Opting Out of Workers' Compensation: Non-Subscription in Texas and its Effects

71 Pages Posted: 21 May 2019

See all articles by Lu Jinks

Lu Jinks

University of Illinois at Chicago

Thomas J. Kniesner

Claremont Graduate University - Department of Economic Sciences; Syracuse University - Department of Economics; IZA

John D. Leeth

Bentley University - Department of Economics

Anthony T. Lo Sasso

University of Illinois at Chicago - School of Public Health

Date Written: April 2019

Abstract

Texas is the only state that does not mandate that employers carry workers' compensation insurance (WC) coverage. We employ a quasi-experimental design paired with a novel machine learning approach to examine the effects of switching from traditional workers' compensation to a so-called non-subscription program in Texas. Specifically, we compare before and after effects of switching to non-subscription for employees in Texas to contemporaneously measured before and after differences for non-Texas-based employees. Importantly, we study large self-insured companies operating the same business in multiple states in the US; hence the non-Texas operations represent the control sites for the Texas treatment sites.The resulting difference-in-differences estimation technique allows us to control for any companywide factors that might be confounded with switching to non-subscription. Our empirical approach also controls for injury characteristics, employment characteristics, industry, and individual characteristics such as gender, age, number of dependents, and marital status. Outcomes include number of claims reported, medical expenditures, indemnity payments, time to return to work, likelihood of having permanent disability, likelihood of claim denial, and likelihood of litigation. The data include 25 switcher companies between the years 2004 and 2016, yielding 846,376 injury incidents. Regression findings suggest that indemnity, medical payments, and work-loss fall substantially. Claim denials increase and litigation falls.

Keywords: workers' compensation insurance, non-subscription, difference-in-differences, triple differences, machine learning, PDS-LASSO

JEL Classification: C54, C55, I13, J32, J38

Suggested Citation

Jinks, Lu and Kniesner, Thomas J. and Leeth, John D. and Lo Sasso, Anthony T., Opting Out of Workers' Compensation: Non-Subscription in Texas and its Effects (April 2019). IZA Discussion Paper No. 12290, Available at SSRN: https://ssrn.com/abstract=3390280

Lu Jinks

University of Illinois at Chicago

1200 W Harrison St
Chicago, IL 60607
United States

Thomas J. Kniesner (Contact Author)

Claremont Graduate University - Department of Economic Sciences ( email )

Claremont, CA 91711
United States

Syracuse University - Department of Economics ( email )

Syracuse, NY 13244-1020
United States

IZA

P.O. Box 7240
Bonn, D-53072
Germany

John D. Leeth

Bentley University - Department of Economics ( email )

175 Forest Street
Waltham, MA 02452-4705
United States
781-891-2029 (Phone)
781-891-2896 (Fax)

Anthony T. Lo Sasso

University of Illinois at Chicago - School of Public Health ( email )

1603 West Taylor Street
Chicago, IL 60612
United States

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