Gov. Jared Polis wants to privatize Pinnacol, the state’s workers’ comp carrier. Will the third try be the charm?

Facing a massive budget deficit and a workforce that is decreasingly bound by state lines, Gov. Jared Polis has pitched a solution that’s been raised twice in recent memory at the Colorado Capitol: spinning off the state’s stake in Pinnacol Assurance.

Privatizing the quasi-governmental insurance company would mean pulling the state out of the workers’ compensation game, while raising serious one-time money to help plug the budget — an idea that Polis hasn’t yet sold lawmakers on.

Pinnacol serves as the workers’ compensation insurer of last resort for the state, ensuring that high-risk industries, such as roofing, can meet the legal requirement for coverage. But Pinnacol also faces a competitive disadvantage because of its government affiliation and unique restrictions — chiefly an inability to operate across state lines — that threaten its long-term sustainability, backers of privatizing it say.

Spinning it off from the government would allow the state to recoup its investment in the business at a time when budget writers need to fill a budget hole that, as of a Dec. 19 projection, is estimated at $672 million. That gap for the coming fiscal year, which starts July 1, would rise beyond $1 billion if lawmakers opt to set aside the entire $350 million mandated for a new law enforcement fund by a successful November ballot initiative.

Polis’ proposal is the third time in roughly a decade that state leaders have broached the idea of privatizing Pinnacol. As lawmakers ask for more details before committing to the move, its chance of success in the upcoming legislative session isn’t clear.

Past attempts have faltered over concerns about what spinning off Pinnacol would mean for the future of workers’ compensation as well as fears that holes in coverage could emerge as a result.

If successful, the spin-off would mark a departure from a century of precedent for how the state approaches workers’ compensation.

“There are a lot of questions about how this would work,” said Rep. Emily Sirota, a Denver Democrat and a member of the legislature’s powerful Joint Budget Committee. “… We’re just waiting on numbers from everyone because this was, I guess, a new proposal that hasn’t been fully baked. What happens to those that need an insurer of last resort?”

Polis pitched the spin-off during his budget presentation on Nov. 1. He didn’t envision a sell-off of Pinnacol, but instead proposed spinning it into a fully private enterprise. In its 2023 financial statements, Pinnacol reported total assets of just over $3 billion.

The state would effectively pull out money it has in the enterprise, which is worth an estimated $100 million next year, with more money expected in the following four years. In total, it could top out at more than $305 million over that time frame. That money could then be used to shore up the general fund and the state’s Public Employees’ Retirement Association, or PERA. Both face alarming deficits that lawmakers are trying to close.

The move also could keep Pinnacol competitive in an evolving marketplace by allowing it to sell policies across state lines.

“Pinnacol has been struggling with regards to how they can engage with employers in a changing world,” Polis said then. “They can’t write out-of-state policies for location-independent workers, even within Colorado companies. So as we do that, we want to make sure that we can future-proof and reform Pinnacol.”

Assessing risks of move

Rep. Matt Soper, a Delta Republican, ran a bill in 2021 to privatize the insurer. He said the problems Polis describes now were persistent then, chiefly around Pinnacol’s competitiveness. Its inability to sell across state lines decreases its insurance pool, and its statutory requirement to serve as the insurer of last resort means that those who remain are higher risk.

That dynamic poses the chance of a financial death spiral in which premium costs rise to make up for the smaller, riskier pool. In turn, the higher costs drive more employers out of the pool — making it even smaller, even riskier and even more expensive.

The market is simply different now compared to when the General Assembly created Pinnacol’s predecessor in 1915, Soper said. That’s the year the legislature started requiring businesses to carry workers’ compensation insurance. But back then, few affordable policies were available on the open market.

“The benefit of being a public subdivision doesn’t have the same benefit anymore,” Soper said, noting the competition that exists now. “In fact, it becomes a liability because your insurer of last resort has a higher premium than another company.”

Spinning off Pinnacol would help make the insurer more competitive on the open market, Soper said. But that doesn’t mean the state has to stay completely on the sidelines or abandon it as the insurer of last resort for workers.

“I definitely believe that if premiums start to creep up from where they are with Pinnacol, the state should intervene somehow, whether with a beneficial tax treatment or some other idea,” Soper said. “If we tell businesses that you need to have workers’ comp, and those benefits be included, (then) those requirements need to be affordable. Because otherwise, we’re just driving up costs for businesses.”

Krjsten Forseth, a lobbyist for the AFL-CIO, said arguments about the program’s competitiveness miss the point. As the insurer of last resort, it acts as much as a social safety net, of sorts, for employers who need to cover their workers. She also took umbrage at it being pitched as a way to soften the budget crunch, with little detail on how it would work — or assurances that it wouldn’t blow up and further hurt employees who rely on PERA.

“The frusting way this conversation started — with the promise of money with nothing else to back it up — I feel like that’s a very unfair approach to a conversation that’s been going on for over 10 years,” Forseth said.

Next steps unclear

Where Polis’ spin-off proposal goes from here remains an open question.

Since it would free up about $100 million in spending by shipping the money to the retirement fund, the powerful budget-writing committee is a likely candidate to carry the bill. But that possibility was news to several of the committee members.

Like Sirota, Sen. Jeff Bridges, the committee chair, said he was still waiting for details on the proposal.

“I hope there’s a lot of people somewhere figuring all the details out, and they’re going to present it to us in a nice package with a bow on it, so that we can digest it,” Bridges, a Greenwood Village Democrat, said. “But I haven’t heard anything.”