Budget & Tax

Patrick B. McGuigan | January 31, 2010

CompSource Sale a Good Start to Workers' Comp Reform?

Patrick B. McGuigan

Approximately one-third of workers' compensation insurance policies in the Oklahoma market are written by CompSource, best described as a public-private hybrid. It is neither a government agency nor a private company, but a bit of both. If you're confused by that, join the club.

When I served in state government, as Brenda Reneau's deputy commissioner at the Oklahoma Department of Labor, the oddness of CompSource's structure was a frequent topic of discussion and frustration. To be sure, the state Labor Department staff encouraged (and in some cases ordered) small businesses to get required insurance coverage through CompSource or from private-sector providers.

A major problem is that, like the U.S. Post Office, CompSource acts like a private business when that is best for its interests, and like a government agency when that is most convenient. But it's pretty clear it's a government agency in one crucial sense: CompSource employees are treated as state employees for purposes of employment benefits.

After many years of advocating reform of CompSource, conservative Republicans seem well positioned this year to change its structure. House Bill 2662, by state Rep. Dan Sullivan of Tulsa, would sell CompSource to the private sector. Also supporting the measure is state Sen. Cliff Aldridge. The two men chaired a task force that recently finished a massive report looking at all aspects of the issue.

That nine-member task force heard from all sides, including defenders of the status quo. Those "leave it alone" folks, including CompSource's leadership, believe that only government can fill the role of "insurer of last resort"-the professed purpose of CompSource.

Yet to many informed critics, the status quo seems dysfunctional. CompSource has high net losses and faces serious near-term threats to solvency-despite its semi-monopoly in the market, as well as tax and other advantages that no private business gets.

At this point, it seems most likely that CompSource will either be sold as Sullivan and Aldridge advocate, with the money going to the state treasury, or "mutualized"-with existing policy holders as the new owners, as Oklahoma City Republicans David Dank and Jason Reese prefer.

There appear to be problems with mutualization, primarily the impairment of income that would be entailed for an entity that already has problems with loss ratio and operating income. At least one strong conservative at the state House, Dank, has advanced legislation to promote CompSource mutualization.

Several weeks ago, Michael McNutt of The Oklahoman reported that task force members believe sale of CompSource could bring between $200 million and $350 million into state coffers. Anyone who has paid attention can tell you this is a great year to look at even one-time boosts to the state treasury without new taxes.

Privatization of the workers' comp market for "last resort" needs has been achieved in Texas and a few other states. The results of several studies demonstrate that private insurance companies will do a better job than a government agency.

Back in 1995, Michigan sold its state-run "Accident Fund" for $262 million. The Mackinac Center for Public Policy found that "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 experience seems apt, as the 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 those were probably offset, Mackinac's Michael D. LaFaive reasoned, by countervailing burdens to insure companies regardless of health.

Nevada followed Michigan, and again the results were hopeful. Lower premiums, better coverage, and reduced bureaucracy have been the fruit of reform in those states and in West Virginia and Texas. A sale to the private sector, tailored to Oklahoma's conditions and needs, seems the better part of wisdom.

In a recent "advertorial" on this issue, published in The City Sentinel newspaper, Marlin Oil Corporation, led by the venerable Ralph Harvey, commented: "The cost and focus of workers compensation insurance remains one of the most challenging problems for the state as Oklahoma businesses try to find ways to grow and prosper. Premiums are higher than in surrounding states, and the system in general has a bias in favor of litigation rather than neutral administration of settled principles of law."

That's why the CompSource solution ultimately must be approached within the context of the entire workers' compensation insurance system. The task force leadership has set a goal of resolving the issue, one way or another, by the end of 2011.

Legislation passed in the next few months will likely trigger a "friendly" lawsuit, with the state Supreme Court exercising original jurisdiction to clarify whether or not CompSource assets belong to the state.

Everyone in small business, the engine of the Oklahoma and national economies, should support the process that has begun so well. It's hard to quarrel with one of Ralph Harvey's conclusions in this matter: "Government needs to get out of the insurance business, and let the private sector do the job."

Patrick McGuigan is editor of CapitolBeatOK. He works under a contract with OCPA to provide incisive, accurate, and timely news coverage of Oklahoma state government. Visit for in-depth reporting on the latest developments in state government.

Patrick B. McGuigan

Independent Journalist

A member of the Oklahoma Journalism Hall of Fame, Patrick B. McGuigan is founder of CapitolBeatOK, an online news service, and editor of The City Sentinel, an independent newspaper. He is the author of three books and editor of seven, and has written extensively on education and other public policy issues.

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