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Missouri looks to privatize workers compensation fund


JEFFERSON CITY, Mo.—Missouri legislators are considering a set of bills that could restructure Missouri Employers Mutual Insurance Co., joining other states that have worked in recent years to privatize their workers compensation funds.

The bills would sever ties between the state and Columbia, Mo.-based MEM, ending its status as a “public corporation.” The legislation is expected to be taken up again after the Senate returns on March 19 from spring break.

Jamey Murphy, chief of staff for state Sen. Jim Lembke—who sponsored two privatization bills—said such legislation aims to help insurers compete with MEM, which holds 16% of workers comp market share in the state.

"It's an unfair advantage to competitors, in our minds, because (MEM is) still tax exempt," Mr. Murphy said.

Missouri's largest workers comp insurer would lose its federal tax exemption if it lost public status, and would have to consider cutting back on some services that it provides to its policyholders—most of whom are small businesses, President and CEO Jim Owen said.

MEM would have to decide “whether a private company no longer having that federal tax exemption would want to continue to do those public purpose mandates that it has by statute," Mr. Owen said.

Other states recently have had mixed results in attempting to privatize their state workers comp insurers.

A plan to privatize Denver-based Pinnacol Assurance stalled in February after a task force appointed by Colorado Gov. John Hickenlooper—which included policyholders, labor representatives, agents and public interest groups—raised numerous questions about the proposal.

Arizona passed legislation in 2010 that will privatize the Arizona State Compensation Fund next year, however Washington voters rejected a similar proposal that same year for its monopoly workers comp system.

Mr. Owen said he's hopeful that legislators will see that MEM operates differently than other state workers comp funds. MEM is not a state agency, and does not receive state funding, according to Missouri's workers comp law.

Still, MEM has several connections to state government. Three of five MEM board members must be approved by Missouri's governor after their election by policyholders, and the mutual insurer has the ability to issue revenue bonds.

Unlike private insurers, MEM also is mandated by the state to underwrite policies for all insurance agents in Missouri and operate a workplace safety program for all policyholders.

Mr. Owen said MEM operates such programs at a “significant administrative cost,” and likely would put them on hold if the insurer became a private corporation.

“The idea behind the exemption is if you're getting that $3 million tax break, you're supposed to put that money back into the state,” Mr. Owen said. “I don't know that a (for-)profit board would want to continue to do that.”

Missouri S.B. 660, introduced by state Sen. Eric Schmitt, would require MEM to restructure itself as a private mutual insurer by Jan. 1, 2013. The bill also would require MEM to pay $127 million in surplus premiums to the state's general revenue fund.

Similar bills introduced by Sen. Lembke—S.B.s 866 and 624—would give a January 2014 deadline for MEM's privatization, but would not require MEM to contribute funds to state coffers.


S.B. 856, introduced by Sen. Scott Rupp last month, would establish a senate committee to consider whether MEM should be "sold, privatized, or extinguished." The committee would report its findings by the end of this year.

Mr. Owen said the insurer backs the bill that would form an exploratory committee. In a statement last month, the insurer said a forfeiture of its surplus under S.B. 660 “could force us to close our doors.”

A report last month from the by Missouri State Auditor's office said that MEM's tax-exempt status has helped the insurer accumulate a $163 million surplus and "become the dominant provider in the state's workers' compensation market."

Mr. Murphy of Sen. Lembke's office contends that MEM's surplus highlights an unfair advantage that the company has over other insurers in the state.

"They have more than enough money in reserves, and most insurers in that position would pay dividends," he said.

Brad Jones, state director for the National Federation of Independent Business in Missouri, said about 45% of the organization's 9,000 members are insured through MEM.

The group supports legislation that would study MEM's privatization. But Mr. Jones said there is concern that such a move could negatively impact Missouri's workers comp rate environment.

Small businesses "want stability," Mr. Jones said. "I'm afraid if they say, 'you guys are out of here,' then it's going to completely destabilize the market."

Missouri has taken on additional workers comp legislation in recent weeks. On Thursday, the House and Senate approved S.B. 572, which requires occupational diseases to be covered solely by workers comp, except in cases of toxic exposure to chemicals, radiation and other substances caused by a third party.

A separate clause says an employee's co-workers can't be sued for workplace injuries or deaths that would be covered by workers comp, excluding cases of negligence. The bill has been sent to Missouri Gov. Jay Nixon.

A spokeswoman for the Missouri Chamber of Commerce and Industry said the legislation will benefit businesses that have been negatively affected by loopholes in the state's workers comp system.

"These iniquities in the law right now have a potential to put a lot of financial strain on employers involved in these situations and raise costs on the system as a whole unless something is addressed," she said.