The Justice administration reported last Friday that workers’ compensation premiums are coming down for West Virginia businesses by $21 million. It’s the 13th rate reduction in as many years.
The dramatic improvement in how on-the-job injuries are handled in West Virginia is directly related to the state’s decision to get out of the insurance business. When the state ran workers’ comp it was once an over-priced, underperforming disaster.
In 2004, Governor Bob Wise, working legislators and new Workers’ Comp Commission Administrator Greg Burton, pushed legislation to improve the medical management of claims. The following year Governor Joe Manchin and the legislature made the most significant change—they privatized workers compensation.
Prior to that, workers’ comp was losing $1 million a day and the program had an unfunded liability of $3 billion. Under the old system total permanent disability awards were handed out generously.
Remarkably, a worker could be declared permanently disabled in one job, get lifetime benefits and still work at another job. Some doctors were in on the perfectly legal scam that left taxpaying businesses on the hook for $700 million annually in exorbitant premiums. There was one infamous case where workers’ comp had paid for an individual to see a chiropractor over 1,000 times.
“It was a perfect storm,” said Burton.
Privatization changed all that, opening the door to marketplace competition. Brickstreet Insurance, headed by Burton, was first in, but today dozens of companies offer plans. Rates have declined steadily while employers and insurance companies have prioritized getting injured workers the treatment they need so they can return to the job rather than cueing up a lifetime total permanent disability (TPD) award.
Under the old state-run system, approximately 1,200 TPDs were awarded every year at a cost of between $250,000 and $500,000 a piece. Today that number is down to fewer than 100 annually. Premiums have dropped from $700 million annually to less than $300 million and the newest reduction will bring rates down an average of another ten percent.
The savings mean business owners can invest more in their companies and provide raises and benefits for their workers. Additionally, a new business no longer has to factor in an overpriced, ineffective and fraud-laden workers’ comp system as a cost of doing business in West Virginia.
Burton credits the marketplace for the rate reductions and claim processing efficiencies. “It shows that Governor Manchin’s decision to privatize and the legislature’s decision to support it was the right thing to do,” Burton told me. “I sometimes wonder where we would be today if we had not changed.”
Well, the state’s current financial bind would be even worse. Businesses would be defaulting on premiums and taxpayers would be on the hook for a bailout of a failed government program.
Of course not every claim is handled exactly right—Burton concedes that–but overall the system is miles ahead of where it was. The lesson here is that the marketplace and competition create efficiencies that government can never hope to achieve.