Friday, March 15, 2013

I May Be Psychic

I had no sooner made a post here about New York raiding the reserves of its Workers Compensation fund, and adding, as an afterthought that it was fortunate that Illinois does not have such a fund for politicians to raid, than I read that Illinois lawmakers are proposing exactly that, a competitive state fund for Workers Compensation.

H.B. 2919 has cleared the Illinois State House Committee on State Government Administration late Wednesday, it was reported.  But I swear I hadn't seen the report when I made my earlier post.

While such a competitive fund could potentially offer employers a better alternative than the current Assigned Risk Plan administered by NCCI, there are sooooo many potential pitfalls with the idea that it is difficult to see a bright future for this proposal.

For one thing, the bill would have the Illinois Department of Insurance administer the fund.  But the DOI has been suffering in recent years from a massive drain of experienced people--as the state encouraged long-term workers to retire.

And of course there is the bad example set in so many other states of politicians raiding the reserves of state WC funds to cover other budget shortfalls.

Stay tuned for more exciting action in Springfield as the interested parties line up.

New York Robbing Peter to Pay Paul

Governor Andrew Cuomo of New York has submitted a state budget that siphons off around two billion dollars from the New York Workers Comp fund (New York State Insurance Fund) into the general funds of the state.  As a general rule, this is a very bad idea that has not worked out so well in other states that have tried it.

Appropriating the money set aside to pay the Workers Compensation claims that the fund is obligated to pay is just bad policy, but it's an inherent weakness of state administered Workers Compensation plans.  The nature of the long tail of Workers Compensation claims means that money has to be put aside for those future costs, but a pile of money is always an irresistible temptation to politicians.  So Cuomo can now boast that he has filled his budget gap without raising taxes--and all he had to do was rob money set aside for injured workers.  That money will still be eventually needed, of course, and so additional rate increases on employers covered by the fund would seem likely.  Thus, the governor's actions amount to a stealth tax on employers. 

Thank God my home state of Illinois doesn't operate a state Workers Compensation fund.  One shudders to think about how Illinois politicians would abuse such a kitty.  Hopefully, they don't read this blog--I would hate to give them the idea.

Of course, a well run state fund could offer some genuine advantages to employers.  But as this New York story illustrates, it can be difficult for politicians to let a state fund operate prudently.

Tuesday, March 12, 2013

Former AIG Chief Suing U.S.

Never let it be said that Maurice R. 'Hank" Greenberg lacks chutzpah.  Greenberg is the guy who cobbled together AIG out of various pieces of second-tier insurance companies, creating an insurance juggernaut that Wall Street loved for its dependable profits (but which was less beloved by many policyholders, I believe.) Greenberg was forced out from the company he created after Eliot Spitzer proved in court that AIG had been operating in an improper and illegal manner.

Greenberg lived to see Spitzer disgraced and booted from the governor's mansion, after someone got the FBI to uncharacteristically investigate and wiretap a brothel.  But Greenberg had still been forcibly removed from his empire, just shortly before the Financial Products division of AIG hit the fan and threatened to bring down the world economy (at least, that's what the HBO movie said.)

Our federal government felt it had no choice other than to bail out AIG to the tune of $182 billion, as the insurer imploded in the wake of the 2008 financial crisis.  You may remember those days, when AIG quickly became the most hated insurer in the observable universe.

Well, Mr. Greenberg has now filed suit against the United States government, alleging that the bailout was unfair to him and other investors, and unconstitutional to boot.

I don't like to pre-judge any lawsuit--it has been my experience that initial impressions of such things can sometimes be inaccurate.  And while Mr. Greenberg may have been (at least according to some) an unscrupulous and tyrannical CEO, it doesn't automatically mean he is full of it in this instance.

Still, it sure feels unseemly.