Colorado Committee Considering Privatization of State Workers’ Compensation Insurer

Similar to Oklahoma, a new committee in Colorado is considering the potential privatization of the state-charted workers’ compensation insurer, Pinnacol Assurance. A new Risk & Insurance article offers more details, including vocal support for the idea from Pinnacol’s CEO:

In early June, Gov. Bill Ritter signed S. 281 into law, which included provisions for performance and financial audits and created an interim committee to study Pinnacol — the Colorado-chartered but independently run and funded insurer. The committee was charged with examining workplace safety, workers’ comp laws and recommend changes to Pinnacol, including the possible sale of the company. The bill was passed after lawmakers withdrew a plan that would have taken $500 million from Pinnacol’s reserves to balance the state’s projected budget shortfall for the coming year.

The 16-member committee began meeting in August. Sen. Morgan Carroll, D-Aurora, said the committee will be deciding if the current structure of Pinnacol has sufficient clarity, and will evaluate models used by the 50 states for their residual workers’ comp markets. The group, she said, will also evaluate the pros and cons for injured workers, policyholders and Colorado taxpayers.

“Questions began to emerge as people questioned why a nonprofit political subdivision of the state could amass over $2 billion in assets, $1.2 billion in reserves, and $700 million in surpluses — four-to-six times more than levels recommended by the Division of Insurance,” she said. “Because surpluses have been generally growing at a rate of $100 million per year, some people began wondering if policyholders were being overcharged or if injured workers were being wrongly denied treatment and benefits. Of course, there are some people who don’t think there is any role for oversight here at all.”

Ken Ross, CEO of Pinnacol, opposed the idea of using the company’s surplus to fund the state’s budget shortfall but would be open to privatizing the insurer. At the initial hearing, Ross said he was pleased that the division was able to verify the impact on reducing premiums that Pinnacol has had over the past four years.

“In fact, Pinnacol has reduced rates by over 42 percent in that time period, which represents cost savings to Colorado businesses in the amount of $205 million,” he said.

Removing Pinnacol from the purview of government would certainly remove policymakers’ temptation to tap it as a revenue source to close the state’s budget deficit.

As I’ve noted before, West Virginia offers a recent example of a successful, large-scale privatization in a workers’ compensation insurance system. Though West Virginia ran a total monopoly—as do Puerto Rico and a handful of states—the impressive results offer a glimpse of what policymakers in other states might be able to achieve on a smaller scale.

Reason Foundation’s Annual Privatization Report 2009
Reason Foundation’s Privatization Research and Commentary