Monopolistic states for workers' compensation insurance
In Ohio, North Dakota, Washington State, and Wyoming, employers are mandated to buy workers' compensation insurance from a state fund, rather than the private insurance market.
What are monopolistic workers' comp states?
Monopolistic workers’ compensation states require employers to provide workers’ comp insurance coverage for their employees through a state fund rather than a private insurer.
Some states may allow employers to self-insure their workers’ compensation programs, though most employers in a monopolistic state have to buy their workers’ compensation insurance through a state-run insurance fund.
A workers’ comp insurance policy covers the medical costs and lost wages of injured workers due to job-related injuries and illnesses. Workers’ compensation coverage is required by workers’ comp laws in most states for businesses with one or more employees.
This requirement typically excludes business owners, including sole proprietors, independent contractors, and members of limited liability companies (LLCs). Some categories of workers may also be exempt, such as agricultural workers and real estate agents.
However, there are benefits to having this coverage even when you’re not required to carry it as most health insurance policies exclude work-related injuries and illnesses.
Which states are monopolistic for workers’ compensation?
The four monopolistic states that require workers’ comp coverage to be acquired through their state fund are:
Workers’ comp requirements in Ohio
In Ohio, workers’ compensation coverage is required for employers with one or more employees, regardless of whether the employees are full-time or part-time. The only way to obtain workers’ comp coverage in the state is through the Ohio Bureau of Workers Compensation (BWC).
The state also requires workers’ comp coverage for:
- Any independent contractor or subcontractor with employees.
- Corporations with more than one owner or officer.
- Out-of-state employers with employees who work in Ohio for 90 consecutive days or more.
Additionally, Ohio mandates workers’ comp for domestic household employers, from Cleveland to Columbus, who pay their workers more than $160 in a calendar quarter (any consecutive 13-week period). Domestic workers include housekeepers, babysitters, and gardeners.
Premiums are based on a company’s estimated annual payroll, which is reevaluated each July. Failing to file a payroll report on time could result in a penalty of 1% of the premium due, with a minimum of $3 and a maximum of $15.
Failure to pay a premium on time could result in a $30 fee, plus an additional charge of up to 15% of the premium, depending on how late it’s received.
The BWC could also file assessment liens for nonpayment of premiums when there is a lapse in coverage.
The state allows employers to self-insure their workers’ compensation programs if they meet certain qualifications, such as being financially stable and being part of the state workers’ compensation fund for at least two years.
Workers’ comp requirements in North Dakota
North Dakota requires employers to provide workers’ comp coverage to all employees, whether they’re full-time, part-time, seasonal, or occasional workers. This coverage must be obtained from the state fund, the North Dakota Workforce Safety & Insurance (WSI).
Independent contractors aren’t required to have workers’ comp for themselves, though they must seek an exemption from the WSI by filling out an Independent Contractor Verification Application. An independent contractor exemption is good for one year.
Penalties for violating North Dakota’s workers’ comp requirements include paying premiums for all employees. Violators could also face a $10,000 one-time penalty, plus an additional $100 per day for continued noncompliance.
A business that falsely reports its worker hours or payroll information could face a penalty of up to 10 times the premium amount the employer would’ve paid.
Workers’ comp requirements in Washington State
Washington State requires any business with one or more employees to buy coverage from the Washington State Department of Labor & Industries, whether employees are full-time or part-time.
Every business in the state must obtain a business license from the department and create a workers’ compensation account.
Any employer that provides its own workers’ comp coverage through self-insurance must be certified as a self-insured employer by the state.
Employers may be required to provide workers’ comp for their independent contractors, depending on the nature of their work.
Certain types of independent contractors are exempt, such as:
- Domestic workers who work less than 40 hours per week and there is only one of them.
- Domestic workers who work no more than 40 hours per week and are the only domestic worker in a home.
- Gardening, maintenance, or repair workers at private homes.
- Musicians and entertainers at specific events.
- Children under 18 who are employed by a parent for farm work.
- Cosmetologists and barbers who rent or lease their space.
For details and a full list of exemptions, check the DLI Employers' Guide to Workers' Compensation [PDF].
Penalties for noncompliance in Washington State include:
- Failure to pay a workers' compensation claim: $1,000 maximum, or double the amount of premiums incurred
- Noncompliance with recordkeeping: $500
- Failure to comply with a statutory provision: $1,000
Workers’ comp requirements in Wyoming
Wyoming requires every business to register with the Wyoming Department of Workforce Services, to see if they need to provide workers’ comp to their employees. This is required even for businesses and employees that are likely to be exempt.
The state typically has the same workers’ comp exemptions that other states allow, such as for sole proprietors, independent contractors and partners.
Wyoming also allows exemptions for:
- Casual laborers
- Professional athletes
- Employees of private households
- Nurses who work for a private party
- Federal government employees
- Volunteers for certain organizations
The penalties for not having workers’ comp in Wyoming could result in a misdemeanor charge with a fine of up to $1,000 and up to a year in prison.
Monopolistic funds vs. competitive state funds
In the four states with monopolistic workers’ comp funds, anyone buying workers’ compensation coverage must do so through the state fund.
States with competitive workers’ compensation funds offer a choice. Anyone needing this coverage can obtain it from the state-operated fund, or the private market.
States with competitive workers’ compensation funds are: California, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Maine, Maryland, Minnesota, Missouri, Montana, New Mexico, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, and Utah.
One of the benefits of monopolistic funds is that everyone in the state covered by workers’ comp insurance has the same coverage, so they’re all treated equally. Their premiums and classification rates tend to be stable and predictable.
In states with competitive funds, insurance providers are allowed to sell workers’ comp policies in addition to the state fund. This can produce fluctuations in premium levels, as insurance companies and the state fund compete for business.
A competitive environment also allows for more flexibility and policy options, so employers may find it easier to find a policy that best fits their needs.
Stop gap coverage and employer’s liability insurance
One of the biggest differences between monopolistic funds and competitive states is that monopolistic funds do not include employer’s liability coverage in their workers’ compensation policies.
An employer’s liability policy covers the legal costs and settlements resulting from employee injuries. This coverage is included in most workers’ compensation policies in the private market, but not monopolistic state funds.
If an employer needs this liability coverage, and it’s not included in their workers’ compensation policy, they can cover their employer’s liability with stop gap coverage. This is an endorsement that’s added to a general liability policy.
How do monopolistic states determine workers’ compensation rates and classifications?
Insurance companies use an Experience Modification Rating (EMR), also known as an experience modifier factor, or mod rate, to set its workers’ compensation premiums.
The laws for setting EMRs differ within each state. It typically involves your claims history, payroll data, and a class code such as the National Council on Compensation Insurance (NCCI) classification codes, and the North American Industry Classification System (NAICS). Many states also have their own classification methods and class codes.
Companies in riskier industries, or that have a high number of claims, can expect to pay more in workers’ comp premiums than those with fewer claims or in industries that are considered to offer low risks of a claim.
Many states also allow workers’ comp premiums to be set on a provisional basis, and adjusted at the end of a policy year.
The number of workers’ compensation claims an employer has, and their costs, have a direct impact on how their rates are adjusted.
How are workers' comp rates set in monopolistic states?
Monopolistic states use similar methods for setting their workers’ comp premium rates, with each of them offering lower premiums to employers that reduce their number and cost of workers’ compensation claims.
- Ohio uses an experience modifier factor that’s based on an employer’s claims history and the NCCI classification system. It also has a retrospective rating system that adjusts each premium at the end of a policy year. This is intended to encourage employers to focus on safety and return to work policies.
- North Dakota uses its own employer classification system. Its workers’ compensation plan encourages employers to have return to work programs, also known as a modified duty program or a transitional work plan. The idea is to get injured employees back to work, performing light duties, as soon as their doctor allows.
- Washington state uses its own classification system based on an employer’s classification code and experience rating. It also offers a retrospective rating plan that refunds part of an employer’s premium at the end of a policy year, if the employer has a workers’ comp loss history that is less than expected.
- Wyoming uses NAICS codes for its workers’ comp classification system, combined with experience modifiers. It also offers a Risk Management Services department to help employers find the most effective cost-containment measures for their workers’ comp safety programs.
Each monopolistic state rewards employers for reducing their workers’ comp costs and the number of worker’s comp injury claims they have each year.
A state may offer partial refunds on workers’ comp premiums, or reduce premiums for the following year. There are also steps employers can take to reduce their costs of workers’ comp claims.
Focus on employee training
Safety and training programs can reduce the chances of an employee injury, and your risk of a lawsuit.
Employees should be fully trained on proper lifting techniques, the correct use of equipment, and anything else related to safety at work.
Educate your employees on the right safety protocols and check frequently to make sure they follow them.
Reduce hazards and improve safety
Perform regular safety checks to look for potential hazards. This includes your entryways, hallways, and work areas.
Even a frayed carpet, a cracked sidewalk, or a misplaced extension cord could result in an employee injury.
Other safety issues to consider are:
- Make sure any equipment and machinery you have are in safe working order
- All chemicals and potentially hazardous substances must be stored properly
- Provide the right safety gear and footwear for your employees
- Post hazard signs and labels, as warranted
- Use ergonomic furniture and equipment
Hire on-site medical staff
Larger companies might employ a nurse case manager, which is a registered nurse who can oversee workers’ comp cases at the workplace and review treatment plans. Some companies might also employ a staff doctor to treat and manage workers’ comp cases on site.
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