THE Oklahoma Supreme Court unanimously upheld the constitutionality of a law changing the structure of CompSource, the longtime state-run workers’ compensation company. The court’s recent decision is good: Change is definitely needed at CompSource. But that doesn’t make every claim about this CompSource law accurate. Nor does it mean there’s no need for additional reform.
CompSource was created in 1933 as an insurer of last resort for those who can’t otherwise get coverage (called the “residual market”). Last year, lawmakers voted to transform the business into the CompSource Mutual Insurance Company as a supposed privatization effort.
Tulsa Stockyards sued, arguing the restructuring was unconstitutional. Because the state would no longer technically retain ownership of CompSource’s assets, the plaintiff argued, the restructuring amounted to an unconstitutional gift of the state and also violated constitutional prohibitions on interference with contracts and paying money out of the state treasury without legislative authorization.
The court disagreed, ruling that CompSource’s “monies and other assets are held in trust for the benefit of the employers and employees” covered by CompSource policies. It said the Oklahoma Constitution doesn’t prohibit placing the company’s money and assets with a domestic mutual insurer, and that “the trust impressed upon CompSource’s money and assets will continue.”
For obvious reasons, Rep. Randy Grau, the Edmond Republican who authored the CompSource law, praised the decision. Grau declared his legislation “leveled the playing field between CompSource and private insurers” and “essentially gets the state out of the insurance business.”
Well, not exactly.
While the new law does remove some of CompSource’s market advantages, it preserves other artificial, state-granted benefits that allow CompSource to undercut truly private competitors and stifle competition. Under the law, CompSource’s board of directors can set rates without Insurance Department review, a benefit no other private company enjoys. Unlike other companies, CompSource doesn’t have to base its rates on loss-cost modifiers issued by the National Council on Compensation Insurance, another advantage. And, as a continued “insurer of last resort,” CompSource gets an exclusive federal tax break on its entire book of business, even though the residual market likely comprises less than half of its policies (and possibly far fewer).
So the playing field has hardly been “leveled.”
State officials also remain actively involved in selling insurance. Grau’s legislation required that political appointees comprise a majority of voting CompSource board members. The lieutenant governor and state auditor can directly serve as board members, while three other members are appointed by the governor and legislative leaders. The law also declares that CompSource Mutual Insurance Company “shall not be permitted to dissolve.”
So the CompSource Mutual Insurance Company is a “private” company run by political appointees that gains much of its business not as the result of competition, but thanks to exclusive, legislatively granted advantages. And, thanks to the provision making CompSource’s closure illegal, the company has the tacit financial backing of state government should its politically appointed directors prove poor managers.
One legislative critic deemed this “Chinese-style capitalism.” It’s also a system rejected by most states. Reportedly, 38 states handle the residual market through an assigned risk pool in which all private carriers essentially take turns writing residual workers’ compensation coverage to equitably share risk.
The state Supreme Court’s ruling suggests serious CompSource reform is constitutionally viable. Now if lawmakers would only seize the opportunity.