New York Small Biz Learning Hard Lesson About Group WC Trusts

This is one of those stories that pops up repeatedly, in different states at different times, but never seems to ever go away for long, because various states seem unable to resist the lure of cheaper Workers Comp alternatives without making sure adequate regulatory oversight is in place to avoid disaster down the road.

It's happened here in Illinois in the past, in Kentucky, and in other states that have allowed group self-insurance trusts for Workers Compensation coverage. Without effective oversight, some of these plans inevitably dig themselves into a hole from there is no escape. They underprice coverage, getting business in the short term, but eventually those long-tail WC claims eat them alive.

Then the former members of these trust start getting bills for huge amounts, as they are held responsible for their proportionate share of the huge shortfall of the fund to which they were once a member. It isn't fair, it's a huge and crushing burden to many small businesses, and those who created the problem--lawmakers and those who ran the trusts--typically avoid the painful fallout.