four states the policyholder is in practically the same position as to additional liability as he would be were he insured in a private mutual, i. e., he is required either to pay his share of any liabilities which the fund is unable to meet or to pay to his employees any compensation to which they are entitled but which they are unable to recover from the fund. In all states the employer is entitled to his share of any profit which the fund may make this may be returned to him in the form of dividends, reduced rates, or exemption from the payment of premium for a certain period.

In states where private companies are permitted to compete with the fund the gross rates of the latter are lower than those of the companies, with the exception of California, where the same rates are enforced for all insurance carriers. The rates of two of the funds represent a horizontal reduction of ten per cent, and of two others, five and fifteen per cent, respectively, from the stock company rates on similar classifications. In eight states it is provided that the administrative expenses of the funds shall be paid by the state, in one of which, Pennsylvania, the state subsidy is to cease on July 1, 1919. In New York the expenses of the fund were paid by the state up to July 1, 1916 since that time the fund has been required to support itself. In Nevada the state provides offices and does the printing for the fund, while in Oregon an amount equal to one-seventh of the combined payments of employers and employees is contributed by the state. Wyoming, in addition to paying expenses, appropriated $30,000 as a nucleus for

the fund and appropriates each year a sum equal to one-quarter of the total payments of employers. The California fund holds a state appropriation of $100,ooo as a catastrophe reserve.

In California, Michigan, and Pennsylvania the rates and reserves of the funds are under the supervision of the state insurance department. Other states leave these matters entirely to the discretion of the managers of their funds, with the exception of New York, where the insurance commissioner supervises the re

serves.

In all but three states a catastrophe reserve is maintained, usually in accordance with statutory provisions; for example, Maryland requires that ten per cent of the premium income shall be set aside until $50,000 is accumulated, and that thereafter five per cent shall be set aside until there is a sufficient amount to care for the catastrophe hazard.

The expense ratio of the state. funds is unusually low, averaging approximately twelve and one-half per cent of premiums. This is partially accounted for by the fact that, like mutuals, the acquisition expense is small, no commissions being paid.

History and Extent of Business.-The first state fund to be established in the United States was created by the workmen's compensation act of the state of Washington, which went into effect in 1911. Since that time twelve other states have adopted this method of insurance, the youngest of the funds being that of Pennsylvania, which commenced operations January 1, 1916. In the following table is shown the growth of the state fund principle:

State funds received $7,600,000 in premiums during the year 1915. They write insurance, of course, only within the borders of their respective states, carrying the entire business of the five states where they have a monopoly, and the greater part of the business of Ohio and West Virginia, where an employer may insure in a private company after securing permission to carry his own risk. Figures from the seven states which have competitive funds indicate that these receive from one-tenth to one-third of the total premiums.

Arguments in Favor of State Funds-1. The premium rates, which are often lower than those of other carriers, may be lowered still further by the payment of dividends, since the funds are operated on the mutual plan. Where the state pays expenses of administration or contributes a subsidy the employer may be benefited by the consequent reduction in the amount of his own contributions.

2. In those states which provide that insurance in the state fund shall relieve the employer of all liability for payments to his injured workmen, for the payment of assessments to the fund, or for both, he is given absolute security in return for his premium.

3. The state fund, managed in all cases by public officials, and usually by the same body which admin

isters the compensation law, may be operated to carry out the fundamental purposes of compensation legislation, conserving impartially the interests of the employer, of the employee, and of the general public.

4. A monopolistic state fund, by the concentration of the entire compensation insurance business of a state, promotes uniformity in the treatment of employers and employees and eliminates the waste due to competitive expenses and duplication of equipment and organization.

5. A competitive state fund may, through its rates and service, act as a regulatory agency, compelling private companies to adhere to fair rates and practices.

6. The state fund is as carefully regulated as private companies in some states and might be so regulated in all.

7. Such criticism of the state funds as is tenable is directed, not at the principle, but at the methods which have been followed in applying it. State fund insurance, since it is a new venture in the United States, must pass through a period of development and experimentation, the cost of which is fully justified by the possible future service to be expected from this plan of insurance.

Arguments against State Funds.—i. The management of the funds is vested in appointive state officials, and politics plays too large a part in their selection. Insufficient salaries, political considerations, and insecure tenure of office all tend to produce the inefficiency which is a characteristic of state-managed institutions.

2. Neither the policyholders nor anyone financially interested in the success of the funds have any direct control over their management.

3. In the event of insolvency as a result of inefficient management or of rates fixed by the legislature the employer will be obliged to make further contributions or, where he is relieved of all liability, the employee will lose a portion of his compensation. If the deficit is made up from the state treasury it will involve a higher tax rate. There is also some question as to whether a statute relieving the employer of all liability on the payment of a stated premium would be held constitutional by the courts.

4. The payment of expenses by the state gives the fund an unfair advantage in competition with private companies which must meet all expenses from premium receipts.

5. The state fund is not in a position to reject poor risks and is forced to accept many which private companies are unwilling to carry.

6. The practice of fixing rates by legislative enactment, which obtains in some states, is unscientific and impractical, involving unfairness in the distribution of compensation cost and endangering the solvency of the fund.

7. The state should confine itself to regulation and should not attempt to enter business enterprises which can be conducted by individual initiative.

CONCLUSION

There is the utmost disagreement on the question of the relative desirability of different methods of in