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.