“Government Insurers Study Note,” CAS Study Note, May 2006 – W
Greater Efficiency – some believe lower costs come w/ govt insurance, but these savings may be overstated as some non-insurance govt employees may be doing some of the insurance work.
Social Purposes – possibly the main reason for govt insurance. WC is meant to rehabilitate and train injured workers back into work. SS is meant to be a welfare program for the elderly and disabled. NFIP is meant to improve construction in flood-prone areas. Can private insurance meet these goals?
Evaluation of Govt Insurance Programs – 3 questions to ask:
Is the govt insurance necessary or does it achieve a social purpose not provided by private insurers?
Is it insurance or a welfare program? Welfare is to provide benefits to people based on need w/o payment from those receiving assistance.
Is the program efficient and accepted by the public?
Crop Insurance – operated by Fed Crop Ins Corp (FCIC), which is owned by US Dept of Agriculture (USDA). In 1996, USDA created Risk Management Agency (RMA) to operate FCIC.
RMA subsidizes costs of insurance, which covers: crop damage due to drought, hail & flood, and market risks.
Private insurers sell the policies, which are then reinsured by the govt.
As risks aren’t shared proportionally, private insurers realize gains while govt realizes losses.
RMA subsidizes premiums and reimburses admin costs to private insurers.
Complaints include: program doesn’t provide enough insurance; program encourages overproduction. Program overhauled in 2000 w/ the Agricultural Risk Protection Act (ARPA).
ARPA increased premium subsidies to encourage cvg levels to go from 27.5% of losses to 70% cvg. Premium subsidies went from 24% to 59%.
The overhaul seems to have produced better loss ratios: 153% in 1981-1990 has fallen to 93% from 2001 to 2005.
A) Federal WC Programs
1) The Federal Employee Compensation Act (FECA) – covers non-military federal employees. Administered by the Office of WC Programs (OWCP). It appears to be efficient, as admin costs were 4.6% of obligations in 2002 while in other state systems, they were as high as 16.6%.
2) The Longshore and Harbor WC Act of 1927 – covers Longshore, harbor, and other maritime workers injured while working on or near navigable water in the US.
3) The Black Lungs Benefits Act – covers wage-replacement and medical benefits to coal miners who get black lung disease and to eligible survivors. This program is financed by coal miner operators through a federal excise tax. The program seems to be struggling with debts from prior years.
B) State WC Programs
Partnerships with Private Insurers – an employer can get WC insurance from a private carrier, a state WC fund (if available), or self-insurance (if they have sufficient financial capacity). Only a few states have exclusive state funds (no private insurance allowed). When private insurers can sell WC, it’s a public-private relationship between them and the state.