What Is a Monopolistic State Fund?

A monopolistic state fund is a government-owned and operated fund that is set up to provide insurance coverage in specified states and territories. Employers must purchase coverage from the state fund and no private parties may compete for the business. The states that are monopolistic fund states for the most common insurance fund, workers’ compensation, are North Dakota, Ohio, Washington, Wyoming, and Puerto Rico and the U.S. Virgin Islands. 

Key Takeaways

  • A monopolistic state fund is a government fund from which employers need to obtain insurance coverage if they are doing business in a state.
  • The most common kind of monopolistic state fund is workers’ compensation insurance.
  • There are four monopolistic states remaining in the U.S.—North Dakota, Ohio, Wyoming, and Washington. In recent years, West Virginia and Nevada stopped being monopolistic states. 
  • The only state that doesn’t have employment coverage of workers’ compensation as a requirement is Texas. 

How a Monopolistic State Fund Works

A monopolistic state fund is simply a fund on which the state has a monopoly. The most common type of these funds is workers’ compensation insurance. In these states, private insurers are not allowed to sell workers’ compensation insurance. In addition to monopolistic state funds, there are monopolistic states. These are states that do not allow private-sector companies to oversee competing funds and include North Dakota, Ohio, Washington, and Wyoming. Additionally, Puerto Rico and the U.S. Virgin Islands fall into this group.

There used to be more monopolistic states, but some states decided to allow additional parties to sell insurance after their funds experienced financial insolvency. These are known as competitive funds and they operate strictly for profit. In 1999, Nevada, which was previously a monopolistic state, began allowing private insurers to sell workers’ compensation insurance to employers. West Virginia stopped being a monopolistic state in 2008. 

Companies with facilities in more than one state may have to purchase stop-gap insurance products to meet the coverage needs that aren’t covered by the funds in each state they operate in. 

Monopolistic state funds do not have to follow the procedures of the National Council on Compensation Insurance. 

Monopolistic State Fund Example

Workers’ compensation insurance is the most common type of state fund. The purpose of this insurance is to cover employees and their family members if an employee has been injured or sickened on the job. However, in monopolistic states, workers’ compensation policies do not include policies for employers’ liability. To receive employers’ liability coverage, an endorsement amending the policy is attached to a policy of general liability. 

Workers' compensation helps to keep the employee from experiencing a total loss of earnings during the time needed to heal or recover. Additionally, the claim may cover more than just missing income. Other benefits include medical treatments, rehabilitation, and in some instances, training for a new career.

Each employer located in a state with one of these funds is required to pay into it. For the states above that have the option to price out their own workers’ compensation policies, the employers are required to make payments directly to the private companies or to a third-party administrator on behalf of the company. Workers’ compensation is not the same as short-term disability insurance, which has different qualifying events and can sometimes be purchased directly by an employee.

Texas is the only state that doesn’t require any employment coverage of workers’ compensation. For the remaining states that are required, failure to provide coverage can result in consequences ranging from civil penalties to large fines. To determine if an injury or illness is covered by the state workers’ compensation insurance policy, and what the estimated benefit amount would be, visit the United States Department of Labor website.