Under most states’ workers’ compensation systems, employers who must provide workers’ compensation coverage to their employees typically do so by purchasing an insurance policy from a workers’ compensation insurer. In most states, private insurance companies sell policies to employers. However, a handful of states operate a “monopolistic workers’ compensation system.” Under this system, employers must purchase workers’ compensation insurance from a fund operated by the state government rather than private insurers. But how do monopolistic workers’ compensation systems differ from traditional workers’ comp systems like that in Minnesota?
Understanding Monopolistic Workers’ Compensation States
In a monopolistic workers’ compensation state, businesses must purchase workers’ comp insurance through the state-run workers’ compensation fund. They may not purchase primary workers’ compensation coverage from a private insurer. Employers headquartered outside of the state with employees working in the state may have the option, under certain circumstances, to seek exemption from the monopolistic system.
As of 2024, only four states in the U.S. have monopolistic workers’ compensation systems: Ohio, North Dakota, Washington, and Wyoming. Monopolistic workers’ compensation systems operate much like traditional workers’ compensation systems, providing coverage for lost wages and medical expenses for employees who suffer work-related injuries and illnesses. They cover all full-time, part-time, seasonal, per diem, and probational employees.
State monopolistic workers’ comp systems also collect premiums from employers to fund the system and administer workers’ injury claims. Some monopolistic states also allow larger employers to self-insure for workers’ compensation like in traditional workers’ comp systems.
Key Features of Monopolistic Workers’ Compensation Systems
Some of the main features of monopolistic workers’ compensation systems include:
- Providing tailored coverage: State funds under monopolistic workers’ compensation systems can evaluate a business’s specific needs and offer tailored coverage.
- Regulating costs: Since the state does not need to make a profit like a private insurance company and can tailor coverage to an individual business’s needs, monopolistic systems can, in theory, regulate and reduce workers’ compensation expenses for businesses and prevent fluctuations in coverage caused by market conditions.
- Uniform coverage: Monopolistic systems also ensure that all workers in the state receive the same degree of coverage, whereas workers in non-monopolistic systems may receive different treatment depending on the company that insures their employer.
- Simplified choice: Employers in monopolistic states do not have to spend critical time comparison shopping between insurance providers.
How Monopolistic Systems Differ from Competitive Markets
Although monopolistic systems share many similarities with systems in states with competitive markets, they also have differences. Competitive workers’ comp systems may only have private insurance companies providing workers’ comp coverage. However, some states, including Minnesota, have state funds competing with private insurers. Some of the ways the monopolistic systems differ from competitive markets include:
- Monopolistic systems lack employer’s liability coverage: Workers’ compensation systems in monopolistic states do not include employers’ liability coverage in their workers’ compensation policies; employers’ liability policies cover legal costs incurred by an employer in settling workers’ compensation claims. Private workers’ comp insurers traditionally provide employers’ liability coverage, but employers in monopolistic states must obtain this coverage through a stop-gap coverage endorsement in their general liability policy.
- Premiums in monopolistic systems may not reflect market conditions or business-specific risks: State funds in monopolistic systems may not adjust businesses’ premiums to general market or economic conditions or to risk reduction efforts undertaken by companies.
- Monopolistic systems offer employers limited flexibility/customization of policies: Monopolistic systems may have more limited policy options and coverage terms than the private insurance market may provide.
Potential Drawbacks of Monopolistic Workers’ Compensation Systems
Although the features of monopolistic workers’ compensation systems can offer employers and workers potential benefits, these systems can also have some drawbacks, including:
- Inefficiencies in the workers’ compensation system caused by the lack of competition and innovation created by the private workers’ compensation industry
- Lack of incentive for employers to improve workplace safety, as private insurers may offer lower rates to employers that take a proactive approach to workplace safety
- Administrative challenges for employers who operate in both monopolistic and non-monopolistic states, as monopolistic states only offer employers opt-outs from the monopolistic system in limited circumstances, which may require employers to work with a private insurer in non-monopolistic states and the state funds in monopolistic states
Contact a Workers’ Compensation Attorney Today
After getting hurt on the job, learn more about your rights to obtain financial benefits from Minnesota’s competitive workers’ compensation system. Call Robert Wilson & Associates today at (612) 334-3444 or contact us online for a free, no-obligation consultation with a Minneapolis worker’s compensation lawyer to discuss your legal options.
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