The Texas Compensation Market

Texas Workers’ Comp Is Optional, and That’s Why It Is Complex

Many people who have not worked in the insurance industry will say they think all states follow the same general rules regarding workers compensation. In other words, when an employee suffers an injury while working he/she files a claim with the state. Once the claim is approved, the insurance company responsible for paying the claim pays for any related medical expenses and replaces wages lost during time off work. And then, both parties move forward. Texas does not follow these rules because of one major difference. For those involved in claims, defense and/or medical-legal reviews, that one difference affects nearly every aspect of how they perform their jobs.

Texas is the only state in which workers compensation coverage is optional for private employers. There is no subsidy. There is no discount. Coverage is optional. Employers may choose to join the state program; opt-out and create their own self-funded occupational injury benefit plan; or completely opt-out and provide no benefit, thus accepting full tort liability for all injuries suffered by employees while performing duties for the employer. This singular structural decision was made by the Texas legislature many years ago and has rarely been revisited since. Therefore, why does Texas workers comp operate differently than other forms of workers comp throughout the U.S.?

The Subscriber-Based System

The subscriber-based system follows a generally similar format as those found in other states. However, it is the remainder of the system that does not follow the same format as others. The Texas Department of Insurance’s Division of Workers’ Compensation (TDI-DWC) governs the subscriber-based system. Insurers sell coverage to subscribers, and any disputes arising from claims filed by subscribers are heard before a TDI-appointed hearing officer (i.e., within TDI), not in a court of law. Texas Mutual Insurance Company (TMI) is a dominant player in this segment of the market. Created by the Texas legislature in 1991, TMI guarantees that coverage will always be available. As such, TMI provides coverage to approximately 1.5 million employees through approximately 80,000 employers, representing roughly 40% of the state’s voluntary premiums. No other single carrier comes close.

Claims volumes in the subscriber-based system have decreased over time, from approximately 114,000 claims in 2022 to less than 88,000 claims in 2024 per data provided by TDI-DWC. While this decrease appears to be positive news, albeit limited, it indicates a shift in claim composition: fewer routine claims exist in relation to the number of complex, disputed, and litigious claims. Consequently, if you are a third party administrator (“TPA”) or a defense firm servicing this market, the “average” file size is becoming increasingly difficult to resolve, not less difficult, even though overall volume continues to shrink.

The Non-Subscribers

What does not appear in TDI-DWC’s claims data at all? The estimated 20% of Texas employers that do not participate in the state sponsored workers compensation system. These are not primarily small retailers attempting to cut costs. They include many large private employers by employment count, including but not limited to: retail; construction; energy; logistics. Many of these employers fund their own occupational injury benefit programs (which may be governed by ERISA) or simply do not fund any type of occupational injury benefit program and instead accept the possibility of being sued in a civil lawsuit for any work-related injury incurred by an employee.

At this point, Texas ceases to resemble workers compensation and begins to resemble personal injury litigation. When an employee of a non-subscribing employer is injured on the job, there is no administrative claim submitted. The employee files suit against his/her employer in tort; and, unlike in the subscriber-based system, the employer cannot utilize certain common defenses (including contributory negligence, assumption of risk, and the fellow servant rule) that typically apply in tort cases. Additionally, the employer has no cap on potential damages awarded to an injured employee (i.e., there is no statutory cap on damages like exists in workers compensation cases). Thus, the stakes are much higher for each party involved in tort actions involving non-subscribers than in typical workers compensation actions.

Therefore, based on this significant distinction between subscriber-based and non-subscriber-based systems, there is a direct impact on how defense firms/TPAs review medical records. A medical record set developed in response to a claim submitted by a subscriber focuses primarily on issues of impairment rating and maximum medical improvement: procedural questions. On the contrary, a medical record set prepared in response to tort action filed by an employee of a non-subscriber focuses primarily on issues of causation, pre-existing conditions and damages, identical to questions asked by personal injury attorneys and with identical volumes of records and stakes. Defense firms and TPAs providing services to non-subscribers are essentially operating personal injury businesses that just so happen to originate from workplace injuries.

Designated Doctors

In contrast to California’s use of Qualified Medical Evaluators and Agreed Medical Evaluators to settle most of the medical issues involved in the determination of benefits and compensation of injured employees, i.e., a complete industry unto themselves, Texas utilizes a much more limited mechanism called the designated doctor. When the treating doctor and the insurance company cannot agree upon whether an employee is “at maximum medical improvement” and/or on the employee’s “permanent impairment rating”, the Texas Department of Insurance – Division of Workers’ Compensation (“TDI”) appoints a designated doctor to make those determinations.

A smaller mechanism than California’s QME/AME mechanisms; however, the decision by a designated doctor can be just as important as that made by a Qualified Medical Evaluator or an Agreed Medical Evaluator in determining the outcome of a Texas workers’ compensation case. Due to TDI’s concern regarding over-testing and referral patterns exhibited by designated doctors, audits and disputes related to decisions by designated doctors will continue to increase over the next couple of years. Defense counsel or a Third Party Administrator (“TPA”), when preparing for a hearing before a designated doctor, will encounter the same challenge they experience in non-subscriber litigation, i.e., reviewing a rapidly expanding, disputed medical record set. The hearing before the designated doctor will occur on a date that may or may not be moved.

Of particular interest to those involved in Texas workers’ compensation litigation is what Texas does not have. Unlike California, which receives an annual “State of the System Report” from WCIRB, i.e., an annual report detailing the number of workers’ compensation cases filed annually, along with detailed statistical information relating thereto, TDI provides no such reports or analyses. Instead, TDI provides direct access to claims and market data; however, the level of independent, third party analysis available to Texas is significantly less than what is available to California. This disparity makes it difficult to provide a precise estimate of the number of potential buyers in Texas for any given product or service. In addition, any party seeking to conduct meaningful planning within this jurisdiction will necessarily rely on their relationship with carriers, discussions with TPAs and/or the filing provided by TDI, none of which are sufficient to establish a reliable basis for estimating demand.

A Composite Example: Same Injury, Two Entirely Different Files

While the preceding examples attempt to illustrate how these two systems operate independently, it is worthwhile to describe exactly how differently the same injury can be handled depending upon where the injured worker works. Consider an example involving an injured warehouse worker who strains his back while lifting a pallet.

Factor	Subscriber employer	Non-subscriber employer
Claim path	Administrative claim to carrier; TDI hearing if disputed	Tort lawsuit; no administrative claim
Medical questions	MMI, permanent impairment rating, treating physician agreement	Causation, pre-existing conditions, uncapped damages
Typical record volume	~50–100 pages over weeks or months	~400+ pages including full prior history and vocational evidence
Review style	Standardized checklist against procedural criteria	Personal injury-style causation and damages development

Were the employer a subscriber to the state system, the claim would be submitted to the applicable carrier, a treating physician would document the nature and extent of the injury and the pertinent medical questions would relate to whether the worker had achieved maximum medical improvement, what his permanent impairment rating would be and whether the carrier agreed with the treating physician’s opinions regarding these items. As such, the medical records would comprise a relatively small and focused set of documents, typically consisting of between fifty to one hundred pages of documentation generated over several weeks or months. Claims examiners or bill review personnel would then evaluate the medical evidence relative to a somewhat standardized check list.

However, were the injured warehouse worker employed by a nonsubscriber employer, there would be no administrative claim and instead the worker’s attorney would begin working on developing a tort claim. At this point, all prior medical history including prior treatment by a chiropractor and all notes related to complaints of low-back pain dating back many years become relevant to establishing causation and possible pre-existing conditions. Additionally, since damages are uncapped in tort claims, future care documentation and vocational assessments will be included as part of the medical record set which would otherwise never exist in a workers’ compensation claim. Thus, what was previously a fifty page medical record set now comprises approximately 400 pages of documentation requiring evaluation by plaintiff attorneys under the same time constraints as any other personal injury case heading towards trial. To say that these are two separate and distinct sets of documents being built simultaneously is accurate. Anybody attempting to apply a uniform review process to both has already learned that it simply does not work.

Implications for Sellers Who Sell Into This Market

When selling into Texas workers’ compensation, your biggest mistake is viewing it as one marketplace. In reality, it consists of two markets with little-to-no crossover in workflow:

• Subscriber market: Smaller in terms of claim volume, more concentrated among fewer larger carriers (i.e., Texas Mutual) and trending toward more complex, disputed claims rather than routine claims. The purchaser here is either a Claims Operations Lead or someone responsible for making purchasing decisions for an organization in Texas with respect to workers’ compensation-related products or services. It’s easier to understand why many medical bill review managers at carriers or large TPAs are feeling the weight of “deeper” cases: fewer files but each taking much longer to process.
• Non-subscriber/tort market: Because of reporting requirements, the nonsubscriber/tort marketplace is likely significantly larger than reported, and difficult to quantify. From a structural perspective, the nonsubscriber/tort marketplace is similar to personal injury litigation as opposed to comp. The person purchasing this type of product is a TPA managing an occupational injury program on behalf of a self-insured employer or a law firm representing employers in defending their non-subscribers against tort claims. Thus, the primary issues facing this purchaser are volume and risk/stakes as opposed to just complexity.

With the two audiences combined in either a pitch, case study, or some form of marketing collateral, there would be little chance that you have successfully communicated with either audience. A subscriber-based claims adjuster has no interest in tort damage exposure. A defense attorney for non-subscribers has no concern with impairment rating disputes. Be aware of which audience you are communicating with before opening your mouth.