Oklahoma Should Look to West Virginia on Workers’ Compensation Insurance Privatization

As reported in Reason Foundation’s new Annual Privatization Report 2009, a newly created legislative task force in Oklahoma is rightfully taking a close look at why the state is competing against private enterprise to provide workers’ compensation insurance, and if and how it could get itself out of a business in which the state’s “public option” is taking about a one-third share of the market and is crowding out private providers. Here’s more from The Oklahoman:

A legislative task force began work Thursday to find the best way to privatize the state agency that provides workers’ compensation insurance.

“We have an organ of the state that is competing with private insurers for premium dollars for workers’ comp,” said Rep. Dan Sullivan, co-chairman of the Task Force on the Privatization of CompSource Oklahoma.

“It’s a fundamental issue of what is the proper function of government,” said Sullivan, R-Tulsa. “Is it to compete with private enterprise? We think not.”

A state law passed this year states it is the intent of the Legislature to privatize CompSource no later than Dec. 31, 2010. Options include selling CompSource, which has about 300 employees, or mutualizing it, meaning it would be owned by its members, said Sen. Cliff Aldridge, R-Midwest City, task force co-chairman. “All of those options are on the table,” Aldridge said. […]

Sullivan said CompSource has about a 5 percent advantage over private carriers because it doesn’t have to pay premium taxes and doesn’t have to contribute to the state’s guarantee fund, which covers the costs of claims of an insolvent insurance company. “That automatically gives them a competitive advantage,” he said.

CompSource officials said the agency has about 26,000 policyholders and writes about 35 percent of the workers’ compensation policies in the state. Other employers are self-insured or are insured by private companies.

I would suggest that they start looking closely at the tremendously successful workers’ comp privatization West Virginia has been rolling out in recent years. While West Virginia’s former state-run insurance company had a monopoly on the entire market—as opposed to a large portion of it as in Oklahoma’s case—it still offers a current case study in how to successfully privatize a state-run insurance dinosaur. Here’s a short excerpt from our longer Annual Privatization Report 2009 story detailing West Virginia’s successes to date:

In August 2008, state Insurance Commissioner Jane Cline detailed a number of benefits of the privatization initiative thus far:

  • Privatization helped facilitate a dramatic reduction—from $3.2 billion to $1.9 billion—in the outstanding unfunded liabilities of the old state-run system in just two years, potentially accelerating the payoff of these liabilities by some two decades.
  • Workers’ compensation rates declined an average of 30 percent since privatization, saving employers over $150 million annually. According to Cline, “That’s $150 million that companies have to invest in improvements for employees or for infrastructure, for other capital improvements. That’s huge. Especially when you’re talking about a state that wants to be welcoming to employers.”
  • There were an estimated 8,532 protested claims in 2008, over 80 percent lower than the average of 46,076 protests filed with the state in 2005 and 2006. The amount of time required for a ruling on protested claims is also down.

And competition certainly increased with the exit of the “public option.” Within the first year of the opening of competition, Brickstreet—the private insurer spun out of the state’s old public entity—faced over 140 competitors, including more than 25 insurers that had not previously done business in the state. Seems like things are going well in West Virginia, which should hopefully inform the discussion in Oklahoma.

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