When it comes to workers’ compensation insurance, the best way to secure quality coverage at a good rate is to first understand all of your options. Because each state legislature, not the federal government, regulates workers’ compensation, you have to understand your state’s specific laws to analyze all your insurance provider options.
What Are State Funds and How Do They Work?
Workers’ compensation state funds are state programs that provide workers’ compensation insurance to employers using government funding. However, not all states and territories have a state fund, so it may not be a coverage option for your business’s in-state employees. However, if your business employs workers from a state with a workers’ compensation state fund, you could purchase a policy from that fund to cover just those employees.
It’s important to note that not all workers’ compensation state funds work the same way; monopolistic state funds and competitive state funds serve very different purposes.
Understanding Monopolistic vs. Competitive State Funds
If your business operates in a state with a monopolistic state fund, you must purchase your workers’ compensation policy from that fund. In these states, the monopolistic state fund serves as an equalizer across businesses within the same industry. Because all companies get insurance from the same place, each business receives the same standard of service and pays a rate calculated by the same provider.
Monopolistic state funds have their advantages and disadvantages. For employers in monopolistic states, it eliminates the stress of shopping around for coverage to find the right insurer. The monopolistic system also benefits business owners in high-risk industries who, in a state with a competitive workers’ comp market, would struggle to get approved by a private company.
Conversely, competitive workers’ comp state funds compete with private insurance companies in the free market. This competition incentivizes the state fund to provide better service quality and offer competitive rates. At the same time, having to compete with a state fund discourages private insurers from raising the cost of workers’ comp coverage to unreasonably high rates.
If you run a business in a state with a competitive fund, you’ll have to decide between the state program and a wide selection of private insurance companies. If you aren’t sure which option would work best for your business, click here to learn more about state compensation insurance funds for workers compensation.
Assigned Risk Plans and Insurers of Last Resort
Sometimes, employers apply for workers’ compensation coverage from several providers but don’t get approved. If a business can’t secure coverage, it’s likely due to a combination of the following:
- The business is new and thus doesn’t have a claims history to vouch for its safety
- The company has a poor claims record
- The business operates within an industry with high risks of workers’ compensation claims
- The company does not have enough capital to pay for a fair rate
Most states have an assigned risk plan that serves as a safety net for these businesses, also known as the residual market or an insurer of last resort.
States with a monopolistic state fund do not have an assigned risk plan, as all employers must purchase their policy from the state fund. All other states have an insurer of last resort, which can either be a private insurer or the state fund.
Workers’ Compensation Insurance Options by State
If you hire employees from numerous states, you need to know your state’s policy purchasing options and provider options in the states where your employees reside. The following list indicates which states have a monopolistic state fund, a competitive state fund, or no state fund.
States with Monopolistic State Funds:
- North Dakota
- Ohio
- Washington
- Wyoming
States with Competitive State Funds:
- Arizona
- California
- Colorado
- Hawaii
- Idaho
- Kentucky
- Louisiana
- Maine
- Maryland
- Minnesota
- Missouri
- Montana
- Nevada
- New Mexico
- New York
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- Texas
- Utah
To see a list of the assigned risk plans for each state (aside from the four monopolistic states), click here.
Assessing Every Option
Depending on which state your business operates in, you may have the entire free market of private insurance companies to choose to write your workers’ compensation policy. On the other hand, if you operate within a monopolistic state, you won’t have a choice at all. If you’re a first-time business owner, are opening up shop in a new state, or plan to hire out-of-state employees, take the time to research all of your workers’ comp options instead of settling for anything less than the best coverage at the best rate.