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Senator Morgan Carroll tries to explain Pinnacol

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Senator Morgan Carroll, an Aurora Democrat who heads the interim committee looking into the 800-pound gorilla known as Pinnacol Assurance, knows plenty about the enterprise, which the Denver Business Journal describes as a "state political subdivision that operates as a mutual insurance company and serves as the workers'-compensation policy provider of last resort." As the Denver Post points out, she's an attorney who handles more than her share of workers' compensation cases. Yet plenty of locals have been baffled about the agency's status since the last legislative session, when lawmakers floated the possibility of using $500 million in Pinnacol reserves to help make up for budget shortfalls.

In an effort to lessen the confusion in advance of a committee hearing slated for Friday (the first of at least five), Carroll published an explanatory post on her blog -- and as befits such a complicated subject, it's massive. Reading it will either answer many, if not all, of your Pinnacol questions, or give you such a headache that you'll consider filing a claim. Check it out after the jump.

Interim Committee on Pinnacol Assurance

If you haven't been following the Interim Committee on Pinnacol Assurance, you may want to. The state workers compensation insurance fund has the largest market share in the state (57%) and as a result directly or indirectly impacts most businesses and employees in Colorado, whether they know it or not.

The committee was created by SB 09-281 to "study, make recommendations and report findings on all matters relating to the operation of Pinnacol Assurance."

The purpose of this committee is to ensure that policyholders are getting the best deal, that injured workers are being treated appropriately and that our workers compensation insurer of last resort is solvent and stable.

There will be 6 committee meetings. The first was held August 4th which gave a history and overview of Pinnacol and Colorado workers comp.

Below is a short description of what we will be covering each day:

August 14 - Rates, Compensation, Expenses, Policyholders August 31 - Medical Providers, Injured Workers Sept 4 - Different Future Models (Private, Public, Risk Pool, Hybrid etc) Sept 18 - Recommendations, Drafts Oct 16 - Final Votes

You can obtain information about our schedule, who is on the committee, when and where we will meet and get copies of all documents reviewed by the committee by going to: http://www.state.co.us/gov_dir/leg_dir/lcsstaff/2009/comsched/09PinnacolAssurance.html

The state compensation insurance fund was first created in statute in 1915. It was created as a political subdivision of the state and operated as a state agency until 1987 when the SCIF was removed from the state agency and the State Compensation Insurance Authority was created. In 1990 the legislature changed the SCIA to the Colorado Compensation Insurance Authority and modified the governing board and in 2002 the legislature changed the name of CCIA to Pinnacol Assurance, funds were transferred from the state treasury to the board and while they remained a political subdivision of the state, they were further directed to operate like a domestic mutual insurance company.

Almost every state has a mechanism for the "residual market", sometimes known as an insurer of last resort. Historically, this was because of a lack of available insurance to cover workers compensation. Also, as states began mandating that employers provide workers compensation insurance to cover all employees, many carriers would refuse to underwrite higher risk industries. In order to make sure that all employees are covered and at a reasonable rate to employers, states saw the need awhile ago to have a residual market mechanism.

The Legislative Intent of the Workers Compensation Act in CRS 8-40-102 provides that,

"It is the intent of the general assembly that the "Workers Compensation Act of Colorado be interpreted so as to assure the quick and efficient delivery of disability and medical benefits to injured workers at a reasonable cost to employers, without the necessity of any litigation, recognizing that the workers' compensation system in Colorado is based on a mutual renunciation of common law rights and defenses by employers and employees alike."

The committee will be deciding if the current structure of Pinnacol in law has sufficient clarity, and will evaluate models used by the 50 states for their residual workers compensation markets, evaluate the pros and cons for injured workers, policyholders and the people of the State.

Questions began to emerge as people questioned why a non-profit political subdivision of the state could amass over $2 billion in assets, $1.2 billion in reserves and $700 million in surpluses (4 -6 time more than levels recommended by the Division of Insurance). Because surpluses have been generally growing at a rate of $100 million per year some people began wondering if policyholders were being over-charged or if injured workers were being wrongly denied treatment and benefits. Of course, there are some people who don't there is any role for oversight here at all.

While the committee has up to 8 bills available, we will not know what, if any, changes are appropriate until we hear the testimony and input. All ideas are welcome and will be considered.

Frequently Asked Questions:

Q: Is the committee considering reviving the prior discussion of cash transfer from Pinnacol?

A: No.

Q: Are there other models for how states operate their workers compensation carrier of last resort?

A: Yes, several.

Q: Is Pinnacol Public or Private?

A: Pinnacol is a quasi-government state compensation insurance fund. It is a creation of state statute, a political subdivision of the state, pays no state / federal / property taxes or court fees. Its employees participate in the Public Employee Retirement Account (PERA) and its Board is appointed by the Governor and confirmed by the Senate. However, it is directed to operate LIKE a domestic mutual insurance company, so it will have features like a domestic mutual such as: being regulated by the Division of Insurance, filing lost-cost multipliers, and their ability to pay dividends to policyholders. It is legally different than a true domestic mutual insurance company in that it can only underwrite one line of business, that it is subject to the state auditor, and that it can not refuse to underwrite high risk business. The status of Pinnacol is not easy to understand and that very ambiguity has prompted some to recommend we clarify that status.

I am attaching a chart that clarifies the status:

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