Will Washington state have the next Workers’ Comp system to allow competition?

In Washington State, the Department of Labor and Industries (LNI), is the publicly run workers’ compensation insurer and occupational safety and health authority for the state. It is one of only four remaining ‘exclusive’ state fund workers’ compensation insurers in the US. Exclusive state funds are the closest cousins of Canadian workers’ compensation boards and commissions. If the current campaign to get an initiative on the ballot, Washington’s LNI as it is called, will lose its exclusive insurer status and other insurers will be permitted to enter the market and compete for the sale of workers’ compensation insurance.

Citizen-based initiatives are relatively rare in Canada. In BC we have the example of a campaign to get a referendum in front of the electorate regarding the Harmonized Sales Tax. Initiatives are more common in the US. In Washington state, to take an initiative to the people ( that is, to get a proposal on the ballot for the next election), an initiative proposal must be filed with the state and then, within prescribed time frames and get endorsements from a specified number of registered voters. This year, the threshold is 241,153 signatures by July 2, 2010.

According to the information filed with the state, I-1082 has the following purpose:

This measure would permit certification of private insurers as industrial insurance insurers, and authorize employers to purchase state-mandated industrial insurance coverage through an “industrial insurance insurer” beginning July 1, 2012. It would establish a joint legislative task force to propose legislation conforming current statutes to this measure’s provisions, and would direct the legislature to enact such supplemental conforming legislation as necessary by March 1, 2012. It would also eliminate the worker-paid share of medical-benefit premiums.

The full text of the initiative is available at the following link:

http://www.sos.wa.gov/elections/initiatives/text/i1082.pdf

Proponents of the initiative have a website www.safeourjobswa.com and opposition groups to the initiative have posted their arguments on a variety of websites and blogs including several union sites such as http://ibew191.com/node/443 and http://www.wslc.org/reports/2010/May/18.htm#Tuesday .

If the intent of the initiative sounds familiar, it should; this initiative has a similar intent to the Bill debated in the Ontario legislature late last year. As you will recall, that Bill sought to allow private insurers to enter the Ontario market and compete with WSIB for the sale of workers’ compensation insurance to employers in that market. (See my earlier post). In Canada, the US and Australia, when dissatisfaction with an exclusive state fund rises, so do the calls for privatization and competition despite strong evidence that private or competitive models will be no less costly or efficient.

Direct comparisons between Canadian Boards and individual states are difficult but from a number of research studies and analysis we can say that over the long run, the Canadian model delivers higher benefits to workers and lower costs to employers than the typical US system. We also know directly from research carried out by the late Terry Thomason and John F. Burton, that exclusive state funds (which included the BC and Ontario boards) consistently provided lower costs to employers over a two decade time frame than either purely private markets or markets where there was competition permitted with a state fund.

It remains to be seen if the proponents of I-1082 will achieve the required number of signatures. If they do, the initiative will appear on the November 2010 ballot. Whatever happens in Washington State (or Ontario), the best defense any exclusive system can mount against such initiatives is to provide incredibly customer-focused, efficient service to all our stakeholders and to work with them to reduce the human and financial costs of work-related injury, illness and disease.

Workers' compensaiton state funds: Are they comparable to private insurers?

Workers' compensation insurance is ubiquitous in developed nations but how that insurance is delivered varies greatly. In most of the world, workers' compensation is part of social insurance structures. In Canada, the United States, and Australia workers' compensation is generally legislated by individual states or provinces. In Canada, every province and territory has a workers' compensation act as does the federal government. The same holds true in the U.S. and Australia in that each state and the federal government has legislation governing workers' compensation. Options for administration delivery of workers' compensation, covery a wide spectrum from [mostly] private workers' compensation insurance markets [with varying degrees of state oversight and regulation] to [mostly] state delivery models.

In Canada, there is only one model: provincial workers' compensation boards or commissions each the primary insurer in their respective jurisdictions. Some people refer to this model as the "exclusive state fund" model or "monopolistic state fund" model. The latter is less accurate in that many jurisdictions allow for private disability insurance over and above the workers' compensation coverage and to serve populations outside the scope of coverage offered by the state.

In the U.S. there are two main types of state funds (each with two main subtypes): Exclusive state funds (with or without a provision for self insurance), Competitive state funds (which compete with private insurers across a broad market or who serve a more limited market of specific sectors and often acting as the insurer of last resort). In the U.S. there are about 25 state funds, four of which would be considered exclusive state funds and closest to the Canadian boards and commissions.

Are state funds comparable in terms of efficiency with their private insurance counterparts? This question is frequently raised, usually with the supposition that exclusive state funds will somehow be inefficient and therefore have higher costs. Defenders of state funds note that some state funds were create precisely because of private insurance market failures. They note that several states created competitive state funds to create a more vibrant market and to ensure all those who need (or were required by the state to carry) workers' compensation insurance would have a place to go. In order for state funds to compete, like any other competitor in a market place, they must face similar costs and obstacles as their competitors. If they were inefficient, by definition, they would be less competitive and lose market share. For exclusive state funds, the economies of scale and scope, absence of costs associated with gaining or retaining market share, and the presence of almost perfect information on risks and costs in the market are often cited as offsets any inefficiencies inherent in exclusivity.

One of the premier consulting firms in the industry, Conning, recently completed a study on state funds in the U.S. A summary of their findings is available at this link. The summary notes:

Workers' compensation state funds currently write a quarter of insured workers'
compensation net written premiums. Although sometimes thought of as a "market of
last resort," despite their higher loss ratios, state funds' financial results are on par with the industry as a whole....As we show in this study, the primary mission of state funds is support of their local economies. This includes not only promoting fair access to insurance, but also the maintenance of a safe and productive workforce. Their ability to provide effective loss prevention and control services, and link the outcomes directly to insured costs, has helped state funds succeed in their mission.

This finding adds to the weight of evidence in favour of the competitiveness of workers' compensation state funds. And the advantages of the state fund model in meeting other public policy objectives --particularly in regards to workplace safety/prevention [see my earlier post]--continues to make the creation and maintenance of such funds a viable alternative to a purely private market for workers' compensation.

Each model has its advantages and disadvantages; clearly each jurisdiction has something to learn from the full range of models out there.