Colorado Workers Comp Under Review
Workers compensation is insurance that provides compensation for employees who are injured in the course of employment, in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence. The tradeoff between assured, limited coverage and lack of recourse outside the worker compensation system is known as "the compensation bargain." While plans differ between states, provision can be made for weekly payments in place of wages (a form of disability insurance), compensation for economic loss (past and future), reimbursement or payment of medical and like expenses (a form of health insurance), and benefits payable to the dependents of workers killed during employment (a form of life insurance). General damages for pain and suffering, and punitive damages for employer negligence, are generally not available in worker compensation plans.
In Colorado, about 100 large employers, including the state, are self-insured and don't buy workers' compensation coverage. Among those that do, Pinnacol Assurance is the dominant carrier, accounting for 57 percent of policies sold in the state. Pinnacol estimates it covers an estimated 1 million of Colorado's 2.5 million workers.
The Pinnacol Assurance has retained a $684 million surplus . State insurance division records show Pinnacol's surplus -- after accounting for actual and possible claims -- has grown by about $100 million a year over the last five years. Pinnacol also has increased policyholder dividends during that time, paying $79 million last year.
Now state lawmakers are taking a closer look at why the state-created workers' compensation insurer has so much extra money on hand. A legislative committee charged with studying Pinnacol's operations met for the first time Tuesday. The group's leaders said they want to find out whether injured workers are wrongfully being denied benefits and whether the businesses that Pinnacol covers are being overcharged.
Proof of its reach can be seen on the committee itself. Seven of the nine lawmakers present for Tuesday's meeting said they either currently had Pinnacol coverage for their own businesses or had been covered by Pinnacol as an employee in the past.
Pinnacol has said it needs a larger surplus -- about six times larger than the minimum required by state regulators -- because it can't rely on the state or a parent company to back it up. Private insurers typically hold a surplus of up to three times the minimum amount and return the rest to the parent company, which can use the money to subsidize other branches of its business.
The committee's vice chairman questioned why the benefits required by Colorado's workers' compensation law are in the middle of the pack nationally, yet the average benefit paid to workers was near the bottom among the states. The director of the state's Division of Workers' Compensation, said the average was spread across all workers, both injured and healthy, and said it could be low because Colorado companies could be safer than companies in other states.
Several non-lawmakers who have experience working with Pinnacol are serving on the committee, including Pinnacol CEO Ken Ross. Ross is scheduled to switch to the other side of the hearing table later to offer testimony, which leads some to ponder how unbiased can be the review process.
The committee will hold five other meetings, including one with injured workers, before voting on whether to make any changes to Pinnacol. One of the options includes selling it.