With legislators again dragging their feet on Gov. Jared Polis’ proposal to privatize Pinnacol Assurance, the state-chartered workers’ compensation insurer and one of Colorado’s leading education-reform groups offered a plan of their own Monday — a ballot initiative that would put disaffiliation fees to worker training rather than into the state general fund.
The proposal, which was filed by Colorado Succeeds but has been discussed extensively with Pinnacol leaders, would permit the mutual insurance company to disaffiliate from the state and operate independently for a $150 million lump-sum payment. Pinnacol would also have to work out with the Public Employees Retirement Association how much it would pay the state pension fund for removing its 500 workers from the plan and creating an unfunded liability — a sum that PERA has proposed as $302 million.
Not only is that $150 million sum significantly lower than the $400 million Polis has proposed as a lynchpin to his budget-balancing plan for next year, but the money would bypass the general fund and its $800 million shortfall and go instead to a new initiative. The Skilled Workers and Trades Fund would provide scholarships to students seeking short-term credentials to enter in-demand fields from construction to technology and would address a shortage of skilled talent that many Colorado employers cite as a major problem.
Pinnacol intrigued by proposal
John O’Donnell is president and CEO of Pinnacol Assurance.
Pinnacol President/CEO John O’Donnell said that while the insurer’s board of directors has yet to vote on whether to endorse the proposal, the plan would advance the company’s mission to boost worker safety by helping to train workers in a plethora of fields. Meanwhile, Polis’ plan would leave the company in a financially unsustainable position because of the combined costs of the disaffiliation fee and PERA payout, undercutting its aim to help Pinnacol compete better in a market where it’s losing share, he said.
“At this point, it’s another option,” O’Donnell said in an interview Monday. “The $400 million (plan) that’s being discussed, that’s not feasible for Pinnacol in order to be able to maintain our capital adequacy.”
Polis’ office said through a spokesman Monday that it has not seen the language of the ballot initiative yet and will review that language if it makes the ballot. But the governor stands by his plan as part of his budget proposal for the fiscal year that begins on July 1, as it could cover half of the budget shortfall and ensure that seniors can receive their Homestead property-tax reductions next year.
“The governor agrees that Pinnacol, for long-term sustainability, needs to be converted to a private entity,” deputy press secretary Eric Maruyama said in an emailed statement. “We feel that the Legislature has an opportunity to address this issue this legislative session.”
How plan could impact employers
If it were to make the ballot and receive voter approval, the proposal could have significant impacts on workforce development and on the workers’ compensation system in Colorado.
Pinnacol, though it functions largely as an independent policyholder-owned insurance company, has its board appointed by the governor and operates under charter restrictions that limit it policy sales to Colorado residents. This restriction has dropped its one-time 60% market share to less than 50% over the past decade as more companies expand and hire remote workers in other states, and Polis and Pinnacol leaders say that future losses of revenue could force service or benefit cutbacks if out-of-state growth isn’t allowed.
After being involved in numerous workforce-development efforts in recent years, including the Opportunity Now Regional Talent Summits that sprang from the efforts of the business-backed Education to Employment Alliance, Colorado Succeeds President/CEO Scott Laband said he saw many ways Colorado could boost its talent pipeline. But he also came to believe that the state has a limited supply of resources going to this goal and began to think about new ways to fund such efforts without raising taxes, realizing that a disaffiliation of Pinnacol could offer new revenues.
New fund for workforce training
Colorado Succeeds President Scott Laband and Colorado Business Roundtable President Debbie Brown speak at the Future of Work event in July 2023.
Under the ballot initiative filed Monday, the $150 million disaffiliation fee that the insurer would pay the state would go into the new fund, as would the expected $10 million in annual premium taxes Pinnacol would pay once it loses its existing tax exemptions. By using 5% of the holdings annually for scholarships, in addition to the $10 million in premium taxes, the fund could offer some $15 million a year in payments for classes, even before calculating data and administrative costs.
That could mean that 5,000 people could get scholarships for non-degree credentials needed to fund pre-apprenticeships in the trades, get into data analytics in the tech field or enter health jobs like a certified nursing assistant or imaging technician, Laband said. The flow of the money would be determined by a state board overseeing the program that relies on resources like the annual Colorado Talent Pipeline Report to understand which jobs are most in need of a pipeline boost, he said.
“This is a way to create the legacy and continue the impact that the state Legislature and the governor have been working on for the last decade,” said Laband, pointing to efforts like the two- and five-year plans coming from the talent summits, the push for apprenticeships and the one-time funding used to boost pipelines into limited fields like health care and public safety. “It provides a way to fund those plans.”
Who becomes the insurer of last resort?
One of the biggest sticking points to legislators moving forward with Polis’ proposal has been the question as to who would take over for Pinnacol as provider of last resort. That role — for which Pinnacol receives a full exemption from paying state premium taxes as part of its state charter — requires it to offer policies to companies that are too high-risk to find coverage elsewhere on the market.
Under the terms of the ballot initiative, Pinnacol would remain in that role until June 1, 2028, even after it loses its premium-tax exemption on July 1, 2027, when it fully disaffiliates from the state. After that time, the Colorado Division of Insurance would determine how all carriers selling policies in the state would share the financial risk for companies that can’t procure private policies and then would assign a carrier or carriers on a three-year basis to offer those last-resort policies.
The new proposal is likely to receive pushback from legislators interested in using the disaffiliation fee to plug the budget shortfall, from labor advocates concerned about the state losing control of Pinnacol and from private carriers concerned about the impact on the market.
Pinnacol focused on members and workers
Asked if Pinnacol was hoping that this initiative would bring down the size of Polis’ proposed disaffiliation fee, Pinnacol Vice President of Public Affairs Wes Parham said that was not the aim.
“We’re focused on representing the best interests of our members and our workers,” said Parham, emphasizing that disaffiliation is key to that goal. “We’re encouraged by this proposal’s focus on workforce development and skills training that are well known to prevent workplace injuries.”
Laband said he is working to put together a coalition of business leaders and workforce-training leaders to push the initiative forward. It has yet to be scheduled for its first hearing before the title-setting board that needs to give it title approval before backers can begin collecting petition signatures.