Excess profit laws CA (California)

[rider001]

I was reading the Florida article about the excess profit laws there and Hartford had to pay 48 million back to employers. I think California should adopt this especilly with carriers makeing record profits in a horrific economy. Likely story since the politicians would have to take their havd out of the cookie jar.

[jonbrissman]

Caveat: This response is more about philosophy that it is about workers' compensation.

Unless we're considering a public utility, I don't think that the government should have any voice in deciding the amount of profit that is reasonable. Any private business that overcharges suffers a competitive disadvantage, and over time it will either 1) become competitive or 2) become defunct.

Once government gets into deciding profit, where does it stop? If you pay $1.19 at McDonalds for a Coke but the ingredients, cup, lid and straw all together cost less than a dime, should the government step in with a regulation or excess profits tax?

Recall how legislators bemoaned how much profit Exxon-Mobil made last year and threatened a windfall profit tax? In fact, Exxon earned $161.4 billion but paid $116.2 billion of that to the government in taxes, leaving it with a net profit of $45.2 billion. Congress still thought that was too much. When gas prices soared, Congress pointed its finger at evil Big Oil, conveniently omitting the fact that the government took two-and-a-half times more of consumer's gas money than did the companies that had to actually find, extract, transport, refine, transport again, and market the stuff.

Free-market economics should determine which companies are viable. No one forced those Floridians to purchase insurance from The Hartford -- they could have shopped for a better deal from another carrier. Why should the government save them when they made a poor choice for coverage? Why shouldn't other carriers publish their rates alongside The Hartford's rates and take all of the latter's business away?

The government should let poorly-managed companies fail. We gave $40 billion in taxpayer dollars to General Motors and it went bankrupt anyway. That foolishly-spent money is gone and irrecoverable, but your children and grandkids still will have to pay for it. I like GM -- I own one of its '08 models -- but I like capitalism better.

Heaven forbid that the California legislature, the majority of whom rarely votes against a proposed tax, ever considers an excess-profits law.

My apologies to those who think I was venting.

JCB

[rider001]

I completely agree with capialism. I also understand the need to build up reseves. My issue is when it is on the backs of the injured and sick.

[davidd]

Jon - I too am a free market capitalist. I was in favor of open rating when it was introduced.

However, one element that I failed to take into consideration back in 1993 was that, in fact, workers' compensation in California (and 48 other states) is mandatory.

In a true free market system, as an employer, I would have the choice then of saying "no" to any insurance and thus there really would be true competition, but in work comp there is no choice. You must have insurance, and State Fund is the default.

Thus, work comp is more like a utility in my opinion.

Rather than blatantly regulating profit, I believe that work comp should return to minimum rates, as before. That was when there was true competition with more than 300 insurance companies vying for business based on service levels, which meant better attention to the injured worker because better management of the injured worker resulted in lower x-mods, ergo, lower premiums.

[rbaird]

In the present (sometimes rancorous) debate over health care reform, Robert Reich recently pointed out that big Pharma would not be offering to pay out $85 billion over time unless their long term profit projections were in excess of that. If we are going to have a publicly funded component or alternative to private coverage, shouldn't we be looking at a co-op or non-profit model similar to Kaiser? David's point is correct--a free market competition model does not apply when a larger social interest mandates insurance coverage. As to workers' compensation "reform" is any one pleased with the long term results in terms of delivery of humane and cost effective evaluation and treatment? If the "reform" worked, would there be any reason for WCIRB to propose a 22% premium increase, because that for darn sure isn't coming from indemnity benefits?

[stevepsca]

If the "reform" worked, would there be any reason for WCIRB to propose a 22% premium increase,

The 'reforms' worked as intended.
The IC's lobbied Arnold/legislature to adopt ACOEM, cap wage loss/TTD,reduce PPD awards...all in the name of lowering costs to ER's in the form of premiums... of course we saw that result... UNTIL, the last couple of years where we see a continued 'recommendation' to increase those very ''reform based reduced costs'' ER's have enjoyed over the last ... what is it ? FIVE years. The increases are even double pre ''reform'', or better.

AT&T did this over 20 years ago... bust up MaBell, ''baby bells'' took the bate. The cost increases IC's are enjoying today are the result of that blueprint.
ER's enjoy a limited period of reduced costs, Calif residents believe jobs are remaining at home, and WHAM! unheard of profits are reaped by Calif IC's....

Oh.. reform worked alright...just the way the IC's intended. (if not, Warren Buffett wouldn't have come back....)

[steelmanlaw]

JCB, et al.:

That's not venting, that's telling it like it is. As to Exxon-Mobil, I don't have the figures, but the WSJ article at the time last year indicated that the majority of that net profit you mentioned was plowed back for R&D, but again there I go.

As to the more parochial question, excess profit laws in Calif WC would eventually cause the socalled profiteers to trade elsewhere, giving State Fund and/or CIGA (and the self-insured equivalent) even larger market. I'm not sure those pushing the excess profit taxes intend that; I'm not THAT cynical.

JAS

[rider001]

On the recommnedation of IC's Labor groups pushed to decrease this, cap that, MPN this, pharmacy benefit that, and IC's rates still rise. At some point maybe they step back and as the saying goes "When you point a finger you got three pointing back.

[jonbrissman]

Government can monitor and limit the amount of profit the a public utility earns because it has granted that business a monopoly and there is no free-market competition for the utility's business. Not so with insurance. Even though government mandates the purchase of workers' compensation insurance coverage, numerous carriers compete for market share. It is the consumer's job to shop wisely.

I disagree that "a free market competition model does not apply when a larger social interest mandates insurance coverage." Consider that concept in the context of automobile insurance.

David, you did have the opportunity to say "no." You didn't have to become an employer (but I am glad that you did -- thanks for all that WCC does). But when you chose to establish your business, you knew that you could not say no to WC insurance, a business license, withholding tax for your employees, etc. Similarly, you don't have to own a car, but if you choose to do so, then you must obtain a license, registration, and insurance for the vehicle. Free markets insure that you have many choices in coverage.

I'm all in favor of "true competition with more than 300 insurance companies vying for business based on service levels." Both businesses and society will benefit.

Good discussion, everyone.

JCB