Texas Department of Insurancewww.tdi.state.tx.us - Consumer Helpline 1-800-252-3439
Texas Monitor, 1:2 (Summer 1996)
AN EARLY LOOK AT SUPPLEMENTAL INCOME BENEFITSSupplemental income benefits (SIBs) are intended for severely injured workers who, after exhausting both temporary income benefits (TIBs) and impairment income benefits (IIBs) are still unable to work as a result of their impairment. A recent report 1 examined the proportion of possible SIBs cases actually receiving SIBs payments, the costs of SIBs, and disputes involving SIBs cases. Some highlights from that report concerning the prevale nce of SIBs cases and the disputes associated with these cases are provided here. A previous Texas Monitor (Spring 1996) reported on the costs of SIBs. Because SIBs are benefits that evolve at a late stage in the claim process (several years after the injury occurred), new-law claims2 have only recently matured to the stage where an early analysis of SIBs cases is possible. SIBs are available to injured workers with impairment ratings of 15 percent or more who, at the expiration of the impairment benefit period, have not returned to work or have returned to work earning less than 80 percent of their preinjury wages. To qualify, injured workers must have made a good faith effort to obtain employment commensurate with their ability to work. The number of new SIBs cases has increased greatly in the past two years. Figure 1 shows the number of SIBs claims by the quarter in which the injury occurred and the quarter in which SIBs payments began. It can be seen that most claims that have thus far received SIBs payments come from injuries occurring early in the new-law period. As of the end of 1995, 2,075 claims had received SIBs payments. Of these, 61 percent resulted from injuries occurring in 1991. To estimate the prevalence of SIBs cases, 1991 injuries that at the time of maximum medical improvement (MMI) were potential SIBs cases were divided by their status as of December 31, 1995. Table 1 provides the resulting distribution, broken down by degree of impairment. As of the end of 1995, 18.3 percent of all potential SIBs claims from 1991 injuries had become SIBs cases, 8.0 percent were still in the IIBs phase, and 73.8 percent were at least one month past the end of their IIBs payment period without having received SIBs. Included in the latter were 58.4 percent that wer e at least 13 months beyond the end of their IIBs payment period, at which point their eligibility for SIBs ends. Future SIBs CasesThe number of potential SIBs cases in the "SIBs pipeline" is very large. As of the end of 1995, the TWCC research databases contained over 30,000 claims with impairment ratings of 15 percent or more. Precise forecasts of the number of future SIBs claims are not possible, because it is still too early to determine the ultimate status of many of the oldest new-law claims. Under assumptions discussed in the full report, it is possible to estimate a potential range for the frequency of future SIBs cases. The estimated range is necessarily quite wide. The percent of potential SIBs cases that ultimately will receive SIBs is roughly estimated to be between 21 and 34 percent. The number of new SIBs cases is forecast to level off to between 1,500 and 2,300 new SIBs cases per year by 1997. The total costs of a claim involving SIBs payments are estimated to be $105,000. This total includes medical costs and all indemnity payments (e.g., TIBs, IIBs, and SIBs). SIBs payments are estimated to account for 18 percent of the $105,000 total claim cost. DisputesSIBs cases have high rates of dispute. Sixty-five percent were involved in a dispute at least once, a level five times as high as the average indemnity claim. In most cases (71 percent at the Benefit Review Conference [BRC] level and 77 percent at the Contested Case Hearing [CCH] level), the insurance carrier requested the conference or hearing. The most frequent issue of dispute (in 46 percent of the claims contested at the BRC level) was "entitlement to SIBs." This issue includes: Did the injured worker make a good faith effort to find suitable work? Did the injured worker comply with the quarterly reporting requirement? Did the injured worker cooperate with the Texas Rehabilitation Commission? Was the injured worker's underemployment or unemployment related to the injury? In a minority of cases "impairment rating" (12 percent) or "designated doctor's impairment rating" (10 percent) were also noted as issues. Nearly half (48 percent) of "SIBs entitlement" issues heard at the BRC level were resolved by mutual agreement compared to only 7 percent of these issues at the CCH level (see Figure 2 and Figure 3). Of the "SIBs entitlement" issues that resulted in a favorable recommendation or ruling for the worker, workers prevailed 69 percent of the time at the BRC level and 55 percent of the time at the CCH level. (These percentages exclude those cases not resolved or resolved by mutual agreement.) Because entitlement to SIBs must be renewed every three months, and can be contested for each renewal, the potential for SIBs cases to place a very heavy burden on the dispute resolution process is high. Future research will closely monitor this aspect of SIBs. DURATION OF TEMPORARY INCOME BENEFIT PAYMENTS DROPS SUBSTANTIALLY OVER 1991 TO 1993 PERIODTemporary Income Benefits (TIBs) are typically the first income benefit payment received by injured workers in Texas. They are paid up to a maximum of 104 weeks from the date disability began or until maximum medical improvement (MMI) is reached, whichever comes first. The purpose of this analysis is to determine if the number of weeks injured workers are receiving TIBs has changed since the new workers' compensation law was implemented in 1991.3 Table 2 below provides information on the average duration of TIBs payments stratified by body part and injury nature for injury years 1991, 1992, and 1993. Key findings ar e as follows:
In summary, it appears as though workplace safety measures implemented under the new law, in concert with effective claims management and return-to-work programs, are helping to decrease the average amount of time that injured workers are off work. This reduction in TIBs duration, in addition to improving the employment status for injured workers, helps to reduce workers' compensation costs for insurers and, ultimately, employers. CLAIM COSTS BY DEGREE OF PERMANENT IMPAIRMENTClaims with incurred losses of $5,000 or more account for roughly 40 percent of the indemnity claims in Texas. The total losses for this 40 percent, however, represent between 75 and 80 percent of the total losses in the Texas workers' compensation system. Therefore, periodic analyses of these high-dollar claims are important to the overall evaluation of the Texas system. This analysis provides a distribution of paid losses for claims costing $5,000 or more by the degree of permanent impairment assigned to the injured worker. Injuries occurring in 1991 were used because they have the most complete payment information available. Table 3 shows th e results in tabular form. UPDATE ON BRC, CCH DISPUTE OUTCOMESOne of the key reform goals of the Texas Workers' Compensation Act (effective January 1991) was to reduce the amount of litigation in the system by instituting a multi-level dispute resolution process. In brief, this process is comprised of three levels:
In addition, an ombudsman program was instituted to provide assistance to unrepresented workers and employers during the dispute resolution process. An ombudsman's duties include supplying information, answering questions, and providing assistance at dispute proceedings. One way to evaluate the performance of the dispute resolution process involves an analysis of dispute outcomes. This section of the Monitor explores two questions:
Overall Dispute OutcomesFigure 4 below presents the overall distribution of 1995 dispute outcomes for both the BRC and CCH dispute proceeding levels. At the BRC and CCH levels, there are four possible outcomes: resolved by a mutual agreement, favorable to worker, unfavorable to worker, or not resolved. At the BRC level, disputes tended to be settled by a mutual agreement between the insurance carrier and the injured worker. However, at the CCH level, the outcome is usually a ruling by a hearing officer.
Dispute Outcomes by Type of Injured Worker's AssistanceTo gauge the impact of various types of assistance, Figure 5 and Figure 6 examine two dispute outcomes ("mutual agreement" in Figure 5, "favorable to worker" in Figure 6) broken down by attorney, ombudsman, or no assistance. As the figures indicate, favorable rulings tend to increase as some type of assistance increases. Without assistance, the outcome is more likely to be a mutual agreement between the parties.
RATE OF NONSUBSCRIPTION DROPPING IN TEXASThe information contained in this article is based on results from a recent survey of Texas employers. The final report, Annual Nonsubscription Survey: 1996 Estimates, is available via our electronic order form. Texas is one of only three states in which workers' compensation (WC) coverage is not compulsory, and it is the only state with a substantial portion of employers who have chosen to opt out of the workers' compensation system. Because nonsubscribing5 firms represent such a large portion of the employer population in Texas and because they employ a substantial segment of the Texas workforce, timely and accurate information on nonsubscription is essential for workers' compensation administrators and policymakers. Findings presented in this article are based on results from an extensive 1996 telephone survey of Texas employers.6 The study was undertaken to determine the size and composition of the current nonsubscriber population, and to obtain specific information about alternative occupational benefits plans being utilized by nonsubscribers in lieu of WC coverage. This article focuses on the percentage of Texas employers who have opted out of the WC system, the percentage of the Texas workforce employed by these nonsubscribing firms, and how nonsubscription status varies by industry and firm size.7 The results that follow are based on 2,870 completed interviews with Texas employers conducted between April 10, 1996 and May 13, 1996. Overall Nonsubscription EstimatesCurrently, an estimated 39 percent of Texas employers8 do not have WC coverage. This represents a decline from 1995 when it was estimated that 44 percent of the employers in Texas had opted out of the WC system. Most of the drop can be attributed to an increase in the percentage of small employers (those with 1 to 4 employees) entering the WC system. An estimated 80 percent of the Texas workforce is covered under the workers' compensation system.9 (See Figure 7.) Consistent with previous nonsubscription survey findings, employers who once had WC coverage indicated that cost was the primary reason for discontinuing their WC coverage. It is interesting to note, however, that the number of employers choosing to discontinue their coverage is dropping off over time and the number of employers repurchasing WC coverage is on the rise.10 Nonsubscription Estimates by Employer SizeThe data indicate that the decision to carry WC coverage is very much dependent on the size of the employer. Larger employers are much more likely to subscribe to the WC system than smaller employers. The percentage of nonsubscribing employers declines consistently as the size of the firm (as measured by number of employees) increases (see Figure 8). Estimated nonsubscription rates are highest for employers with 1 to 4 employees (44 percent) and are lowest for firms with 500 or more employees (14 percent). The employer size group experiencing the most marked change in nonsubscription rates over the past year is the 1 to 4 employee group. The nonsubscription rates over the past year is the 1 to 4 employee group. The nonsubscription rate for this segment of employers was 55 in 1995 compared to 44 percent in 1996. Nonsubscription Estimates by IndustryThere is also considerable variatio n in the nonsubscription rates observed among employers in different industries. The retail trade and agriculture industries had the highest nonsubscription rates in 1996 with 51 percent and 45 percent, respectively. The mining and finance industries had the lowest nonsubscription rates with 20 percent of the mining firms and 28 percent of the firms in the finance sector lacking WC coverage.11 Results of the industry analysis are presented graphically in Figure 9. SummaryIn the past year, fewer employers have been exiting the Texas WC system and more employers have decided to repurchase WC coverage, causing the nonsubscription rate to drop from 44 percent in 1995 to 39 percent in 1996. Since this drop in the overall nonsubscription rate appears to be the result of an increasing percentage of small employers deciding to carry WC coverage, the percentage of the Texas workforce covered by WC has remained relatively stable at 80 percent. Variation in nonsubscription rates is also evident by industry, where a low of 20 percent of the employers in the mining sector had no WC coverage compared to a high of 51 percent of the employers in the retail trade sector. As this examination demonstrates, careful analysis of how WC participation changes over time provides a useful tool for evaluation of the overall system in Texas. THE COST OF WORKERS' COMPENSATION INSURANCE IN TEXAS IS ON THE DECLINEPrior to Senate Bill 1 (SB 1), workers' compensation insurance rates were set by the State Board of Insurance. In 1992, Texas switched to a file-and-use system where each company is responsible for filing its own rates based on individual experience. Figure 10 presents quarterly average rate levels as a percent of the 1991 benchmark rate. When reviewing this information, it is important to keep in mind that these figures do not reflect schedule rating plan discounts and other adjustments made by insurance carriers. The Texas Department of Insurance's analysis of data from the Annual Workers' Compensation Financial Call indicates that though these rates are dropping, actual market rates are still excessive by 4 to 17 percent. Footnotes:
For further information, contact: PIO@tdi.state.tx.us
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