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Will Privatizing CompSource Lower Costs?

The proper role of government in health care has been the source of many recent arguments on health care reform.  A similar argument has been going on at the state level in Oklahoma. According to a recent Tulsa World article1, “Workers comp proposal mulled “ , Oklahoma State Rep. Dan Sullivan wants to privatize CompSource Oklahoma because: “It’s a fundamental issue of what is the proper function of government . Is it to compete with private enterprise? We think not.”   According to Sullivan, the incentive behind the privatization is to lower workers’ compensation insurance rates as rates should fall because of increased competition.

 That rationalization seems weak. It would seem that providing workman’s comp to state workers is a proper function of  the state government.  CompSource Oklahoma  has been doing so for 76 years – apparently successfully. Many private businesses use CompSource. Why would they do so if private insurance companies can provide better service and lower rates?

 According to an expert in comp insurance 2: “ CompSourse  is an insurance carrier of last resort when all other insurance companies turn down a company for coverage.  If they privatize, the competing insurance companies cannot just dump the employers over to Compsource. I think there will be an overall price increase. Instead of having CompSource as a safety net, more companies will be put into the risk pool. The risk pool forces carriers to insure the higher risk employers.  This sounds good, except the downside is the rates are 40% -70% higher than the regular insurance market. “

 There you have it. If CompSource is privatized, it will cost the companies it now insures  and the State of Oklahoma more  to provide workman’s comp. That sounds like a bad idea. 

Privatization for ideological reasons often fails as a practical way to lower costs. Privatizing Social Security increased the cost to the government by 14% and created the infamous “donut hole“ that costs seniors an additional $25 billion annually. After the recent economic downturn, we should all be grateful that the plans to privatize Social Security failed.

Finally, Sullivan doesn’t know who would get the proceeds from the sale of CompSource. He says he plans to file a bill that its assets belong to the state in the hope that it will result in a lawsuit which will let the courts decide the matter. That seems like a stange plan from Sullivan, who promoted Tort Reform to end frivolous lawsuits.

(1)Tulsa World , August 7, 2009

(2) James Moore at J&L Risk Management

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