Washington v Ohio

Ohio’s Bureau of Workers Comp (BWC) could take a lesson from the State of Washington’s own workers comp fund. While the two state funds have some similarities, their results are quite different.
How different? Read on…

First, what’s similar?
Both states have monopolistic carriers; all workers comp insurance must be purchased through a single state-run agency. Both entities employ about 2600 folks. And that’s about it for the similarities.
Ohio has about 5.2 million covered workers, earning $190 billion; Washington has half as many workers but they earn 9% more per worker. (I know, Washington looks pretty inefficient, we’ll get to that) Washington pays out more in benefits per $100 of covered payroll than Ohio ($1.80 v $1.30), so workers receive more benefits in Washington than workers in Ohio. And, while Ohio has twice as many workers, the total benefits paid out in Ohio are only 33% greater than Washington’s payout.
But that may be a reflection of premiums; if employers’ premiums are lower, than it logically follows that benefits will be lower as well. According to a study by the state of Oregon, Ohio’s WC insurance rates are significantly higher than Washington’s. Ohio’s premium volume in 2003 was $2.2 billion; Washington’s was $900 million. So Ohio is collecting more in premium per worker and delivering less in benefits than Washington is.
Is that because Ohio is doing a bang-up job in the medical management department? Not exactly. Washington’s own state fund has kept medical inflation rates at just over 4% for each of the last three years, best in the industry. BWC’s medical trend rate is much higher, averaging well over 7% since 1998.
Back to the number of fund employees. Washington’s fund, known as Labor and Industry or L&I, has 2600 employees handling claims for 2 million workers. Ohio has about the same number of employees at BWC (again with about twice the number of insured workers), although a significant portion of the claims management function is outsourced to managed care firms, making it difficult to do an apples-apples comparison Claims admin expense represented 8.1% of premium in Washington in 2004, a percentage that is quite modest compared to other WC insurers. Ohio’s total claims admin expense was 22.2% of collected premiums (there may be some differences in definitions or premiums and admin expense, whether they would account for the 14.1 point differential is unlikely).
And lastly, the investment philosophies are, well, pretty different. Ohio’s ventures and the results thereof are well-documented. By contrast, Washington’s investment philosophy is pretty boring. Safe, too.