Cuomo raids insurance fund

Gov. Cuomo is cruising toward his third consecutive on-time state budget, which will no doubt be cited as further evidence that a new era of fiscal responsibility has dawned in Albany. Yet the governor hasn’t turned his back on budget gimmickry.

Case in point: Cuomo’s proposed withdrawal, over the next four years, of $1.75 billion from the reserves of the off-budget State Insurance Fund (SIF), which is the leading provider of workers’-comp insurance in New York.

Much as drivers have to insure their cars in case of accident, New York employers must buy workers’-comp insurance to cover on-the-job employee injuries. The nonprofit SIF, which competes with private companies, is supposed to hold premiums as low as possible — so SIF’s financial health has an important bearing on the state’s overall economic competitiveness.

Cuomo’s SIF raid would be a new wrinkle on a maneuver last employed by his father, then-Gov. Mario Cuomo, decades ago.

From 1982 to 1990, a total of $1.3 billion in supposedly surplus SIF funds were diverted to the state budget. Ever since, SIF’s balance sheet has listed that $1.3 billion as a "contingent receivable" — essentially an IOU backed by no cash.

If that money had remained in SIF’s investment portfolio over the past 20 years, assuming even a modest 5 percent return, the fund would now be at least $2 billion better off. As things now stand, New York’s workers’-comp-insurance rates are among the highest in the nation.

State law has flatly outlawed any further raids on SIF since 1996 — but Cuomo’s budget would override that provision while creating an opening for governors to take more money from the fund in the future.

While the original raids were widely viewed as an outright ripoff of temporary SIF surpluses, Cuomo and his budget staff say their proposal is different. This time, they say, they’re making it possible for SIF to dispense with part of its cash cushion by legally changing the way the fund must account for "second injury" health and disability claims, which arise when a workplace mishap aggravates an employee’s existing physical problem.

Instead of maintaining an enormous reserve to cover all projected future second-injury claims (as SIF has been doing up to now) it will be allowed to charge policyholders for these claims only when the bills come due, on a "pay-as-you-go" basis — a practice already followed by private insurers.

Conveniently, this will free up the existing SIF second-injury reserves for transfer to the state budget.

Who’s burned by this deal? The employers who’d already paid into the fund to cover future claims. Their assessments went to build up the reserves that Cuomo will now shift to the state budget. Under the governor’s plan, SIF policyholders apparently will pay again to cover those second-injury claims when they do materialize.

That’s why Assured Research, a New Jersey-based insurance consulting firm, describes Cuomo’s proposal as a "transfer of wealth" to the state government from SIF’s customers.

The accounting shift is part of a complex financial restructuring of the workers’-comp program that’s supposed to save money for employers even while raising benefit levels.

Cuomo’s budget for fiscal 2013-14, which begins April 1, would earmark $250 million in SIF cash to finance debt-service savings and $500 million to underwrite the governor’s "transformative capital" program. He wants to tap SIF for another $1 billion to cover state operating expenses between 2014-15 and 2016-17.

Albany business lobbyists have shrugged at the SIF raid while endorsing the rest of the governor’s workers’-comp package. But as Assured Research points out, the deal deserves more critical scrutiny.

Another problem: Compared to other big workers’-comp insurers, New York’s SIF makes very aggressive use of an accounting technique ("discounting" of reserves) that makes the fund look financially stronger than it actually is, according to the Assured Research analysis. Then, too, SIF’s current "surplus" includes that empty IOU from the state to cover past raids.

Meanwhile, the consulting firm warns, SIF and other workers’-comp insurers could soon face a sharp rise in medical costs that will drain their reserves more quickly than expected. Other analysts, including Moody’s Investors Service and A.M. Best, have sounded similar warnings about the industry-wide risk that current workers’-comp reserves will prove insufficient.

In other words, Cuomo couldn’t have picked a worse time to pull cash out of SIF, even if the proposed accounting change technically gives him cover for it.

As it happens, next year will mark the centennial of New York’s workers’-compensation law. Financially weakening the state’s leading workers’-comp insurer will be a bizarre way of celebrating it.

Original Source: http://www.nypost.com/p/news/opinion/opedcolumnists/risky_budget_gimmick_SJTi1cMbwjqFLMJ22v4pvO