State governments are scrambling for cash and looking, it appears, in all the wrong places. Back in April we blogged the abortive attempt by the state of Colorado to use the claim reserves from its state-run workers comp fund to plug the deficit hole: a bad idea that died a quick death in the thin mountain air.
Now California has its eye on a similar prize. They want to sell one billion worth of the best policies from the State Insurance Fund (SCIF) and use the proceeds to plug a bit of the $24B budget deficit. While nowhere near as daft as the Colorado plan, this one has its flaws, too.
Insurance Commissioner Steve Poizner is seeking a court injunction to prevent any sale of SCIF policies. Poizner, like Arnold Schwarzenegger, is a republican. Indeed, he covets the office that Arnold now holds, having set up a committee for a run in 2010. (Under California law, Arnold cannot seek another term.)
Poizner believes that the sell off would violate the state’s constitution as well as lead directly to higher workers comp rates for employers. With its 7,000 (!) employees, SCIF is the largest carrier for comp in the state. They insure roughly 200,000 employers (the total number of policy holders in many states).
While it’s not clear what effect the sell off would have on non-SCIF policy holders, it surely would mean trouble for the many companies insured by SCIF. You don’t peel off your best risks without impacting overall results. It’s safe to assume that the best risks in SCIF balance out the losses among the higher risk companies. The immediate effect of the sell off would be a serious erosion in SCIF’s loss ratio, inevitably leading to higher premiums.
California employers have experienced a painful rollercoaster ride in the price they pay for workers comp: their worst-in-the-country rates have moderated dramatically over the past few years, but once again are trending up. As pressing as the budgetary needs in Sacramento are, this one shot solution will only result in big problems down the road. This is one idea from the Terminator that deserves to be terminated.
Tags: California, SCIF