Posted on May 19, 2014
The State of Colorado like most states in the U.S. requires that employers maintain workers compensation insurance coverage. At present, Colorado businesses have the option to purchase coverage through a private insurance carrier or the state's quasi-public carrier of last resort, Pinnacol, which guarantees workers comp coverage to employers unable to obtain it elsewhere.
But that might change under Colorado Governor Hickenlooper's proposed plan to privatize the state run workers compensation insurance carrier. Hickenlooper appointed a 19 member task force made up of business representatives, insurance companies, workers and foundations. Their task is to review and make recommendations on the privatization of Colorado's public workers compensation fund.
The Governor and other supporters claim this proposal will provide much needed funds for schools and businesses. At present, Pinnacol is considered a political subdivision. The proposed change would restructure this carrier into a mutual insurer owned by its policy holders with the state of Colorado sharing a security interest in the new insurer.
Separating the Pinnacol entity would create two heritage funds used for public purpose: education and economic development. The Governor's panel, however, is still determining whether the plan is feasible and remains undecided about proposed changes.
The privatization proposal would mean that the state would have a $340-350 million stake in the mutual insurance company with an estimated $13-14 million in annual dividends to apply toward education and business development goals. The move would also make Pinnacol a state tax payer rather than a public entity.
Traditionally, state run workers comp funds have no regulation or monitoring as compared to private insurance companies. Their solvency is never evaluated like private insurance carriers that must maintain certain ratios to remain solvent. When government run insurance companies have surplus funds, there is also no accountability for where those funds are distributed. The state government can use them to offset budget deficits or the carrier itself can use them however they see fit. Improper funding of state funds can lead to insolvency, which will create a domino effect for policyholders and injured workers. If funds are not maintained for future claims, the injured worker will ultimately be the most affected.
Other considerations for privatization and how it can affect employers is claims management. How claims are managed from start to end can affect workers comp rates directly. Insurance companies must maintain fraud investigators to ensure that only valid claims are paid.
Privatizing the Colorado fund can help to streamline operations and bring in qualified personnel able to process and manage claims effectively with the goal of reducing costs and ensuring that injured workers receive proper care, treatment and benefits. In the end, a competitive workers' compensation insurance market will result in enough claims reserves to satisfy future claims, better customer service and lower rates for businesses.