Insurance Expense Ratios
One of the arguments Democrats have made for nationalized health care is that government expenses will be much lower than private companies. This is on its face absurd, given most people's experience with government agencies, but is nominally supported by low expense ratios in Medicare. I won't go into this today, but this is more an artifact of the way government does accounting as well as operations decisions at Medicare which may be non-optimal (e.g. Medicare does much less claims verification and investigation than private companies, which is why we see huge fraud cases from time to time).
Anyway, we get a fresh example of private vs. public expenses on a very comparable basis in California workers comp. The public State Fund acts as an insurer of last resort as well as a competitor to many private providers. The fact that it is an insurer of last resort will increase its loss ratios, but its expense ratios of management or "claims adjustment" expenses should be similar. But of course they are not.
State Fund's unallocated loss adjustment expense ratio was a whopping 51.4% last year compared to 8.9% for private carriers, while State Funds allocated loss adjustment expenses were 9.8% compared to the industry's 13.8% respectively.
This means the management expense ration of the state agency is 61.2% of premiums vs. 18.7% for private companies. This just makes laughable the pious requirement in Obamacare that insurance companies keep their expense ratios under 20% -- or else the more efficient government agency will take over.
We are facing a huge 29.6% increase in workers comp rates in California, in part because the very high State Fund expense ratios are averaged into the calculation.
