February 22, 2010 07:06 PM UTC

Pinnacol seeks a "quicky divorce" from the State

•  
• by: allyncooper

(Good questions. What are the implications if the “divorce” is granted? – promoted by Middle of the Road)

POLS UPDATE: No stinking deal, says Senate President Brandon Shaffer to The Spot:

“The Pinnacol transaction is not something we’re seriously looking at this year,” Shaffer, D-Longmont, told reporters. “I think it’s a bad deal on a variety of different levels, and I’m not willing to go forward with it.”

Any deal to give the state-chartered worker’s compensation insurance fund autonomy would have to be approved by lawmakers, and would require either Shaffer or House Speaker Terrance Carroll, D-Denver, to allow a legislator to file a late-status bill. Shaffer said he would not allow a late bill in his chamber for that purpose…

Pinnacol’s proposal called for paying the state $75 million in the current budgetl year that ends in June, $75 million next year and $50 million over 30 years. Senate Democrats had already ripped the proposal as ridiculously low, pointing to the fact that Pinnacol’s assets had been as high as $2 billion in recent years.

House Speaker Terrance Carroll was a little more equivocal, but this “offer” by Pinnacol to privatize itself on its own terms, in exchange for a small fraction of what legislators were prepared to take last year sans concessions honestly could be considered an insult. Original post follows.

—

Pinnacol Assurance, the statutorily created workers compensation insurer which has 57% of the market, is seeking a “separation” from the State of Colorado.

Pinnacol is proposing that the current enabling statute be amended to include the following:

1. Pinnacol will no longer be a political subdivision of the State but will operate as an independent domestic mutual insurance company.

2. Pinnacol will still underwrite the residual market and thus retain its Federal tax exemption.

3. Pinnacol will pay an annual premium tax of 1% outside of the residual market (what other insurers currently pay)

4. Pinnacol has offered a  ” $200 million buyout to the State”  

5. Pinnacol wants the deal done on or before June 30, 2010 – hence the “quicky divorce”.

Obviously the Pinnacol separation proposal is a counter to the current proposed bills in the Legislature that were the result of the Pinnacol Interim Committee hearings held last summer chaired by Senator Morgan Carroll, D-Aurora. That committee was legislatively mandated after the aborted attempt to appropriate $500 million of surplus Pinnacol funds last session to help with the budget crisis.  

The Interim Committee examined the operations of Pinnacol in comparison to other states, and also heard extensive testimony about problems at Pinnacol involving denied claims by injured workers (including bonuses for Pinnacol claims adjusters denying claims), and wrongful denial of medical care and substandard care.

At the same time, the Committee found excessive and non-compliant CEO and upper management compensation packages per industry criteria and questionable and extravagant expenses for top management.

Another issue examined by the Committee was the excessive and intrusive surveillance of injured workers, Pinnacol spending $ 4.7 million to spy on thousands of injured workers but only 10 out of 50,000 + claims actually convicted of fraud for a cost of $ 470,000 per conviction.

The bills coming out of the Committee and in the Legislature for consideration do not fundamentally change the statutory relationship between Pinnacol and the State, but rather address the above issues of accountability, openess, and fairness to injured workers. A key point in the Pinnacol separation proposal is that none of the proposed Interim Committee bills be passed by the Legislature, thus negating the work of the Committee intending to address the issues of injured workers who are denied claims, are denied adequete medical care, and the other “heavy handed” practices of Pinnacol in the way it sometimes treats claimants.

Although the headlines are touting a “$200 million payout” to the state (certainly enticing given the current budget crisis), the details as proposed by Pinnacol call for payments over a period of time to be determined, and $ 50 million to be in the form of a surplus note to the State over a period of 30 years. By surplus, Pinnacol states that the payment of such note is subordinate to the other claims of conventional creditors. In other words, the State is last in line to collect its money.

It will be interesting to see where this goes. Ken Ross, CEO of Pinnacol, made a similar proposal last year on the eve of the Interim Committee hearings ( reported by me on Pols 7/30/09 “Pinnacol feeling the heat?”). However Senator Carroll, the chair of the Interim Committee, claims that Mr. Ross never made any such proposal to her or the Legislature, apparantly Mr. Ross played it through the press at a meeting with the Denver Post’s editorial board.  

Given the current fiscal crisis of the State, the Pinnacol separation proposal may sound appealing to many. But the Legislature should be cautioned to look at this critically, as to the financial ramifications of the “separation” (is it really a good deal for the State?), and more importantly, will the rights and reforms necessary to protect injured workers be abrogated ?