Tuesday, August 16, 2011

MEM Review Demonstrates State Fund Vulnerabilties

Missouri Employers Mutual Insurance Company (MEM) is under review, prompted initially by some wrong doing of various board members unrelated to the business of workers' compensation or MEM operations, but continued under question as to whether the state created carrier of last resort was still needed to fulfill its primary mission of providing coverage to small employers.

Like most state funds, MEM was legislatively created to fill a gap in available coverage for small business.

According to MEM it still fulfills that mission as 83% of its policyholders involve premiums of $10,000 or less per year.

And like other state funds, MEM takes advantage of an income tax break afforded it due to a minimal level of state involvement and control.

While for-profit carriers often object to a state fund's tax advantages, those objections seem to only arise when a state fund becomes particularly aggressive and starts encroaching on the business targets of the for-profit carriers.

State funds serve a very important function in state workers' compensation systems. Since workers' compensation is mandatory there needs to be an affordable facility for providing that coverage to those businesses whose payroll is either unappetizing to for-profit carriers, or whose risk is too adverse for private enterprise.

But state funds also need to play by the rules. A state fund's place is not to openly compete for large scale business but, as I said, to fill the gap in available coverage. Wandering outside of that mission is cause for concern in any state.

And state funds must be sensitive to any public scrutiny, much more so than for-profit carriers, because they are ostensibly extensions of the government - any shenanigans at a state fund reflects upon the state government and are cause for public concern.

In the case of MEM, unwanted attention was brought upon itself by the fact that three board members recently resigned or were removed.

Former Missouri Gov. Roger Wilson was removed as MEM president in June because the insurer's board of directors "decided to make a leadership change." In April, Douglas Morgan, the former chairman of the St. Louis County Planning Commission and a chairman of the MEM board, was indicted on a bank fraud charge, according to the U.S. Attorney's Office for the Eastern District of Missouri. And in March, former MEM board member Karen Pletz, the former president and chief executive officer of the Kansas City University of Medicine and Biosciences, was indicted by a federal grand jury for the Western District of Missouri for allegedly embezzling more than $1.5 million from the university.

It should be emphasized that the two board members under indictment are not being investigated for wrong doing at MEM and no public reason was given for the removal of Wilson other than as stated.

Its not necessary for a board member to have insurance experience, but in the case of MEM, where the governor can make appointments without senate confirmation, there must be sensitivity to the appearance of impropriety. I applaud MEM for cooperating fully with the Lembke review and a one-time review by State Auditor Tom Schweich. These are necessary steps to prop its credibility and bolster its reputation.

State funds are necessary in the work comp world - they provide stability, a safety net, and a benchmark. They are not, however, one of those political plums that should be used to return favors. I feel confident that Lembke's committee will find that MEM is necessary and does fulfill its primary mission, and I also believe some changes in the methods and operations of its board and executive suite will be forthcoming.

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