Gird Your Loins! Let's Sell Off California's State Compensation Insurance Fund
By Lonce LaMon, An Editorial - July 24, 2009"If You Put The Federal Government In Charge Of The Sahara Desert, In Five Years There Will Be A Shortage Of Sand." Milton Friedman
I first saw this quote in my life at the top of Barry Zalma's ZIFL (Zalma's Insurance Fraud Letter) of June 15th 2009. At first read I laughed out loud. The humor so inspired me that I went on the Internet for hours and read about Milton Friedman (1912--2006). I say, he was one great Laissez-Faire economist.
I'd like to expand Friedman's witty statement to read, "If you put any government in charge of the Sahara Desert, in five years there will be a shortage of sand." Because I feel there are limitations to what the government should do, and one of those limitations should be that the government should stay out of the business of workers' compensation insurance. I say it's most appropriately and competently left to the private sector.
Arnold Schwarzenegger, the governor of the State of California, now wants to sell off a billion dollars worth of the book of business of State Compensation Insurance Fund to the private sector. He wants to give this business to the private insurance companies, where it belongs. And he wants to raise one billion dollars to add as a plus towards the negative 26 billion dollar California state budget deficit. And I say, let's gird our loins and do it! I say we jump: we immediately get our parachutes packed and ready.
In 1913, the California Workers' Compensation Insurance System was put together. In most states, workers' compensation insurance systems were put together between 1910 and 1920. Prior to 1910, what existed was a system of negligence. Long story short, an injured worker had to show that an accident had occured as a result of an employer's negligence in order to receive compensation. Cutting to the chase with the Readers' Digest version of the Readers' Digest version, law suits abounded. Both sides--the employers' side and the employees' side-- suffered. Thus, a no fault system was created.
Henceforth, back in the day, there was a severe limit to what was considered compensable under workers' compensation. Some states started out with a completely private system, others with a state monopoly, and some others with a competitive system consisting of a mixture of state insurance along with the competitive, participatory private sector insurance carriers.
Now, let's fast forward nearly a hundred years. What has State Compensation Insurance Fund in California created and allowed? I say an easy way for liberal politicians to create a Workers' Compensation welfare system. A system that drains employers of business profit, along with a system that deprives private insurers of profit. It facilitates the trend towards a catch all system of socialized welfare that takes away all "assumption of risk" from the employee. It goes too far to one side--to slamming the "assumption of risk" on the employer. Any overall losses in the system can consequently be passed on to the taxpayers.
Back in the "negligence system" prior to 1910, all employees assumed the full risk of employment. Then nearly a hundred years later, the pendulum swung completely to the other side--to the employer. And here we are now. Finally almost a century later, we should find a middle ground for the issue of assumed employment risk.
When I picked up my mail last Monday, there was a very fat, regular sized envelope from State Compensation, my workers' comp carrier, in my stack of letters. I opened that letter up and there was a report about a claimant of mine with a date of injury from some time in the year 2000. I glanced at the line about the amount of TTD that has been paid out to this claimant, to date. But after I quickly read it, I hurriedly put the report back in the envelope and have not taken it out again since. It’s now sitting on top of one of my computer towers and I cannot even file that report because I feel sick over the amount that has been paid out.
The amount paid in Total Temporary Disability only to this claimant for a trip and a fall down to the carpet in a carpeted office since the date of injury in the year 2000, is now over $280,000. And I do not even want to look at the medical expenses. It will make me so sick I will not even be able to function.
By the year 2004, my experience modification had swelled to 181%. I kid you not. I am labeled a “temp agency”—a special risk. And drug addicts are allowed to go on and on with their never ending prescriptions of oxycotin and percocet and morphine to the point that there’s no recovery in sight. And these prescription medication addictions are not usually a result of a trip and a fall down to the carpet. They are regularly a result of prior propensity to addiction in conjunction with massive preexisting conditions. But, workers’ comp picks up the tab for all, because the State of California system of laws allows it to get by in that way. It’s a sham… And it’s unfair to our private insurance companies who deserve a fighting chance to make decent profits.
Arnold Schwarzenegger did something when he came into office as Governor of California in late 2003. Before he even got to his desk, he reformed the Workers’ Compensation system in California by cutting out the overboard items eligible for compensation and revised the permanent disability schedules. Now Schwarzenegger wants to further his plan for a competitive and profitable Workers’ Compensation system in California by selling off 1 billion in business from State Comp, and I say let’s support him further in his work to get this done.
About twenty companies were able to come back to write Workers’ Comp in California after Schwarzenegger took office and implemented reform, and a good share of the Work Comp business has been rewritten by the private sector since then. Halleluyah.
I have talked and talked to the State Compensation Insurance Fund adjusters and the attorneys on this case until I am blue in the face. (And I’ve had many other pathetic cases besides this one I have just cited.) They don’t care to fight it on this case; they have nothing at stake. Of course they don’t want furlough and they don’t want one billion in their business sold off to the private sector. So, how meaningless is it that the “Board” of State Compensation Insurance Fund voted against the sale? Hello? That’s like asking people at a cocktail party if they’d like to see prohibition reenacted. Get real.
Let’s look at this floundering economy and think about how we need to put our hopes into the competent hands of the private sector. We have to keep the government small and the government jobs few, or else we create a spiraling number of civil servants with cush jobs and a lot of waste. These civil servant attorneys and State Comp adjusters are too secure and uncompetitive and untrained at our “quasi-state” agency. Give me a private attorney from a Floyd, Skeren & Kelly or a Laughlin, Falbo, Levi & Moresi or a Hanna & Brophy, etc. etc. any day (you know all the great names!) and let me have some good defense on this case! Defense attorneys who work for the private insurers and self-insureds have to prove themselves constantly. So, they have every incentive to do brilliant defense work. But, do the State Comp attorneys have this incentive? Not quite. So, let’s please get more of the cases out to the defense firms and into the private sector. Let’s start selling off the State Comp book of business. Let’s go, baby… Somebody please buy my policy! Put me on with Employers Direct or The Zenith. Help!
Why does a carrier like Employers Direct have to step back and withdraw temporarily from the California Workers' Comp market when they employ a pool of the most competent and talented executives and claims professionals in the Southern California region? Why is that?
Some of the most experienced, well seasoned, workers' comp professionals with the best professional reputations in the industry, work for Employers' Direct. So, this makes me very suspicious at an intuitive level that the problem is most likely coming from without rather than within. The external environment is driving this talented company to despair. Imagine Plato and Aristotle in a band of Neanderthals. Certainly they would have been out of their element. If Neanderthal culture had been their environment, for certain we would never have gotten Greek philosophy.
There has to be a balance: the insurance carrier has to be allowed to charge a profitable rate; that same carrier has to be allowed to make a reasonable profit as a result of the rate charged and the expenses paid out; and the employer has to be able to afford and exist in a private, competitive market place where he/she can find a competitive rate in order to prosper. But this aforementioned balance has to exist concomitant with one more factor: a reasonable LIMITATION on what is considered to be compensable (AOE/COE) in California according to law!
Over the last 30 years, the swelling of what had been considered compensable had expanded to the point of the ridiculous by creating California’s Workers’ Compensation into a social welfare system. Oh, just make everything compensable: from psychiatric stress, to mental illness, to the responsibility to rehabilitate a worker who can’t return to his/her usual and customary job, etc. etc. etc... It went so overboard that way too many insurance carriers couldn't compete and make a profit, and got brutalized as a result (1999—2003). Then a greater share of the work comp business fell to State Comp, with their never-ending lack of competitiveness and lack of efficiency. But most recently, since Schwarzeneggar, the private sector has won back a decent piece of the market share.
Good start. But we need to continue to push in the same direction to limit what human conditions should be considered compensable under Workers' Comp. So, how are we going to come out of this recession? Answer: by making California a totally private workers’ compensation system and balancing competition with all of the factors I have mentioned above.
What I've heard through the grapevine from a couple of in-the-know professionals, is that Employers Direct has been slammed by stratospheric medical costs on their claims, thus, prompting them to need a well deserved break and a breather. So, why haven't they been able to control their medical costs?
I don't know. I'd have to interview them to get some real insight, but I can conjecture that maybe it's related, in part perhaps, to self-procured medical treatment that rears its ugly head through liens. Sandra Gutierrez, the Vice President of Claims of ICA in Torrance, California, recently expressed the manifestation of an "epidemic of liens". They mount up monumentally, and a carrier loses money. But, shouldn't self-procurred medical treatment be the responsibility of the claimant who goes outside the network? Isn't that the way it is with our HMOs and PPOs with our group medical insurance and shouldn't that same principle apply to the workers' comp system? I know that I often go outside my network on my medical plan, and I reasonably expect to pay for it when I do. So, insurance carriers should not have to pay for liens, and they shouldn't be slammed with the expense of having to fight them off.
Good bye, State Compensation Insurance Fund. It’s been nice knowing you. I consider it the height of bad manners not to know when to leave. So, it’s time to go… As Andrea Bocelli sings, “Time To Say Good-Bye…”
While I was never too impressed 30 years ago by Schwarzenegger’s overly endowed muscles concomitant with all his mindless action-adventure on film, I am certainly impressed now by his first class intellect and extraordinary skills as a politician.
Readers may write to writer Lonce LaMon at: lonce@loncelamon.com
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