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Lawmakers could study Missouri Employers Mutual to determine next steps

This article first appeared in the St. Louis Beacon, April 12, 2012 - Former Gov. Roger Wilson’s crime isn’t likely to spark a push to privatize Missouri Employers Mutual Insurance Co., the state’s largest provider of workers’ compensation insurance for employers.

But it may give a push to state Sen. Scott Rupp’s legislation to create a committee to examine the MEM’s market value, operations and purpose over the next few months.  

Such a committee – which would include three senators appointed by the president pro tem and two senators appointed by the minority leader – would submit a report of its findings no later than Dec. 31. According to a bill summary, the measure would study whether the agency should "be sold, privatized, or have its current structure modified." The committee would also "calculate the value of the MEM in case the committee recommends selling the company to another insurer."

Rupp said in a telephone interview on Thursday that the committee would allow time for lawmakers to examine a complex issue.

“Today’s news was expected; we knew all the problems they’ve had and things of that nature,” Rupp said. “I don’t think I see anything changing because of Gov. Wilson’s indictment. It’s just another black cloud hanging over (MEM). And we just have to keep peeling back the layers of the onion.

“Rushing forward is not the best thing; there are still a lot of questions to be answered,” Rupp added.

Start of update: Later in the day, Rupp called on the Missouri Ethics Commission to investigate.

"Our current and former elected officials must uphold the trust granted to them by Missourians, not use their position to illegally funnel campaign contributions to themselves for political gain," said Rupp. "I urge the Ethics Commision to immediately investigate to make sure that this practice is not more widesspread within this administration." End update.

The Missouri legislature created MEM as a public corporation in the 1990s to ease businesses’ difficulties in obtaining workers’ compensation insurance. Since three of its board members are appointed by the governor, MEM is exempt from paying federal income taxes.

But the agency has received increased scrutiny in recent months, especially after two board members -- Doug Morgan and Karen Pletz -- were indicted. Morgan died last November before his case for bank and wire fraud could go to trial. Pletz died last November in Florida of an apparent suicide, according to the Kansas City Star.

Wilson, who had been president of MEM, was placed on administrative leave in 2011. Soon after, though, he was ousted. He was indicted on Wednesday along with St. Louis attorney Edward J. Griesedieck for misusing $5,000 from the agency to reimburse a campaign contribution to the Missouri Democratic Party. He later pleaded guilty to the charge.

State Auditor Tom Schweich released an audit this February noting that MEM’s tax advantages allowed it to accumulate a surplus "in excess of $160 million,” which he said allowed the agency to become the “dominant provider in the state's workers' compensation market.”

The audit also said that the company “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 concluded: “The General Assembly [should] determine if MEM is operating and performing as initially intended, whether MEM continues to fulfill a necessary public mission, and clarify state law as is deemed appropriate.”

Sen. Eric Schmitt, R-Glendale, and Sen. Jim Lembke, R-Lemay, put forward bills to start the process of transforming MEM into a private entity. Part of Schmitt's bill includes provisions to transfer proceeds from MEM's sale into the state's general revenue.

“I don’t think the government should really be in this business any more,” Schmitt said in a telephone interview. “It’s sitting on unusually high surpluses. It’s time to privatize this thing and get out of this business. [The indictment] just sheds more light on it and probably brings more information about the history.”

Schmitt said workers’ compensation insurance has become more affordable since the legislature passed an overhaul of the state’s torts system in 2005, which raises further questions about the need for the agency.

“I believe we need to start the process now,” Schmitt said. “But I am comfortable with the idea that if Sen. Rupp’s legislation does move forward, I would expect we would be serious about how to move away from this now, how to … sort of wind this thing down. There’s a pretty robust market out there now. So even if you accepted the premise in the '90s that there was a need for this, I just don’t see that anymore.”

Rep. Jay Barnes, R-Jefferson City, said it would be “irresponsible” for the legislature to put privatization in motion without further study. Barnes is the chairman of a committee that held hearings on the issue earlier this year.

“They have I believe over 15 percent of the small group workers’ compensation group market in the state of Missouri,” Barnes said. “And anything we do with Missouri Employers Mutual could have an impact on literally thousands – if not tens of thousands – of small employers in the state. So if we’re going to do anything, we’ve got to make sure that we’re doing that right thing. And that requires a much longer period of study and reflection than what is available right now.”

Barnes said that Rupp’s bill would be “the appropriate thing to do.”

“There are real policy questions whether there is a continuing need for an entity that operates with tax advantages against its competitors,” said Barnes. “And the way to do that is to conduct amore in-depth study than we’re able to do in the very middle of the legislative session when, as you know, 2,000 bills are floating around the chamber. [And] most of them have been vetted to a far larger degree than what we would do" with MEM.

Rupp’s bill would still need to go through the Missouri House for the committee to be formed. He added that the measure still has time to move through the process.

In a statement, MEM stated it "has sound governance procedures in place and significant management oversight to safeguard against material damage by any board member, executive or employee."

"The company has been and remains successful, and its future should not be tarnished by charges against individuals that are unrelated to the company’s operation or its fine record as the champion of workers compensation insurance in Missouri," the statement says.

Jason is the politics correspondent for St. Louis Public Radio.