The oft-maligned State Compensation Insurance Fund, aka California state fund, is back in the news again, this time for terminating the Fund’s long-time Medical Director, Gideon Letz. Dr Letz was at the Fund for over two decades, was an active and forceful advocate for appropriate medicine and assertive return to work and played an important role in developing some of the more innovative – and effective – care delivery models for workers comp claimants.
I don’t know the details – or even the broad strokes – of the SCIF-Letz split – and that’s not the point of this post.
Instead, I’d like to focus on the really difficult position the Fund is in – its highly-problematic role of carrier of last resort, quasi-public agency, and competitive provider of workers comp insurance.
The comp business is highly cyclical, vacillating between hard and soft markets every few years. As claims costs rise, for-profit insurers restrict underwriting and raise prices, forcing more and more employers to get their workers comp from the Fund. With more premium comes more claims, more injured workers, and more inquiries, policies, bills, claims, and procedures to administer. At some point, the cycle turns, the for-profits come back into the market, premiums dry up, and there are far fewer policyholders, new claimants and new claims.
Meanwhile, during the hard markets the politicians are fielding complaints from constituents about poor service, unanswered phone calls, letters, and complaints. Many elected officials – often with good intentions, sometimes not – demand answers and accountability from the Fund, which then has to educate newbies about the cycle, SCIF’s “carrier of last resort” status, and the business implications of the cycle and SCIF’s status. The Fund then scrambles to hire, equip, and train more claims adjusters, bill reviewers, clerks, administrators, and nurses, open offices in ‘underserved’ areas, contract with more vendors, and buy more stuff needed to handle the increased business.
Several years later, the market has turned – other insurers enter the market and start taking share from the Fund, new business declines along with new claim volume. Inevitably, a report comes out showing the Fund is overstaffed, has too many offices and claims reps, and administrative expenses that look to be much higher than their for-profit competitors. Now, the same (or new and different) politicians point out the inefficiencies of the Fund’s bloated bureaucracy, demanding to know why the Fund needs so many more people/offices/computers to handle claims than those much-more-efficient private insurers. Inevitably, offices are closed, staff reduced, services cut.
And then the next hard market arrives.
Think for a moment about the business challenges inherent in running a carrier of last resort. First, you’ve got public oversight. Not to say that’s a bad thing, but it does take a lot of time, patience, and tact on the part of senior management. Next, you’ve got the pressures of public finance, where taxpayers don’t want to pay more yet demand better and more services. Let’s not discount the challenge of managing a highly cyclical business where your operation MUST take on customers no one else wants, while constantly losing its most profitable customers to competitors.
This is NOT to say SCIF doesn’t suffer from poor managers, inefficient and outdated systems and processes, internal politics and nonsensical policies – hell, every comp insurer, whether private, public, for-profit or Fund, mutual or stock does. Sure, some have fewer warts, but all could be better/faster/smarter/more efficient. And perhaps SCIF has more issues than most.
But, given the conditions SCIF – and most other state funds, for that matter – operate under, it’s a wonder they don’t have many more.