Washington State Ending Game of Monopoly?

The state of Washington is considering ending its monopoly fund for Workers Compensation. Specifically, Initiative 1082 will be voted on by Washington citizens in November, and if passed would allow private insurance for Workers Compensation for the first time since 1911.

Employers there argue that the monopoly state fund there is inefficient and expensive. I don't know enough about the Washington state fund to comment on the wisdom of either side in this debate, but I can offer some perspective. A number of other states have made this change in recent years (West Virginia and Nevada) and the change appears to have worked fairly well so far. In general allowing competition via private insurers can help some employers obtain some price relief for WC. The problem is that for many smaller employers, the competitive benefits never really materialize, because there isn't any effective competition for a lot of smaller employers.

In theory, a state operated monopoly fund ought to be able to achieve some price advantages, as such a system doesn't have to operate at a profit. But state run monopoly funds can easily degenerate into politically-distorted bureaucratic boondoggles--Ohio comes to mind in this regard.

Employers in Washington should go into this with their wide open: the private insurance system comes with its own problems. Insurance companies can be bureaucratic and high-handed in some of their decisions, so scrapping the state bureaucracy doesn't guarantee an end to such problems.

Competition can help address such problems, but insurers don't always compete for smaller employers. And if a major insurer goes belly up (think Casualty Insurance in California and Illinois) it can cause real disruptions. So the private insurance system is no panacea.

It will be interesting to see which way the voters of Washington call this shot. And heck, if they choose to allow private insurance, it will at least open up one more state in which my company can offer consulting services.