WE'VE often wondered: What part of “free markets” do politicians not understand? Now that Oklahoma House lawmakers have voted to “privatize” a state-run workers' compensation insurance company but leave it operationally controlled by politicians and given regulatory preference, we ask that question again.
State-run CompSource was created as an insurer of last resort for those who can't otherwise get coverage (the “residual market”). Thanks in part to regulatory advantages, it now controls around 30 percent of the market. Privatization creating a level playing field is necessary. But that's not the goal of the House legislation.
Under House Bill 2201, CompSource's board of directors can set rates without Insurance Department review, a benefit no other private company enjoys. The bill also requires that political appointees comprise a majority of CompSource board members. The lieutenant governor and state auditor and inspector could both directly serve as board members; three members would be appointed by the governor and legislative leaders.
Furthermore, the legislation declares the supposedly privatized CompSource Mutual Insurance Company “shall not be permitted to dissolve.” Translation: This supposedly private company would be politically run and politically protected. There's clearly a tacit promise of a taxpayer bailout should the board run the company into the ground. As Rep. Lewis Moore, R-Arcadia, declared, “This is more like Chinese-style capitalism …” He's right.
If HB 2201 becomes law, CompSource will lose some regulatory advantages, but those it retains are significant. Unlike other companies, CompSource wouldn't have to base its rates on loss-cost modifiers issued by the National Council on Compensation Insurance. As a continued “insurer of last resort,” CompSource would get an exclusive federal tax break on its entire book of business, even though the residual market comprises no more than 14 percent of state policies (and possibly far fewer).
But don't bother Rep. Randy Grau, R-Edmond and author of the bill, with details. Asked about the loss-cost modifier issue, Grau responded, “You're getting way above my pay grade with that. I'm not an underwriter or an agent.” Later Grau dramatically waved a 2009 task force report on CompSource, saying his bill sprang from its recommendations. But that task force could not reach an agreement. The report simply included the sometimes-conflicting recommendations of each individual task force member.
When a major insurance issue is authored by a legislator who admits he doesn't understand insurance and apparently didn't read the report he claims endorsed his proposal, Oklahomans have cause for alarm. Gov. Mary Fallin backs this bill. Her husband previously worked for a law firm that represented CompSource. Also, Fallin's newly appointed secretary of state has served on CompSource's board.
Contrary to some politicians' claims, workers' compensation is not incompatible with the free market. Moore pointed out that 38 other states have an assigned risk pool for workers' comp residual coverage. In that system, all carriers essentially take turns writing residual coverage to equitably share risk. Clearly, CompSource can be privatized and placed under the same rules as all competitors.
Opponents claim an assigned risk pool could result in higher premiums for some businesses. If so, it indicates that CompSource's rates do not reflect actual risk, are unsustainably low and expose the company to long-term financial instability.
Oklahoma needs a competitive free market in workers' compensation. What we're getting from the House is a politically protected “too big to fail” insurer.