“Government Insurers Study Note,” CAS Study Note, May 2006 – W
Concerns about private insurers:
Employers might be forced out of business if insurance is rejected.
High premium rates might affect a state’s economy.
Mandatory coverage = low elasticity of demand = potential high prices.
The existence of a state fund solves these problems.
These are set up by the legislature; run by a board appointed by the governor; exempt from federal taxes; and serve as the insurer of last resort.
Competitive State Funds – 20 states
Exclusive State Funds – includes ND, OH, WA, WV, WY.
C) Evaluation of WC Insurance
Private carriers make up a little over 50% of benefits paid. State funds have a significant share: about 18%, and increasing each year. This defers in each state.
Some say state funds are specialists in WC, so they can be expected to offer more rehabilitation services, but private insurers are also offering the same services.
State funds usually have lower expenses – as there are no agency commissions or other marketing costs.
Evidence shows that state funds and private insurers are able to provide WC in an efficient manner.
Unemployment Insurance – no private insurance counterpart (considered to be uninsurable).
Established as part of the SS Act of 1935.
Intended to provide temporary financial assistance to unemployeds.
Each state is different – following federal guidelines, but offering different amts and durations.
Premiums come from employer taxes on wages earned in the prior year. A federal tax is levied. 90% is returned to the states. 10% funds program admin through grants and loans.
Fed requirement: taxes must be experience-rated. There are also tax rate mins, maxes, and time lags in tax adjustments.
Eligibility: worker must earn a certain amt of wages or a certain amt of time during a 1-yr period. They must be unemployed through no fault of their own, and must be actively seeking work.
Continued eligibility: weekly claims filed (reporting job offers or refusals of work)
Sometimes, the “actively seeking” part is not enforced.
Benefits: usually 50% of individual’s earnings over a 52-week period (subject to state max and min). These insurance benefits are subject to fed income tax.
Four factors to consider:
1. In the 2nd half of the 20th century, unemployment insurance replaced 1/3 of lost wages for workers who qualified.
2. Research shows that unemployment ins prolongs unemployment.
3. Proposals have been made to permit payment to parents who choose to take parental family leave.
4. Among those eligible, only 2/3 bother to collect, questioning social adequacy.