Tuesday, February 23, 2010

Is competition the answer for WC in Ohio?

The workers’ compensation scene in Canada is dominated by provincial boards or commissions with exclusive authority to provide workers’ compensation insurance coverage to employers and benefits to workers. In the US, only four states have similar models: Ohio, Washington, Wyoming and North Dakota. Ohio is the largest and appears to be the latest to be looking at opening the market to competition. Back in November, the Ohio State Senate approved Resolution 118
“To create the Competitive Workers' Compensation Task Force to review the feasibility of allowing employers the option to obtain private insurance to insure their obligations under the workers' compensation system of Ohio.”

Is competition for the provision of workers’ compensation the answer? Comparative research suggests that competitive or open markets for workers’ compensation provision do not result in lower costs or better outcomes than exclusive state or provincial provision.

Comparisons between workers’ compensation systems is hard and much caution must be used in evaluating such comparisons. That said, I was interested in seeing the Institute for Work and Health’s (IWH) Issues Briefing document comparing the Canadian style workers’ compensation system with a jurisdiction dominated by competing workers’ compensation providers—California.

The IWH analysis summarizes its key messages this way:

  • The administrative costs of the workers’ compensation system in California, where benefits are provided mainly through private insurers, are much higher than in Canada, where workers’ compensation is provided mainly through a single public agency in each province.
  • Both workers and employers realize benefits from the public administration of the Canadian system compared with the competitive private insurance market for workers’ compen­sation in the state of California.

The IWH paper cites an earlier, comprehensive study that found a similar cost advantage in favour of monopoly provision of workers’ compensation insurance in BC and Ontario over states with competitive state funds and private markets. [Thomason T, Burton JF. The cost of worker’s compensation in Ontario and British Columbia. In: Gunderson M, Hyatt D (eds), Workers’ Compensation: foundations for reform. University of Toronto Press, Toronto. 2000]

Comparisons and benchmarking performance are hard to do and no comparison—or system—is perfect. Within the population of monopolistic systems, there are likely very good performers and very poor ones. The same can be said of private insurers and competitive state funds. Each underlying insurance model has its advantages and disadvantages. Competition or monopoly alone does not guarantee success.

Workers’ compensation is an important social insurance program that must always be guided by public policy objectives. How best to meet those public policy objectives should trump purely dogmatic considerations over structure.

The Ohio taskforce is due to report out by June 30. It will be interesting to see if the taskforce considers the issues and the evidence.

1 comment:

Manley Mike [mike.manley@state.or.us] said...

Interesting, although I wonder if the choice of California for this comparison might not involve some cherry picking. California has long been an outlier in many ways when it comes to interstate comparisons of WC systems, and was among the most costly US states for most of the last decade. There are other states that use a competitive system, have average rates less than half of California's, and are far less volatile.

While I’m leery of using California to generalize anything about U.S. WC systems, the conclusion that the Canadian monopoly-fund approach may be more efficient in terms of delivering a given level of benefits for minimal employer cost might still be valid. Monopoly funds are just one aspect of Canadian WC that could explain the differences.