Is Privitization of Workers' Compensation What's Best for Ohio?

With the election of John Kasich to the Ohio Governorship, there has been a lot of chatter about the potential for privatization of Ohio’s workers’ compensation system.  Even Ted Strickland’s administration has at least feigned interest in exploring privatization.  In November 2009, the Ohio Senate resolved to create a task force aimed at reviewing the “feasibility of allowing employers the option to obtain private insurance in insure their obligations under the workers’ compensation system of this state.”  

The Competitive Workers’ Compensation Task Force, co-chaired by Sen. Tim Grendell (R-Chesterland) and Mary Jo Hudson (Dir. of Ohio Dept. of Insurance), has held several hearings to solicit testimony of businesses, labor unions, medical providers, and insurance representatives to determine whether allowing private insurance companies to compete with the BWC for workers’ compensation coverage makes sense in Ohio.  Some proponents of privatization believe that the Ohio Constitution, which spells out a state funded workers’ compensation system, could remain untouched if private insurance companies are permitted to compete with the Ohio Bureau of Worker’s Compensation for premiums.  Such a scheme would serve as a simpler legislative route to privatization.

Ohio remains one out of only four states that have a monopolistic or state-run workers’ compensation system.    Most recently, West Virginia’s workers’ compensation monopolistic system, which had been cash strapped, began phasing in the complete privatization of its system.  Washington had a privatization issue on its November 2010 ballot, but the initiative failed miserably. 

Though the Ohio BWC has improved rates in the last two years, supporters of privatization maintain that rates could move even lower if competition were permitted.  According to the Oregon Department of Consumer and Business Services, Ohio had the nation’s third highest workers’ compensation rates in 2008, but Ohio has improved its standings to 17^th highest for 2010.  A link to the study can be found here. Still, Ohio finds itself in better position than 16 states which allow private workers’ compensation insurance.  Privatization is not a guarantee to low rates. 

In comparing apples-to-apples, Ohio does have the highest rates of any of the monopolistic states and its rates are higher than those of West Virginia in the middle of its transition to private insurance.  The average rate per $100 of payroll for the monopolistic states are:  Ohio at $2.24; Washington at $2.04; Wyoming at $1.79; and North Dakota at $1.02.  In fact, North Dakota employers have the lowest rates in the nation.  West Virginia’s average rate is $1.84.

This begs the question:  Are private insurers the answer, or should Ohio re-evaluate its benefit structure for injured workers?  Let’s face it; we’ve all heard the horror stories of an injured worker with a simple sprain being allowed to have lost time benefits for a year or more.  Under private insurance, the claims adjusters would have more motivation than the monopolistic BWC to bring the period of disability to an end.  The insurance companies would need to stay on top of claims management in order to stay competitive and maintain a profit margin.  On the other hand, if Ohio keeps its monopolistic system but reforms benefit schedules, the results might be similar. 

For example, some states like Minnesota have a limit on the duration of weeks that an injured worker can collect temporary total compensation. Ohio is one of a very few states that pay permanent total compensation for the remainder of the injured worker’s life.  Instead, many states discontinue PTD payments after the worker reaches age 65.  What seems to be missing in many of the studies and comparisons of states’ workers’ compensation premium rates is a comprehensive analysis of the many factors that may influence rates.  Private versus state-run systems is only one factor.  Benefit schedules, provider reimbursement rates and the risk associated with prevalent industries are likely stronger factors than whether coverage is provided by a private insurer or BWC.

Governor-Elect Kasich will certainly have a full agenda, and we have to wonder where workers’ compensation reform falls on his lengthy list of priorities.  If not for the economy, worker’s compensation might move up on his list.  It seems as though we are often reminded that Ohio has a climate that is not particularly business friendly, and Ohio workers’ compensation is one reason why.  Workers’ compensation reform, whether in the form of partial privatization or benefit restructuring, is just one link in the long chain that may help pull Ohio’s economy out of the gutter.

Related Links:

http://www.legislature.state.oh.us/res.cfm?ID=128_SR_118 

http://www.property-casualty.com/News/2010/8/Pages/Hartwig-Makes-Case-For-Private-Ohio-WC-Market.aspx?page=1

https://www.ncci.com/nccimain/IndustryInformation/ResearchOutlook/Pages/default.aspx

http://www.wcrinet.org/about.html