Workers’ Comp Benefit Costs Vary Widely Across Texas

Workers’ compensation benefits and claim costs in Texas differ by nearly 50 percent within the state, even when adjusted for regional differences in industry composition and wages, according to a recent study by the Workers Compensation Research Institute (WCRI).

The study by WCRI, an independent, non-profit research organization based in Cambridge, Mass., found that workers’ compensation benefit costs—benefit payments and claim expenses—varied by almost 50 percent between the state’s lowest-cost metropolitan area, Austin/San Antonio, and the highest-cost area, El Paso. The Dallas/Ft. Worth and Houston metropolitan areas were not far behind. The study is based on findings of accident years 1994 through 1996, a period of relative legislative calm for the workers’ compensation industry.

“An examination of area differences can lead policymakers to make changes that improve the equity of benefits and the efficiency of the system,” said Dr. Richard Victor, executive director of WCRI. “Those difference also may help employers and insurers target cost-management strategies.”

The study, “Area Variation in Texas Benefit Payment and Claim Expenses”, looked at a total of seven areas in Texas: four metropolitan areas (Austin/San Marcos/San Antonio, Dallas/Ft. Worth, Houston/Galveston/Brazoria/Beaumont/Port Arthur, El Paso) and three regions that combine smaller urban and rural areas (East Texas, West Texas, South Texas) to identify regional differences.

The study found a difference of 49 percent between the benefit cost per paid claim in the Austin/San Antonio area ($3,551), the lowest cost area, and the benefit cost per paid claim in the El Paso area ($5,281), the highest cost area in the state. The benefit cost in East Texas ($4,617), the area with the second lowest cost, was still 30 percent higher than Austin/San Antonio was. (These costs are for the 1995 accident year evaluated after two years.)

The benefit cost per claim in the Dallas/Ft. Worth area ($5,210) was much the same as in the Houston area ($5,202). Other examples of benefit costs were East Texas ($4,617), West Texas ($4,811) and South Texas ($4,679).

Contributing to the low benefit costs in the Austin/San Antonio area was the low proportion of indemnity claims—payments for wage replacement of injured workers and compensation for permanent injuries. For example, only 21.8 percent of total paid claims in the Austin/San Antonio paid indemnity benefits, compared with 31.4 percent in El Paso, 25.8 percent in Dallas/Ft. Worth and 26.4 percent in Houston.

“The Austin/San Antonio area was typically the lowest-cost are for any given measure,” Victor observed.

Even when the study controlled for variations in the mix of employers and wages, large cost differences across areas persisted. “Although variations in industry mix exist across areas, they do not explain the substantial variation in the total cost per claim,” Victor said.

The study also found that benefit costs grew more in higher-cost areas than in lower-cost areas.

For example, between 1994 and 1995 the benefit costs per claim went up 6.1 percent in the Dallas area and 3.5 percent in the Houston area—two higher-cost areas. In contrast, during the same period those costs actually fell by 2.9 percent in the Austin/San Antonio area and by 1.9 percent in South Texas, two lower-cost areas.