This is the time of year when, in an economy like this, retailers deeply discount their merchandise to get a much-needed infusion of cash before the end of the calendar year. This is usually called the “year-end sale,” to distinguish it from Christmas sales, which anymore seem to begin sometime in August. In the current economic environment, the bargains will be many, provided consumers have the cash necessary to take advantage of them and are willing to open up their mattresses to get the dough. So how does this play into California workers’ comp?
One commodity likely not going to see deep discounts this holiday season is workers’ comp insurance. The reasons for that are puzzling. Increasingly, industry executives are casting a wary eye on this largest of insurance marketplaces even as labor and attorney advocates, and the commissioner, argue that there is more than enough capital to virtually give away insurance coverage. Self-insureds see troubling trends in medical costs, and it seems that more and more injured workers have sleep disorders, at least in Southern California.
Those who cast a jaded eye on this industry – a group that includes most of the industry itself – will point to 2005, which, to paraphrase Old Blue Eyes, was a very good year. It was so good, in fact, that it is probably still subsidizing increasingly deteriorating results from more recent years for many insurers. Not that any of this will stop the rhetoric or critics who still think it is appropriate to let insurers live off their earnings from the stock market.
To date, the most politically significant increase is from State Compensation Insurance Fund, raising its rates almost 9%. It would appear that the Fund has more in common with the Department of Insurance actuaries than does the commissioner, but we don’t need to get into that right now.
Given its mantra of being both a moderating and stabilizing influence on the workers’ comp market, policymakers, policyholders and others should take note of this significant increase and start to seriously ask questions about what has happened over the past three years to erode the reforms of 2003-04. To be sure, certain aspects of the reforms continue to perform well, but the demonstrable increase in medical costs per claim show something is amiss.
Even with this increase, the pain that business is going to feel in 2009 has much more to do with national and global economic issues than with the cost of California’s workers’ comp system. The same observation holds true for insurance companies, especially those with operations closer to the financial storm than property and casualty insurance. Funding workers’ comp liabilities is not a simple thing – whether it is the crisis in the financial-services sector, tightening of the reinsurance market, or accountability to directors and shareholders, there are ample reasons beyond a worsening loss environment that would cause insurers to look away from California and its workers’ comp market to invest their capital.
This all leaves the business community in quite a quandary. The State of California and its local governments frankly can’t afford a benefit increase. Indeed, compliance costs with EAMS alone have many local governments sweating. The administration holds out SB 899 as a great shining moment, while trying to develop critical mass for enough tax increases to come close to balancing California’s bloated budget. The business community’s leverage is minimal, but it certainly won’t be used to fine-tune workers’ comp issues.
Labor, on the other hand, gloats cynically at this turn of events. WCAB continues to resist full application of SB 899 reforms, allowing injured-worker advocates to simultaneously decry reforms and ridicule insurers and business for even hinting that all is not well in Compland.
Improvements in the system have veered off course, with notions of merging temporary disability benefits and the state disability income program while letting lie fallow the notion of taking medical treatment disputes out of the hands of lawyers and judges.
So, business community, enjoy what you have, for there is no scenario where it can be sustained, and next year, party like it’s 1999 – because in so many ways, it is.