Worker’s Compensation Insurance

Published November 7, 2008

Worker’s Compensation insurance is a form of insurance that provides compensation for medical care for employees who are injured in the course of employment. In return for guaranteed benefits, the employee agrees not to sue the employer for injuries caused by the employer’s negligence ( In addition, most workers’ comp programs provide compensation to employees for lost wages and death benefits for the families of employees killed in work-related accidents, often including terrorist attacks (

Worker’s compensation insurance programs differ from state to state. Some states directly own and control their worker’s comp system, while others have moved towards privatization. The costs involved with maintaining a worker’s comp system are high, including the “handling of claims, the evaluation of impairment and settlement of disputes, the amount of benefits injured workers receive, and the strategies used to control costs” ( The size or burden of a worker’s comp system can affect a state’s economy; worker’s compensation costs have proven to be a strong determining factor influencing businesses to expand or relocate in a state.

John Goodman of the National Center for Policy Analysis identifies six underlying problems with the current worker’s comp system: inadequate insurance choices for employers and employees, lack of efficient disability coverage, missing incentives for employers to create safer workplaces, the lack of a strong and efficient worker’s compensation insurance market, a lack of portable insurance coverage, and the inability of employers and employees to modify strict employer liability by contract (Goodman,

Although safety has improved dramatically in many workplaces over the past few decades, the costs of state-mandated workers’ compensation insurance have soared. Goodman says costs are increasing because “state systems provide incentives for employers, employees, and others to behave in ways that cause costs to be higher than they otherwise would be” (Goodman,

An alternative to state-controlled worker’s compensation insurance programs is privatization. Privatization shifts the responsibility of providing worker’s comp benefits from the state to private commercial insurance companies. The goal of privatization is to encourage competition between providers in an active market, giving employers more choices for insurance. Privatization has been implemented in several states, including West Virginia and Nevada, and could prove to be a sound alternative to state-based worker’s compensation insurance ( ).

The following articles address some of these issues and examine worker’s compensation insurance from a free-market perspective.

Workers’ Compensation: A Guide for Policy Makers
This Guide for Policymakers, written and published by the American Legislative Exchange Council, explains the worker’s compensation system–how it developed and how it works–and examines emerging policy issues.

Insurance Information Institute Issue Update: Workers Compensation
This Issue Update, published by the Insurance Information Institute, reviews recent developments in worker’s compensation insurance reform taking place in different states across the country and provides an informative background on worker’s compensation insurance.

Six Steps to Improve Workers’ Compensation 
This article, written by John Goodman, president of the National Center for Policy Analysis, and published in Heartland’s Health Care News, examines the policy issues affecting worker’s compensation and discusses six policy initiatives to address those concerns.

The Workers’ Comp Tug of War
Penelope Lemov of Governing magazine discusses how worker’s compensation benefits have changed as a result of reforms enacted in several states, with a focus on reforms in Texas and Pennsylvania.

Privatizing Public Services and Strategic Behavior: The Impact of Incentives to Reduce Workers’ Compensation Claim Duration
This paper from Melissa McInerney at the College of William and Mary examines the efforts by the State of Ohio to privatize workers’ comp insurance. She also examines the effect of incentives on moving workers back into the workplace.

Amid Fiscal Pressures, States Move to Privatize Workers Compensation Programs 
This article from Governing Magazine examines the efforts of many states to privatize their workers’ comp programs in the wake of growing state fiscal deficits.

Workers’ Compensation Insurance in North America: Lessons for Victoria?   
This paper from the W.E. Upjohn Institute for Employment Research examines several successful workers comp privatization efforts in the US and Canada and makes suggestions how the programs could work for Victoria, Australia.

Is Privatization of Comp the Answer?
This article from the State-Journal in West Virginia examines the privatization of worker’s compensation insurance, an increasingly popular alternative to existing state-run worker’s comp systems.

Workers Comp Managers Say Privatization Beneficial
This article, written by David Wetzel of The Associated Press, examines the track record of worker’s comp privatization in West Virginia and Nevada and the prospect for privatization in North Dakota.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartland Institute’s Web site at and PolicyBot, Heartland’s free online research database.

If you have any questions about this issue or The Heartland Institute, you may contact me at 312/377-4000 or [email protected].