Missouri Workers’ Comp Insurer Scrutinized

Missouri state senators are looking at making changes to a state-created insurance company after an audit criticized the firm’s operations and expenses. State Auditor Tom Schweich wants lawmakers to investigate whether the tax-exempt status of workers’ compensation insurer Missouri Employers Mutual Insurance Co. (MEM), should be retained.

MEM was created by state statute to provide Missouri employers, particularly small businesses, with a means to obtain workers’ compensation liability at a reasonable cost. The governor appointed the initial board of directors, after which the policyholders were to elect new directors. In 1997, MEM amended its bylaws to require the majority of its future directors be approved by the governor. MEM maintains that this allows it to remain a tax-exempt public corporation.

The Columbia-based insurer agreed in August 2011 to undergo what it described as a voluntary review after the auditor’s office threatened to file a public records lawsuit. The audit came after former Gov. Roger Wilson was replaced as the company’s CEO without public explanation.

While MEM has certain statutory obligations not required of other private entities, it has saved approximately $50 million in federal taxes since 1993 and has accumulated a surplus in excess of $160 million, the auditor’s office said.

MEM holds the dominant market share in Missouri, about 16 percent, and operates essentially as a private entity. It compensates its 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 not comply with state open records laws, according to the state audit.

In 2010, MEM paid more than $15 million in compensation and $2 million in employee incentive bonuses for approximately 200 employees. Its top 10 highest paid employees received an average of nearly $250,000 in salaries and incentive payments totaling $2,460,924. Incentive payments are generally prohibited for public employees, the auditor reported.

MEM paid around $1.58 million in severance benefits or payments to four former executives and employees who resigned or were terminated in 2009 and 2010, according to the audit.

One Senate bill would require MEM to transfer $127 million to the state as a step toward spinning off a new private company by 2013. Another would give MEM until 2014 to create a new private company but would not require it to pay the state. A third proposal would create a special Senate committee to study potential changes to the insurance firm.

An Associated Press report contributed to this story.