Workers Compensation: State Systems and Residual Markets
How workers compensation insurance operates across state systems and what residual markets provide.
State-Based Systems
Workers compensation is a state-mandated insurance program that provides medical benefits and wage replacement to employees injured on the job. Each state has its own workers compensation law, benefit structure, and regulatory framework. Benefits typically include medical treatment, temporary disability payments, permanent disability awards, and death benefits. Four states (North Dakota, Ohio, Washington, Wyoming) operate exclusive state funds, while most states allow private carriers and state funds to compete. Texas is unique in allowing employers to opt out entirely.
Residual Markets
Residual markets serve employers who cannot obtain workers compensation coverage in the voluntary market, typically due to poor loss experience, hazardous operations, or small size. These residual mechanisms include assigned risk pools (the most common), state funds, and joint underwriting associations. The NCCI administers the assigned risk pool in most states. Residual market rates are generally higher than voluntary market rates, creating an incentive for employers to improve safety and qualify for voluntary coverage.