State Funds Their Purpose and Impact AASCIF THE AMERICAN ASSOCIATION OF STATE COMPENSATION INSURANCE FUNDS Development of Workers' Compensation and the Creation of State Funds Workers' compensation is essentially a product of the industrial By the early 1900s the inadequacy of these legal remedies was It was intended that workers' compensation laws would provide 1 Many legislators, employers, and others were concerned over the ramification of subjecting employers to a statutory liability that required insurance protection as the only feasible method of meeting this liability. Would individual employers or categories of employers be forced to quit business if insurance carriers refused them coverage? What if the premium rates were so excessive as to impose serious financial burden on many employers and possibly adversely affect the State economy? Was it equitable to allow private insurance carriers, in business to produce a profit, to make large profits when employers had no options because the liability was imposed through statute? These concerns were based on extensive experience and data developed under employer liability statutes. For example, in New York in 1908, it was found that only 37 cents of every premium dollar went for the payment of benefits to the injured worker; in Iowa, only 28 cents went for the payment of benefits.1 The early laws creating workers' compensation responded to the unique problems associated with providing insurance coverage by establishing State workers' compensation insurance Funds. It was intended that State Funds would provide a guaranteed source of insurance coverage and operate on a non--profit basis. These State Funds would protect employers from the uncertainties inherent in the underwriting decisions of private insurers based on the profit motive, as well as guarantee that workers' compensation insurance would be provided to employers at the lowest possible cost. Recognition of the need to establish a workers' compensation system brought with it a responsibility to provide an effective, efficient, and equitable delivery system. In recognizing this responsibility, 18 States established State Funds in their workers' compensation laws between 1911 and 1925.2 1. Herman and Anne Somers, Workmen's Compensation (New York: Wylie and Sons, 1954), 24. 2. David McCahan, State Insurance in the United States (Philadelphia: U. of Pennsylvania Press, 1929), 6-7. Workers' Compensation Systems The establishment of State Funds meant that employers finally had an alternative for insuring their workers compensation liability. Today, where an employer is required or elects to provide workers' compensation insurance, he may insure through a private carrier or through a State Fund if one is available in his State. In those States that permit self-insurance the employer may assume the liability for providing the statutorily determined benefits himself. Not all of these options are available in all States or Territories. Guam and Texas require that an employer insure his liability with a private carrier. Eight jurisdictions, counting Puerto Rico and the Virgin Islands, have an exclusive State Fund and require all employers to insure with it, except that three also permit self-insurance. Thirty-two jurisdictions allow selfinsurance coverage or coverage through private carriers. Twelve States offer all three options, viz., self-insurance, insurance through a competitive State Fund, or insurance through private carriers. (In Canada, all Provinces have boards or commissions with complete jurisdictional and administrative powers or matters relating to workers' compensation. These boards are similar in concept and organization to exclusive Funds.) Exhibit 1 identifies States and Territories by type of coverage permitted. Exhibit 2 denotes those States that have competitive and exclusive Funds. 3 |