What is 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 these coverages from the state fund and no private parties may compete for the business.

BREAKING DOWN Monopolistic State Fund

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 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 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 a profit.

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.  

An example of a Monopolistic State Fund

Take for an example, workers’ compensation insurance, 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.

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 the 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 one 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.