Each state has unique requirements and restrictions on workers’ comp insurance, making it crucial that business owners know the state-specific mandates for all of their locations.
Aside from regulatory laws, different states also have different purchase options for workers’ compensation policies. Depending on where you operate, you may have the choice to shop for coverage on the voluntary market, use a state fund, or apply for self-insurer status. To find the best coverage and rate for your business, you should start by understanding your policy options.
Is State-funded Workers’ Comp an Option for My Business?
Every state has its own way of regulating workers’ compensation, including how business owners buy policies. Each state falls within the following categories:
States with a Monopolistic State Fund –
Four states, Ohio, Wyoming, Washington, and North Dakota, have monopolistic state funds for workers’ compensation insurance. These states only allow employers to purchase workers’ comp policies through the government-run state fund.
In other words, they have a monopoly on this kind of insurance. If you operate in one of these states, you cannot work with a private insurer.
States with a Competitive State Fund –
States with a competitive state fund allow business owners to purchase policies from private insurers or use the competitive state fund—a state-funded and state-run workers’ compensation insurance program that competes with private insurance providers.
States with competitive funds include Arizona, California, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Maine, Maryland, Minnesota, Missouri, Montana, New Mexico, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, and Utah.
States with a "Last Resort"–
Several of the competitive states listed above operate their state funds as insurance markets of "last resort." In other words, they cannot refuse coverage to any employer as long as the employer is not in default. In other states, such as Maryland, the insurer of last resort is a private insurance company.
States without a State Fund –
Not all states have a state fund; where a state fund isn’t available, you must purchase a policy on the private market.
If It’s Optional, Why Use the State Fund?
Only in the four monopolistic states do employers have no choice but to use the state fund. But in the many states in which the state fund is an option, there are a few reasons to use a state fund:
You Have Employees in a Monopolistic State –
Even if your business mostly operates elsewhere, if you have workers in one of the four monopolistic states, you will need to cover them with a separate policy the state fund.
Your Operate in a High-risk Industry –
State funds often serve as the last resort option for companies that are difficult to insure. A high-risk industry, like construction, sees more worker accidents and injuries.
Not all private insurers want to cover these businesses, and if they do, they may charge much more for premiums. You may have to rely on the state fund for coverage at a reasonable rate.
You Have a Poor Record of Injuries –
Regardless of your industry, if your workplace has seen a lot of accidents, you may not be able to find coverage and will have to default to the state fund.
You’re Unsatisfied with Your Private Insurer –
If the state fund is an option, it’s worth seeing what it has to offer. You may just find a policy with better coverage and a lower price than your options from private insurers.
How Much Does Workers’ Comp Cost Through a State Fund?
As with private insurance, a state fund policy’s cost varies depending on your industry and the claims record in your workplace. Insurance companies and state funds calculate premiums using these factors:
- Your industry classification code rate, determined by the National Council on Compensation Insurance or the state’s independent classification system
- The claims experience modifier, based on individual company losses in the past few years
- Your company’s total payroll amount
To find the best deal and the right coverage for your business, you should request a state fund insurance quote and quotes from several private insurers. This is the best way to find out if a state fund policy could save you money without sacrificing coverage quality.
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Assessing Your Options
In states in which you have the option to use a state fund for workers’ compensation insurance, the decision may not be immediately clear. It depends a lot on your industry, your workplace history, and what private insurers offer. The best thing you can do is do your research and shop around for the policy that best suits your business’s unique needs.
Image Credit: workers comp insurance by envato.com
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