Policy Documents

A Study of the Privatization of State-Chartered Workers’ Compensation Funds

Mehmet E. Ozbek –
April 1, 2010

This report presents the findings of a study aimed at identifying the efforts of privatizing state-chartered workers’ compensation funds. A general discussion on the state-chartered workers’ compensation fund concept is provided, as well as a detailed discussion on the experiences of a number of states with respect to the privatization of their workers’ compensation funds. Although every effort was made to identify all of the states that went through a privatization phase similar to what is being considered in Colorado, the list of states discussed in this report may not be exhaustive.

This report also presents and ranks the average workers’ compensation premiums for several states for a number of years. The last section of this report highlights the issues that need to be considered when contemplating the privatization of a state-chartered workers’ compensation fund. To be able to identify the findings presented in this report, a comprehensive literature review was performed.

It is important to note that, in a few instances, some general information is provided regarding premium rates, unfunded liabilities, reserves, surplus, dividends, and customer satisfaction before and after privatization. However, one of the findings of this study is that such data alone cannot be used to identify the effects of privatization due to many external factors. These external factors include the economic conditions in the state during which the privatization takes place; benefit levels that may change from one year to another; cost of medical coverage that may change from year to year; and safety records that may change from one year to the next. Therefore, collecting extensive data on these external factors is needed in order to single out and identify the effects of privatization.