Missouri lawmakers ponder future of largest comp insurer after audit

Should the Missouri Employers Mutual Insurance Co. continue to enjoy federal tax-exempt status? Should it be subject to additional restrictions on employee compensation and operating expenditures? Is it subject to the state's Sunshine Law? Should it be allowed to participate in other state programs through the purchase of its taxable subsidiary?

Those are among the questions being asked after a state audit of MEM. A trio of proposals is being considered by the state Senate that could result in the company being privatized and/or having to pay a portion of its $163 million surplus to the state.

MEM was created by state statute to provide Missouri employers, especially small businesses "with a means to obtain workers' compensation liability at a reasonable cost," according to the auditor's report. With approximately 16 percent of market share, MEM is the state's largest workers' comp insurer.

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"MEM enjoys the federal income tax exempt status of a public corporation, an advantage that competitors do not enjoy," the report said. "MEM essentially operates as a private entity, compensates officers and employees at rates that are in excess of public sector entities, incurs expenses that are not considered acceptable in the public sector, and does so without complying with state open records laws."

The audit also noted that MEM paid $7.2 million for a for-profit insurance company that held insurance licenses in other states, "but state law may not allow it to provide coverage to Missouri companies that employ workers in other states."

Finally, the audit estimated MEM has saved "approximately $50 million in federal taxes since 1993." The audit noted that the company has "certain statutory obligations other non-exempt companies do not have." For example:

A requirement to underwrite policies for all of its estimated 4,000 agents licensed to sell workers' comp in Missouri.
A mandate to give preference to small business owners with annual premiums not greater than $10,000. The audit noted that more than 80 percent of MEM's policyholders are small businesses.
A requirement to formulate, implement, and monitor a work safety program for all policyholders.

"MEM officials contend these additional costs offset any advantage MEM received from being tax-exempt," the audit said. "However, MEM was unable to quantify the impact of these additional requirements."

MEM officials said the company is not a state agency and, except for a startup loan that was repaid with interest, has never received state monies. It said that some "immaterial, questionable expenditures" addressed in the auditor's report had already been identified and addressed prior to the audit. In terms of compensation and other expenses, MEM said they are "reasonable and necessary for a mutual insurance company," saying the audit "compares MEM to a public sector entity which it is not."

As for whether the company should be subject to the Sunshine Law, MEM said its operations are "carefully regulated and as transparent as competitive circumstances permit" and that it is "already subject to significant public oversight."

In response, these proposals are before the state Senate:

S.B. 856 would establish a panel to study whether MEM should be sold, privatized, or extinguished.
S.B. 6245 would require MEM to transition into a private mutual insurance company by Jan. 1, 2014.
S.B. 660 would require MEM to transition into a private mutual insurance company by Jan. 1, 2013 and require it to transfer $127 million of its surplus to the state's general revenue fund.

Read more at the WorkersComp Forum homepage.

April 2, 2012

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