The Chase Sensale Group Logo

Hey Hey 25-A

SWCB: Assessments for Reopened Case Fund 'Skyrocketed':

By Michael Whiteley, Eastern Bureau Chief

 

An attorney for the New York State Workers' Compensation Board contends that improper cost-shifting by the state's workers' compensation carriers has caused liabilities of the state's Reopened Case Fund to "spiral exponentially," at the expense of employers.

Michael Papa, an associate attorney in the SWCB General Counsel's Office, said in an affidavit filed in New York Supreme Court Friday that the reserves needed to support the fund jumped to $1.15 billion in 2012 from $770.8 million in 2006, while assessments levied against carriers and selfinsured employers to support the fund increased to $314.3 million last year from $95 million in 2006.

Papa said that while both self-insured employers and carriers pay the assessments, carriers pass those costs along to policyholders and realize a windfall when all responsibility for paying an injured worker's medical costs are transferred to the fund.

New York Attorney General Eric Schneiderman filed the affidavit in the Supreme Court for New York County to support a motion by the board and New York Department of Financial Services Superintendent Benjamin Lawsky to dismiss a lawsuit filed in July by Liberty Mutual Insurance Co. and 19 of its sister insurers. The lawsuit seeks to block a section of Gov. Andrew Cuomo's 2013- 2014 budget that will close the fund on Jan. 1, 2014.

The insurers are predicting that closing the fund will leave workers' compensation carriers with an unfunded liability of between $1.1 billion and $1.6 billion and $62 million in unfunded retroactive liability. The suit seeks a permanent injunction against closing the fund to injuries occurring before Jan. 1, 2014.

Under current law, the fund takes over claims involving injuries that are at least seven years old and for which no indemnity payments have been made for at least three years. Cuomo's budget will close the fund to all new claims, including those involving injuries occurring during the past seven years. Schneiderman argued in a motion to dismiss the case last week that Liberty Mutual has no vested interest in the Reopened Case Fund and therefore can't support arguments that closing the fund violates the due process and improper takings sections of the U.S. and New York constitutions.

SWCB argues that carriers have been transferring medical costs to the Reopened Case from old claims by reaching "indemnity-only" settlements with claimants.

Three years after the indemnity payments run out, carriers can file claims with the fund by providing  medical evidence that the worker's condition has changed. Papa said the claims become eligible for reopening three years after the date of the last indemnity payment covered by the lump-sum payment.

"Although . . . settlements are a useful tool for resolving issues among like-minded parties, in recent years they have become a vehicle for insurance carriers to improperly shift their medical obligations over to the fund through execution of indemnity-only settlement agreements," he said.

Papa said indemnity-only settlements have the effect of cutting off nonmedical payments to injured workers but allowing for medical care to continue.

"Carriers have then sought to transfer liability for the medical portions of such claims to the Reopened Case Fund after the passage of three years from the date of the last indemnity payment, even though the claims had never truly been closed," he said in the affidavit.

"Far from its initial purpose of absorbing costs for a small number of cases where liability unexpectedly arises, the Reopened Case Fund has become increasingly saddled with liability for claims for medical costs that technically meet the statutory requirements, but which were not expected," Papa said. "This has caused the fund's liability to spiral exponentially and uncontrollably."

He said assessments have "skyrocketed" since 2006.

Because SWCB was closed for the Columbus Day holiday, neither Papa nor the board's press office could be reached for comment Monday.

Richard Angevine, Liberty Mutual's spokesman, said the carrier could not comment because the lawsuit is ongoing. Benjamin Tomchik, public affairs manager for the American Insurance Association, declined comment. The New York Insurance Association, which represents property and casualty carriers doing business in New York, also could not be reached for comment.

Robert Grey, chairman of the New York Workers' Compensation Alliance, a claimants' attorneys' group, said cost-shifting began in earnest following passage of a series of workers' compensation reforms proposed by former Gov. Eliot Spitzer that imposed the state's first duration caps on permanent partial disability benefits.

The reforms capped PPD benefits at between 225 and 525 weeks, depending on the percentage of an injured worker's lost wage-earning capacity.

"If I'm a carrier, and I can manage medical costs over the next three years after a claim is closed to indemnity payments, then it's a policy decision I'm going to make to try and pass those costs along to the Reopened Case Fund," Grey said Monday. "The question is whether you want to have that enormous cost mutualized among all employers in the state of New York. "I think it's a much wiser approach to make each individual carrier responsible for the costs of their own claims," Grey said.

Cuomo made closing the fund part of the "Business Relief Act" included in his $141.3 billion budget. He predicted that the closure will save New York employers about $300 million a year in assessments.

Cuomo's budget also requires SWCB to simplify assessments – the highest in the nation – and bill all employers directly for their share of the costs of running SWCB and paying off legacy claims from the New York Special Disability Fund, which serves as the state's second injury fund.

Papa said in the affidavit that the board will issue no assessments to support the Reopened Case Fund in 2014 but may levy additional assessments in 2015 or thereafter to cover claims already filed with the fund.

"It is necessary for the Reopened Case Fund to remain in existence after Jan. 1, 2014, albeit solely in order to fund the payment of already transferred claims which, by their very nature, could require payments for decades into the future," Papa said.

New York law requires annual assessments levied for the Reopened Case Fund to cover the value of awards charged against the fund, the value of all claims that have been reopened by the SWCB but for which awards have not yet been made and an additional reserve of $250,000.

Papa reported that:

• As of Dec. 31, 2006, the year before the Spitzer reforms took effect, the Reopened Case Fund required $292.5 million in indemnity reserves and $478.3 million in medical reserves and collected assessments of $95 million.

• As of Dec. 31, 2007, after the reforms took effect, the fund required $314.1 million in indemnity reserves, $477.2 million in medical reserves and assessments of about $100 million.

• By the end of last year, the fund required $405.6 million indemnity reserves and $748.3 million in medical reserves. Assessments had more than tripled – to $314.3 million – from 2006 levels.

"Notably, the medical portion of the Reopened Case Fund reserves has outstripped indemnity reserves by nearly a two-to-one margin," Papa concluded.

Grey and Russell Whittle, vice president of Medicare Secondary Compliance for the firm of Gould and Lamb, said the medical cost-shifting probably had no negative effect on Medicare set-aside agreements, which are included in workers' compensation settlements to ensure that Medicare doesn’t pay for medical costs that are the responsibility of insurers.

"Not settling the medical just obviates the need for a Medicare set-aside agreement," Whittle said. Grey said "indemnity-only" settlements transfer all responsibility for future medical payments once a case is accepted by the Reopened Case Fund.

Schneiderman asked the Supreme Court to schedule a hearing on the motion to dismiss the Liberty Mutual case for Nov. 21 beginning at 10 a.m. (EST). Liberty Mutual had not filed a response by late Monday.

Insurers that are parties to the lawsuit are American Economy Insurance Co., American Fire and Casualty Co., American States Insurance Co., Employers Insurance Co. of Wausau, Excelsior Insurance Co., First Liberty Insurance Corp., General Insurance Co. of America, Liberty Insurance Corp., Liberty Mutual Fire Insurance Co., Liberty Mutual Insurance Co., LM Insurance Corp., Netherlands Insurance Co., The Ohio Casualty Insurance Co., Ohio Security Insurance Co., Peerless Indemnity Insurance Co., Peerless Insurance Co., Wausau Business Insurance Co., Wausau General Insurance Co., Wausau Underwriters Insurance Co. and West American Insurance Co.

Papa's affidavit is here.

Back to news >>>