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Is there really any doubt that the private sector can move more quickly and efficiently than governments can?

Workers' compensation coverage should be privatized because managing the rapidly escalating costs in that area requires the ability to pivot quickly, and moving quickly is not something that bureaucracies do well, when they move at all.

One of the key tools in managing workers' compensation costs is controlling the choice of providers. State-run systems have historically given far too much leeway to the treating physician and the injured employee. This has resulted in abuse of alternative therapies, such as chiropractic therapies, and a liberal approach to pharmacy distribution and consumption that has had almost catastrophic results.

This has had a frustrating impact on employers, which rather than engage with a system they view as hopelessly corrupt, have become alienated in some cases to the point where they give up on such basic cost containment tools as improved worker safety and meaningful return to work programs.

There is strong evidence that privatization works.

In Texas, where employers are given the leeway to opt out of the state system, losses for companies that have opted out have dropped by about 60 percent. Not only are costs less there now, but treatment is better.

Likewise, a private sector option in West Virginia has resulted in lower costs for employers and the introduction of competition has actually improved the stability of the state fund there, a state fund that was in such disarray that its unfunded liabilities once measured as much as the state's general fund.

Ask anyone that covers workers' compensation for a living and they will point to one of the more egregious aspects of the state-run system. What are we doing appointing boards of attorneys to judge permanent disability claims when its doctors that have the knowledge to make those decisions?

Taking care of the health of injured employees isn't something that should be left to politics, it should be left to professionals. Too often, appointments to state funds or boards of workers' compensation are political appointments.

Uncovering fraud and abuse in workers' compensation is also not something that should be undertaken by laymen who just happen to know someone in elected office. It should be undertaken by either medical or underwriting professionals who know the landscape.

With the combined ratio in workers' compensation heading toward the 120-range nationally, we can ill afford as a society to sit around and wait for change at the rate that governments can provide it.

The private sector can move much more quickly and efficiently and we should let it do so.

DAN REYNOLDS is managing editor of Risk & Insurance®. He can be reached at riskletters@lrp.com.

The state-run system has proved itself over the past 100 years and deserves to be strengthened.

So you want to privatize workers' comp insurance? You've heard that opening up the system to the private sector is the way to provide efficient services, lower employer premiums and injured workers headed back to work sooner? Back off!

If we've learned anything about privatization over the past decade, it's that we ought to be very careful what we wish for.

Remember that it's because of these workers' comp funds, part of a no-fault system and under state control, that employers have an incentive to improve jobsite safety and provide better working conditions for workers.

In workers' comp, we're dealing with lives, injured lives. As a line, workers' comp is closer to life and health than it is to property/casualty. As we know, though, private health insurers have already taught us a painful lesson: They prefer covering pristine lives.

But for those with lives already injured and broken -- lives with "pre-existing conditions," I believe the term would be, premiums are through the roof.

Is that what we want? Do we want employers paying exorbitant rates of the handful of workers with a higher injury risk profile? In Texas, where employers have the choice to opt out, some small employers aren't even bothering to provide workers' comp coverage. Is that what we really want? I don't think so.

Remember that the state-based workers' comp system is a no-fault safety net designed to prevent plaintiffs from suing employers. So far, it has done a good job of slamming the door on plaintiff's attorneys trolling for new business.

Look at what happened in the professional liability/medical malpractice markets 20 years ago. That's when prices shot so high in the wake of legal disputes that no carrier was willing to underwrite the malpractice exposure at prices anyone could afford.

The system's "exclusive remedy" protections prohibit injured workers from suing their employer for work-related injuries, precisely to avoid astronomical price hikes for employers. That would all disappear under a privatized workers' comp system.

Yes, some state funds have been poster children for mismanagement and fraud, and billions of dollars were wasted by state-run workers' comp funds. West Virginia, whose fund went bankrupt several years ago, comes to mind.

Yet, many other funds are solvent and, indeed, serve as incubators for new, progressive ideas: Just look at Maine, Oregon and Wisconsin.

The issue isn't whether funds are state-run or privatized. It is whether the funds are well managed, of which there are plenty to show us the way.

CYRIL TUOHY is managing editor of Risk & Insurance®. He can be reached at ctuohy@lrp.com.

What's the best way to fix the workers' compensation system?

By SETH HAUSMAN, head of operations and construction for Zurich North America.


To advocate privatization implies that not only is the state based system broken, it also implies that it is beyond repair. This is not the case. While the current models in many states leave room for improvement, it is possible for insurers and employers to successfully address these challenges without embarking down a path that could be wrought with other new perils.

Throughout all workers' compensation systems, medical costs have ballooned and now exceed wage replacement and related traditional indemnity benefits. Even within a privatized model, insurers and employers remain wary of these risks.

In the absence of reform or privatization, the results of the system can be improved. A focus on quicker reporting of claims can have a great impact on care and costs. Employers that aggressively manage rapid claim reporting along with direct medical care with a Preferred Provider network where available and creative return to work strategies can have a significant impact on their Workers' Compensation medical costs. Comprehensive bill review management and utilization review by the insurer can also reduce these costs. Further, claim frequency can be significantly lower with an enforceable and comprehensive drug and alcohol policy as well a thorough new employee orientation and training program. States that encourage these steps can facilitate these improvements.

In several states, there is an alternative that allows the employer to establish a "carve-out" -- provisions in an employer's collective bargaining agreement with its union that create an alternative benefit distribution and alternative dispute resolution (ADR) process that differs from the state system. To date, carve outs are used mostly in the construction industry, but are available to other industries as well.

Effective medical treatment, efficient and prudent claims management and dispute resolution, and a proactive loss prevention program should be the hallmarks of a workers' compensation program. The current system has the opportunity to meet these goals while continuing to provide adequate protection for workers, but states, employers and insurers need to work together to creative innovative initiatives.