of a lady who was wrongfully denied workers’ compensation death benefits by ACE American Insurance Company following the death of her husband in 2012.  The lady ultimately prevailed and ACE was fined $250,000 by the State for its wrongful handling of the claim.  ACE has a long, ignoble history of misbehavior.  From 2011 to May 2015, ACE paid a total of $462,579 in fines and penalties and, according to the article, the State has sent dozens of warning letters to ACE.  ACE reported a net income of almost $1 billion in the most recent financial quarter, so the widow was right when she said the fine was a “drop in the bucket”.  As illustrated by this case, the fear of administrative warnings, fines and penalties is not enough to make insurance companies do what they are supposed to do when they are supposed to do it.

 Any knowledgeable person will tell you that the Texas workers’ compensation system is broken.  Injured workers have a devil of a time finding doctors willing to treat them.  Injured workers have an almost impossible task in finding an attorney to represent them.  Injured workers are at the mercy of the insurance companies and are virtually powerless.  When a worker is injured on the job, it is common for that worker to be fired.  Many, many Texas employers don’t even carry workers’ compensation insurance to protect their workforce from the catastrophic effects of work-related injury or death.  How did this system go so wrong for rank and file Texas workers?

I’m sorry to say the story begins right here in the Brazos Valley.

In the late 1990s, employers were loudly complaining about their workers’ compensation insurance premiums.  According to them, their cost of insurance was so excessive they were fearful of being driven out of business, which was a gross overstatement, but it got attention. At about the same time, Republicans were taking over Texas. This included the election of Richard Smith as a State Representative from Brazos County. Smith took advantage of the employers’ complaints about excessive insurance costs and coupled it with the familiar disdain of Republicans for “greedy trial lawyers”.  According to Smith and the business people, including the cleverly disguised Texans for Lawsuit Reform and Citizens Against Lawsuit Abuse, the system was totally, irretrievably broken and it was the fault of trial lawyers and workers who were not truly injured, but just wanted something for nothing.  Smith held public meetings. These meetings were not about regulation of insurance companies and their excessive rates, which would have made sense, but about replacing the workers’ compensation law in its entirety. I well remember a meeting held at the Brazos Center where a ballroom full of angry businessmen aired their complaints. Not surprisingly, no injured workers appeared to tell their side of the story. This scene was repeated over and over again across the state and it wasn’t long before it was declared a “crisis” that had the potential effect of crippling Texas business and making us uncompetitive in the marketplace. You should know the song by now - create the appearance of a crisis and then suggest a solution that takes away someone else’s legal rights. Smith was able to build political support for a totally new system that he promised would cure everything.  It would guarantee workers medical care and wage benefits; it would control medical costs; it would reduce insurance premiums; and, above all, it would be so easy for claimants to navigate that it would get lawyers out of the system. Smith’s proposed new workers’ compensation legal system became House Bill 1 and it was passed by the Republican majority to become effective September 1, 1999.

The only promise Smith made that came true is that claimants cannot get lawyers to represent them. This is true not because the system is easy, but due to one of the most arcane fee systems ever devised. Suffice it to say that lawyers are not interested in representing clients if they can’t get paid a fair and reasonable fee for their work, and they can’t. Consequently, insurance companies feel free to take advantage of claimants and they do. While claimants go unrepresented within the system, insurance companies are represented by lawyers and seasoned insurance adjusters at every important conference and hearing. The result of this imbalance of power is predictable.

 Why do claimants have trouble finding medical providers?  The answer is that workers’ compensation insurance companies pay doctors at a very low rate, they force doctors to get preapproval for tests and treatments, which has the effect of interjecting the opinions of insurance adjusters into medical decisions, and they require doctors to fill out an endless stream of reports and paperwork that has nothing to do with patient care.  In short, doctors are actually penalized for trying to help injured workers.  Since they have no financial incentive to be involved in the system, they don’t want the hassle, and they have no legal requirement to treat injured workers, they simply choose not to play the game.

Since 1999, the Texas Legislature and the Texas appellate courts have done injured workers no favors. There is insufficient time to summarize all of the significant legal developments that adversely impact Texas workers, but their cumulative impact has been to embolden employers not to carry workers’ compensation insurance because they have little fear of the legal consequences of not doing so.  At present, many small employers simply go without workers’ compensation insurance and many medium to large employers have created self-funded injury programs which look like, but are not, workers’ compensation insurance because these programs are cheaper than insurance.  These look-a-like programs are administered by the employer or by a third-party administrator, typically an insurance company or a vendor of administrative services.  It has also become incredibly popular among employers to reclassify employees as independent contractors which, when successful, has the effect of making it unnecessary to buy workers’ compensation insurance and shedding all potential legal liability to injured workers.  For a good discussion of this issue, see the Houston Chronicle article by L.M. Sixel of September 10, 2015.  Whereas the original intent of the workers’ compensation law was to provide a no-fault safety net for injured workers and a safe harbor for employers, the new era puts workers at the mercy of employers and insurance companies.

Since 1999, workers’ compensation insurance companies have become even more profitable.  After all, the business of insurance is simple: profit = premiums collected minus benefits paid to claimants plus administrative costs.  Therefore, if workers receive less in benefits and insurance companies have no fear of lawsuits, profits increase.  You will recall that ACE made a billion in profits in the first quarter.

I almost forgot to mention that Smith promised greater worker safety would be achieved through some parts of the new law.  That hasn’t happened either.  Texas is among the leaders in workplace injuries and deaths.

The present workers’ compensation system is a miserable failure for Texas workers.  But, it is highly unlikely you will see a groundswell of support to change it.  Texas is a proudly anti-union, “right to work” state.  This means there is no organized opposition to the overwhelming political forces funded by business and insurance which are at work in our state government.  Former Governor Perry constantly bragged about the “Texas Miracle”.  The truth about that miracle is that it was built upon the backs of cheap labor (low wages and few or nonexistent employee benefits), low taxes, poor education, poor social services, light to nonexistent safety regulation, and a legal system tailor made for business interests rather than workers.

It’s a shame politicians never come back to admit and fix their mistakes.  But, from Smith’s point of view, maybe it wasn’t a mistake.