OKLAHOMA'S workers' compensation rates are too high and far out of line with other states. We support major workers' compensation reform, particularly moving to an administrative system. But we're concerned that another proposal could potentially undo much good achieved by that reform.
House Bill 2201 and Senate Bill 1026 would mutualize CompSource, turning it into a private entity. Legislatively created in 1933, CompSource was designed as an insurer of last resort for those who can't get coverage through the private market (known as the “residual market”). But in subsequent decades, CompSource has become a state-run direct competitor for private carriers.
Critics argue that CompSource has a financial advantage over private carriers because it doesn't face the same rate regulations. Those advantages partially explain why the company now controls about 33 percent of Oklahoma's market, far more than any private competitor. These facts make the case for privatization, which we generally support, but proposals to mutualize CompSource would continue providing it favorable regulatory treatment. As a result, privatization may not increase competition. It could actually impede it.
Although CompSource would be subject to premium taxes and guarantee fund contributions like other carriers, early versions of the privatization bills exempt it from having to submit rate increases for state Insurance Department review. Meanwhile, that agency could order other private carriers to modify rates. Private-carrier rates must also be tied to the loss-cost modifiers issued by the National Council on Compensation Insurance; CompSource would be exempt from that requirement. These provisions could give CompSource financial advantages over its competitors.
As an insurer of last resort, CompSource also gets a federal tax break. In many states, residual policies comprise between 3 percent and 6 percent of the market, although that number nears 15 percent in a handful. But CompSource would reportedly get the tax break on its entire book of business — the full 33 percent of the market. That's another significant financial edge.