Rate Regulation of Worker's Compensation Insurance:: How Price Controls Increase Costs

In the 1980s and early 1990s, America's system of workers' compensation insurance was in trouble. As medical costs grew and benefits and compensable injuries expanded, costs of this insurance skyrocketed. In response, the states imposed price controls, but those controls caused unforeseen - and negative - consequences. The authors define the problems, trace the regulatory responses, and analyze the effects of rate regulation. Their study illuminates how rate regulation set up to control the cost of workers' compensation insurance reduced incentives for safety and cost control and subsidized high-risk activities and firms at the expense of others.