Most states in the United States possess workers’ compensation systems that are underwritten by private insurance companies, stable “self-insured” employers, or some mix of the two. However four states–North Dakota, Ohio, Washington, and Wyoming–have what are known as “monopolistic” systems. In these states, state government acts as both insurer and administrator of the workers’ compensation system. The historical origins of these systems are fascinating. As a resident of Wyoming, I get a kick out of thinking how, once upon a time, Wyoming prairie populists and labor union members were so distrustful of corporate involvement in the delivery of workers’ compensation benefits, and so powerful, that they were able to insist on a “socialistic” workers’ compensation structure.
Lately, I have been wondering whether some variant of monopolistic workers’ compensation systems may soon have more widespread appeal in the United States. As I discussed in a recent post, some commentators have argued that increasingly safe workplaces cannot continue to support employer premiums sufficiently high to attract private insurance companies to workers’ compensation markets. If this is true, how will workers’ compensation risks be insured? One possibility is that states may fill the void with some form of monopolistic system.
Another factor arguing for an increased role for monopolistic systems has to do with ERISA. As the workers’ compensation “opt-out” debate has revealed, attempts by states to innovate by authorizing creation of alternative “not workers’ compensation” plans maintained directly by employers immediately generates conflict with ERISA, which broadly preempts state regulation of “employee welfare benefit” plans. However, funds or plans created and maintained by a state, and therefore not by an employer, are probably “governmental plans” not covered by ERISA. My suspicion is that ERISA may in the future cause such difficulty with state workers’ compensation innovation that any “not ERISA” approach (including, possibly, monopolistic structures) will become increasingly attractive (unless, of course, ERISA is amended — and I will leave it to the reader to evaluate the possibility of that development).
None of this is to suggest that monopolistic plans are without their flaws. One problem centers on whether state systems without private market competition will be sufficiently incentivized or possess adequate sophistication to efficiently set workers’ compensation rates (which most places in the country are set by the National Council on Compensation Insurance, a nongovernmental organization). Just as your automobile insurer has to know what premium to charge you in order for it make a profit (it must be able to pay on demand your legitimate claims and the claims of all other insureds without going out of business), so too a workers’ compensation insurer (whether public or private) has to know what workers’ compensation premiums to charge employers based on the relative riskiness of their businesses. As the history of workers’ compensation will attest, this has not always been an easy feat. In the pre-history of workers’ compensation insufficiently sophisticated insurance companies went out of business.
Another problem I see with monopolistic systems has to do with getting the state, writ large, to distinguish between social “welfare” benefits (discretionary benefits delivered by a state for reasons of compassion) and workers’ compensation benefits (non-discretionary benefits delivered as an historical swap for tort rights). My experiences in Wyoming have suggested that state actors (especially legislators and agency administrators) have difficulty understanding and appreciating this important distinction.
Notwithstanding these problems, the benefits of monopolistic workers’ compensation structures may in the not distant future exceed the costs, at least in certain states.
2 thoughts on “Monopolistic Workers’ Compensation Systems”
Two states disbanded their monopolistic design in the 2000s — Nevada and West Virginia — and the privatized state funds have turned into apparently successful ventures. I believe that the WV mono fund was profoundly impaired by confusion by the political establishment in WV about the role of workers comp vs a broad safety net role. I my opinion, there will be enough premium in the market in most states to enable a few insurers to prevail. The markets may become more concentrated in a few carriers. This may increase competition — or may reduce competition. Almost all carriers have low, or really non-existent — awareness of how to expand beyond workers comp into adjacent markets the most attractive of which is probably helping employers manage the ever larger and more complex array of non-occ absence benefits. No state I am aware of is addressing the future of workers’ comp beyond the current year.
That is interesting, Peter. Thanks for your comment. Sounds like you think “the traditional model” may survive in scaled-back form. I certainly can’t discount the possibility. And I would also add a couple of points I’ve made before — I’m not confident a) that we know enough about the present informal workplace to be confident about aggregate risk; or b) that we know what the future impact of “re-shored” work will be like. I suppose it makes some sense that states would be taking things one year at a time.