Workers compensation reform might include sale of CompSource
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Published: 07-Feb-2010

By Patrick B. McGuigan

Published: 07-Feb-2010

A range of options have been submitted to top legislators and Gov. Brad Henry by state leaders who served on a task force studying anticipated new status, including a potential sale to benefit taxpayers, for CompSource Oklahoma. CompSource is the state’s workers’ compensation “insurer of last resort.” 

House Bill 1963 created a Task Force on Privatization of CompSource Oklahoma. The stated goal of the study was “to create a stable, predictable, competitive workers’ compensation market place in the State of Oklahoma for the benefit of Oklahoma employers and employees.”

CompSource of Oklahoma has about 35.10% of the state’s workers compensation insurance market, according to the state Insurance Department. The next largest market share is held by Chartis, at 12.7%. CompSource has high net losses and solvency issues, and tax advantages that private businesses do not have.

In 1995, Michigan sold its state-run “Accident Fund” for $262 million. The Mackinac Center for Public Policy found “the sale of Michigan’s Accident Fund was a slam-dunk for the state financially. It generated a large, one-time revenue hike for the state treasury, while it increased, by all indications, the quality of services provided to the fund’s many customers.”

The Michigan conversion came during a recession. The Mackinac study contends it might be more accurate to call the new fund “semi-private” because the owner, Blue Cross Blue Shield of Michigan, retained some tax advantages. But Mackinac’s Michael D. LaFaive reasoned that the new entity had countervailing burdens to insure companies regardless of health.

Nevada followed Michigan. Advocates of privatization say lower premiums, better coverage and reduced bureaucracy have been the fruit of reform in those states and in West Virginia and Texas.

Both advocates and opponents of new status for CompSource agree that judicial review of any legislative action is inevitable. There is widespread accord that “friendly” (but high stakes) litigation must result from any change in the status quo.

A key question is what happens to CompSource assets if it is sold, dissolved or otherwise changed in status. In one analysis, the tax status of CompSource hints assets would go to taxpayers, as indicated by language in the Internal Revenue Code: “the assets of such organization revert to the State upon dissolution." [IRC 501(c)(27)(B)(iii)].

However, attorney Robert G. McCampbell of Crowe & Dunlevy contends any surplus at CompSource would belong to existing policyholders, i.e., mutualization of the assets would be required. He told CapitolBeatOK, “There might be some other arrangement, other than mutualization, the state could make in which current policy holders get some appropriate benefit. But I’m unaware of what that arrangement might be. “

Significant to consideration of questions presented for CompSource will be Moran v. State Ex Rel. Derryberry (Okl., 534 P.2d 1282),  a state Supreme Court decision issued on May 2, 1975. In the summarizing words of former Republican state Rep. Ron Peterson, a lobbyist supporting sale of CompSource, the Legislature of that era, “had identified CompSource as having a surplus and was trying to grab that money. The court said they couldn’t do that."

In its ruling, the court held, “the funds of the State Insurance Fund are not State funds and do not belong to the State, that such funds are trust funds for the benefit of employers and employees.” As a result, the court said, legislators could not appropriate money from the Insurance Fund.

An open question is what happens if state government, for policy reasons such as ending involvement with activities legislators decide to return to the private sector, ends the trust status of CompSource.

McCampbell says, “If you don’t have a surplus, then you don’t have a ‘Moran’ problem. Other states that took that action [dissolution] had a deficit so they didn’t have a problem.”

On the Oklahoma task force, both Rep. Sullivan and Sen. Aldridge strongly support sale of CompSource as a state asset, with proceeds going to taxpayers. Aldridge said in the task force report, “As legislators, we owe it to the citizens of the state to look at the option of a sale so, the state is not walking away from its own asset.” Sullivan said he believes “CompSource Oklahoma is an asset of the state – as a legislator it is difficult to walk away from an asset, and not consider a sale.”

Commissioner of Insurance Kim Holland also served on the task force. She said privatization of CompSource would be required “to extract the state from the business of insurance.” She described mutualization as “the most expeditious approach” to the issue.

Holland contended mutualization “inures to the sole benefit” of CompSource policyholders. Like others on the task force, she called for any new status at CompSource to protect the interests of employees.

Other supporters of mutual status as an option include James Stergiou, chairman and CEO of SGRisk LLC, who also believes leaving CompSource as it is remains the best option.

Mutualization was supported in task force proceedings by Michael Clingman (director of State Finance), Mike Seney (a vice president at the State Chamber) and Dan Ramsey (Independent Insurance Agents of Oklahoma)

Lee Ann Alexander of Liberty Mutual, in a summary of her views, said the courts must ultimately decide the question of whether CompSource assets, upon dissolution “belong to the state or … to CSO’s policyholders.”

The task force report was submitted on Dec. 1, 2009. The report went to Governor Brad Henry, Senate President Pro Temp Glenn Coffee of Oklahoma City and House Speaker Chris Benge of Tulsa.

Others beyond the task force have views on issues raised by House Bill 1963 and the work of the task force. Jason Reese, an Oklahoma City lawyer seeking the Republian nomination for Commissioner of Labor, has supported mutualization. So has state Rep. David Dank, a Republican from House District 85 (north central Oklahoma City).

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