Out of Control Policy Blog

Privatization of Colorado's State Workers Comp Insurer Back on the Table

As the Denver Post reports, the potential privatization of Colorado's state-run workers compensation insurance system is back on the table:

Months after business leaders and a special committee rejected the idea, Gov. Bill Ritter's office has been quietly revisiting the prospect of privatizing Pinnacol Assurance, the state-chartered workers' compensation insurance fund.

Such a move, assuming it was legal, could fetch hundreds of millions of dollars for the state, which is facing a shortfall of at least $1.3 billion for the budget year that begins in July.

"We've been talking to Pinnacol for a long time, informally, really since last session," said Trey Rogers, Ritter's chief legal counsel. But Rogers said Pinnacol in recent weeks asked the governor's office to renew discussions.

"The governor doesn't have a position on whether this is something he wants to pursue," Rogers said, adding that discussions were only in the preliminary stages. [...]

"Considering our financial condition, we think it's appropriate to look at every option for closing that gap, and this is one of those options," Rogers said.

He said Ritter's office believes that any deal to privatize Pinnacol, which would need legislative approval, would require that it remain the insurer of last resort. [...]

Pinnacol officials floated a proposal last summer under which the insurer would pay taxes and a lump sum to the state in exchange for almost full autonomy from state regulation. But business groups and a special committee rejected the idea of privatizing the quasi-governmental agency.

Business groups have raised fears that privatization would bring higher rates, but that hasn't been the case in the most recent system privatization—West Virginia's successful workers comp insurance system privatization, discussed in Reason Foundation's Annual Privatization Report 2009. Workers' compensation rates have declined an average of 30 percent in West Virginia since privatization, translating to over $150 million in annual employer savings. Further, they dramatically reduced the outstanding unfunded liabilities of the old state-run system (from $3.2 billion down to $1.9 billion in just two years), the number of protested claims (down 80 percent) and the amount of time required for a ruling on protested claims.

And where there was formerly one, state-run monopoly insurance provider, now there are over 140 competitors operating in the state, and the spun-off state monopoly—Brickstreet Insurance—is now competing for business in other states. In all, West Virginia's workers comp privatization offers a great example of getting government out of the business of business.

That said, no two systems are alike, and success in one state is no guarantee of a similar experience in another state with a different system structure. The key for Colorado right now is to make sure the value proposition of a potential privatization is explored with due diligence to ensure that sounds fiscal decisionmaking isn't held hostage by politics.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Leonard Gilroy is Director of Government Reform


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