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WORKERS COMP: AN ANALYSIS 'Nobody knows how much debt'

Published: Sunday, June 23, 2002
Page: P1A
Byline: Paul J. Nyden Late last year, Bureau of Employment Programs Commissioner Bob Smith reported the Workers' Compensation Fund's long-term deficit was $1.87 billion, not $1.66 billion as previously estimated.

Smith said agency accountants failed to consider several factors, adding $210 million to the agency's debt.

Former BEP Commissioner William Vieweg reported in 2000 that he had reduced the deficit from $2.2 billion to $1.66 billion since 1996.

Other problems might make that deficit, also called an "unfunded liability," climb even higher. Yet no one has precise answers as to how large that debt is or by how much it will grow.

This spring, Gov. Bob Wise ordered Smith and Performance Council members to freeze premiums for all employers, at least temporarily, until some of these questions can be answered.

One recent Supreme Court ruling and two upcoming decisions could all make it easier for claimants to get bigger awards.

The current economic downturn and the precarious positions of the state's two major steel producers could spell additional disasters for the Workers' Compensation Fund.

Earlier this month, legislative leaders complained that no one at Workers' Compensation knows exactly how many claims owed to workers are not funded properly.

Senate President Earl Ray Tomblin, D-Logan, said, "Nobody really knows how much debt we have out there." Tomblin said the debt keeps growing in part because courts award larger payments and investment funds suffer during economic downturn.

Some believe the compensation fund should be privatized, as it is in many states. Others suggest the long-term deficit might be financed by selling bonds.

But no one can predict the scope of new financial debts. In May, Smith said, "The current trend on permanent partial disability payouts has exceeded our projections. Medical costs are still trending upward.

"Because we cannot accurately compare the savings with the increased costs, I do not feel comfortable making a projection on whether the deficit will increase," Smith said.

Self-insured companies Other major problems loom on the workers' comp horizon, problems most people may not even think about.

For example, if any of the state's 185 self-insured companies go bankrupt, other self-insured employers must pick up the tab. If things get really bad, all employers might have to pay.

Self-insurance allows large, stable companies and municipalities to pay lower premiums that cover only BEP administrative costs. Those employers then pay compensation benefits to injured workers directly from their own funds.

Each uninsured company must post a bond to cover potential future losses if it goes bankrupt. But in the past, some companies never had proper bonds to cover those claims.

For example, when H. Paul Kizer's network of 40 coal companies collapsed in the mid-1990s, Workers' Compensation ended up with $44.6 million in unfunded liabilities.

Kizer posted a $1 million bond in the mid-1980s. But that $1 million was spent within months after his companies began collapsing in 1993.

Kizer's liabilities to injured workers then were paid by other self-insured companies, including: American Electric Power, Consolidation Coal, Charleston Area Medical Center, Columbia Gas, DuPont, Exxon, Georgia-Pacific, Kroger, Massey Energy, Monsanto, Mountaineer Gas and Pittston.

Self-insured cities such as Charleston also get to pick up the tab from bankrupt self-insureds.

Today, the nation's steel companies face huge economic pressures from cheap foreign imports often sold below the cost of production. Since 1998, 31 steel companies filed for bankruptcy. About half closed down.

In West Virginia, Wheeling-Pittsburgh Steel filed for Chapter 11 bankruptcy protection, allowing it to reorganize, and Weirton Steel is struggling to stay alive.

If a self-insured company like Weirton Steel is forced into Chapter 7 bankruptcy, the Workers' Compensation Fund would face a serious problem.

Weirton Steel, for years the state's biggest employer, still has the state's largest payroll.

BEP Commissioner Bob Smith called self-insured companies a "huge funding problem." "For years, we have had a number of self-insurance companies who are underinsured by bonds for potential losses," Smith said.

"Today, it is almost possible for coal companies and companies like Weirton and Wheeling-Pittsburgh to buy bonds. This is partly because Congress has not dealt with the reinsurance market after Sept. 11." Smith said if any large company goes bankrupt, it will create major financial distress. "Other self-insureds would have to pick the debts up. Some of them would then go under themselves." Supreme Court rulings When the Supreme Court liberalizes benefits to injured workers, retroactively and prospectively, Workers' Comp gets millions of dollars in new liabilities.

On Nov. 30, the high court ruled in favor of Juanita Martin, whose husband, Dana Martin, died from lung problems while his workers' comp claim was still pending.

In the Martin ruling, the court stated widows and dependent children can collect workers' comp benefits even if the injured worker dies before winning his compensation claim.

Perhaps more important, the Martin ruling stated that review boards within BEP - including the Occupational Pneumoconiosis Board, Office of Judges and Appeal Board - can no longer decide which medical reports are the most reliable.

Those bodies must now use the medical report most favorable to a claimant.

Because of this ruling, the Office of Judges is now reversing Occupational Pneumoconiosis Board opinions more frequently than it did.

But BEP cannot predict exactly what impact this ruling will have, since it has not requested any actuarial report about its impact.

Smith said two cases now pending before the Supreme Court may also have major financial implications, including a ruling that might make it easier for claimants to receive compensation payments for hearing losses.

The new decisions are likely to be issued before the court takes its summer recess next month.

Accounting problems Inadequate and inaccurate data and computer records also create recurrent problems for Workers' Comp.

Almost every year, estimates of how much it will cost to pay future claims that have already been awarded increase, according to latest "combined financial statements" prepared by the accounting firm of Suttle & Stalnaker.

BEP accountants originally estimated all claims awarded in 1992 would cost $295 million over the next 40 years. But last year, when those costs were re-estimated, BEP accountants said the 1992 claims will cost $483 million. That's $188 million more than originally estimated.

Estimates for other years also keep growing. The only exception was 1996, when BEP's original cost estimate proved too high, largely because a law passed in 1995 made it more difficult to get lifetime permanent total disability awards.

John Kozak, a BEP administrative law judge who was BEP's executive director in the early 1990s, said the agency suffered from "bad data" in the early 1990s. Poor records make it impossible to come up with accurate predictions.

But in recent years, estimates of future costs have also proven low.

Last year, the recalculations for 1997, 1998 and 1999 predict costs for claims filed those years will be $202 million higher than originally predicted.

Former Commissioner Vieweg estimated claims for 2000, an election year, would cost $231 million. One year later, more accurate estimates concluded those claims will cost $401 million, or $170 million more.

Other problems Meanwhile, the BEP and its Workers' Compensation Division continue to face a host of other problems.

Day after day, the agency's computer system malfunctions or collapses.

Smith called it a "debacle." By 2000, all documents related to injured worker claims were scanned into BEP's computer system. But that computer system often freezes up for hours, while BEP paralegals handling claims sit on their hands.

Smith said, "The Office of Judges was down for a whole week in May." A major improvement in financing claims, Smith said, came when BEP began requiring companies to pay the entire cost of claims shortly after they are awarded. That way, the agency has the money to pay permanent total disability awards that might continue for 40 years.

"But old claims were never funded properly," Smith added.

Funding older claims remains a problem, especially when they are paid to injured workers that had good-paying jobs in mines, chemical plants and steel mills.

In today's economy, those jobs are dwindling, while low-paying clerical and telemarketing jobs are increasing.

Employers offering high-paying and dangerous jobs pay higher premiums.

As those jobs decline, the annual premiums collected drop. For example: s A coal company that pays miners $50,000 a year, and has a premium rate of $35 per $100 in wages, will pay $350,000 in workers' comp premiums for 20 miners s A financial company that pays clerks $20,000 a year, and has a premium rate of $2 per $100 in wages, will pay $8,000 in premiums for 20 clerical workers.

Smith said the Workers' Compensation Fund continues facing other problems, including false claims by workers and questionable bills from health-care providers.

Some employers still hire people to work dangerous jobs like coal mining, but report them as secretaries, saving millions in annual premiums.

Some health-care providers bill for ongoing treatment or prescriptions that are not needed.

Earlier this year, Smith began monitoring controlled substances and painkillers, such as OxyContin, Oxyir and Percocet.

"These narcotics should not be prescribed for longer than 10 days without a written treatment plan. We found over 5,000 claimants who received these narcotics for longer than 60 days. In the majority of those cases, we did not have treatment plans in place," Smith said.

Lawmakers, judges, employers, lawyers, physicians and claimants will certainly argue about the future of Workers' Compensation during interim legislative sessions this year.

But good answers are unlikely until someone addresses Senate President Tomblin's concern when he said, "Nobody really knows how much debt we have out there." To contact staff writer Paul J. Nyden, use e-mail or call 348-5164.

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