Commentary

Privatization Success in West Virginia: Workers Comp Insurance

Great news from West Virginia today. First, some context from Reason’s Annual Privatization Report 2008:

In West Virginia, the privatization of the state run workers compensation insurance program was completed in July 2008. A 2005 bill signed by Governor Joseph Manchin transformed the state’s Workers’ Compensation Commission into a private insurance carrier, BrickStreet Insurance. Brickstreet was given a two-year virtual monopoly on workers’ compensation insurance in West Virginia, which ended on July 1st when the market was opened to other competitors. West Virginia now joins most other states in allowing private insurers to offer workers compensation insurance. Today, only Puerto Rico, Ohio and three other states continue to operate state insurance monopolies. Brickstreet is currently exploring plans to expand its operation into other states.

Today, the Charleston Daily Mail details benefits thus far to the state from this overdue privatization initiative–such as (1) helping facilitate a dramatic reduction in the remaining $3.2 billion in unfunded liabilities from the old system by about 40% in just two years (it’s now at $1.9 billion), potentially accelerating the payoff of these liabilities by some two decades; (2) robust market competition; and (3) a 30% drop in rates:

The $3.2 billion unfunded liability that existed when the state began transitioning to a private workers’ compensation insurance system on Jan. 1, 2006, has since been reduced to about $1.9 billion, state Insurance Commissioner Jane Cline said. When the transition to a private system began, it was estimated the “Old Fund” liability wouldn’t be paid off until 2034. The state’s ultimate goal is to remove the state from any workers’ comp claims liability, Cline said. Now, “we think we can do a risk portfolio transfer by 2014 or, at the latest, 2016.” Cline said it’s important to pay off the Old Fund because employers are currently helping to finance it through a debt-reduction surcharge. The Old Fund liabilities are also being met by taking chunks of money from the severance tax on natural resources, the video lottery and the state personal income tax. [. . . ] Since the privatization process began, workers’ comp rates have gone down an average of 30.3 percent, resulting in annual employer savings of more than $150 million. “That’s $150 million that companies have to invest in improvements for employees or for infrastructure, for other capital improvements,” Cline said. “That’s huge. Especially when you’re talking about a state that wants to be welcoming to employers.” She said 176 companies have made workers’ comp filings with the Insurance Commission. Of that total, 26 have been licensed that are new to the West Virginia insurance market. She said 75 companies have actually written workers’ comp insurance in the state since July 1, when the market opened to competition. The number of days between when an injury occurs and when the injury is reported has been dramatically reduced, Cline said. That is a good thing because the quicker an injury is reported, the sooner a claimant can get treatment and the better the possibility of a good outcome, she said. A total of 46,076 protests were filed with the Office of Judges in 2005 and 2006 and it took an average of 335 days for a ruling to be made on a protested claim. Cline estimated 8,532 protests will be filed this year. She said the amount of time required for a ruling also has gone down.

Lesson: competition works. Kudos to Governor Manchin and the legislature on what looks to be a big privatization success story. Reason’s Annual Privatization Report 2008 Reason’s Privatization Research and Commentary