Wisconsin repays the insurer it robbed

In follow up to this post, I’m happy to see Wisconsin is doing this:

Madison – The state will pay nearly $234 million to settle a bill on a past raid to a state medical malpractice fund, Gov. Scott Walker announced Wednesday.

The state Supreme Court last year ordered the money be repaid after finding that state officials in 2007 had illegally raided $200 million from the Patients Compensation Fund, which is intended to compensate victims of medical malpractice and their families. An additional $33.7 million was added to cover interest and lost earnings for the fund.

I’m not sure the state needs a medical malpractice fund at all, given the private market does a pretty good job, even at the higher layers the Wisconsin fund sells. (Medmal rates have been falling for maybe five years.)

I think government can play a productive role when markets are troubled. Flood insurance and Florida homeowners are examples. One struggles with adverse selection. The other has an affordability problem.

But the insurance solutions need to be market based. The government insurer should behave like a real live insurer – charging adequate rates and creating a stable financial base.

That means the surplus is there for the policyholders, not the politicians, a la Wisconsin. And it means the surplus needs to be adequate to the risk underwritten. At Florida’s Citizens Property, it’s not. (A recent bond offering lets the company cover something close to a 1-in-100 year hurricane, but I think 1-in-1,000 is where it should be.)

The alternative is a sort of political playpen, where political considerations shunt money to other causes or create perverse subsidies. The state of Wisconsin, for example, raided its medmal insurer to balance its own budget. Citizens forces everyone in the state to subsidize coastal properties.

If the government wants to subsidize, say, living in a floodplain or in a high-rise along the coast, it has plenty of opportunities to do so without gumming up insurance markets.

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