Too Much Temptation To Do the Wrong Thing

The problem with workers' compensation being funded and managed by private interests is that there is simply too much temptation to do the wrong things for the wrong reasons - usually those reasons involve profiting at the expense of everyone else.

And so it seems in New York where an associate attorney in the State Workers' Compensation Board General Counsel's Office said in an affidavit filed in New York Supreme Court Friday that improper cost-shifting by the state's workers' compensation carriers has caused the liabilities of the state's Reopened Case Fund to "spiral exponentially," of course at the expense of employers.

After the historical reform of New York's system by then Gov. Eliot Spitzer, that imposed the state's first duration caps on permanent partial disability benefits, carriers began settling the indemnity portion of claims, leaving medical treatment open.

Three years after the indemnity payments run out, carriers can then file claims with the fund providing medical evidence that the workers' condition has changed, thereby shifting the cost of medical care for injured workers over to the Fund.

The lawsuit in which the affidavit was filed was initiated by Liberty Mutual Insurance Co. and 19 of its sister insurers to block a section of Gov. Andrew Cuomo's 2013-2014 budget the close the fund on Jan. 1, 2014.

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

The carriers argued that doing so would leave the state's workers' compensation carriers with between $1.1 billion and $1.6 billion in unfunded liability and $62 million in unfunded retroactive liability. The suit seeks a permanent injunction against closing the fund to injuries occurring before Jan. 1, 2014.

What the carriers don't say in their suit is that reserves needed to support the fund jumped from $770.8 million in 2006 to $1.15 billion 2012, while assessments levied against carries and self-insured employers to support the fund increased from $95 million 2006 to $314.3 million last year. What they also didn't say is that they have been using the fund to pass back their expenses to employers who have already paid for those claims.

The Spitzer reforms were passed in 2006.

Michael Papa, the SWCB attorney who filed the affidavit, said "Although . . . settlements are a useful tool for resolving issues among like-minded parties, in recent years they have become a vehicle for insurance carries skirting to improperly shift their medical obligations over to the fund through execution of indemnity-only settlement agreements."

Ouch.

"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."

No one from any of the carriers or their representative industry groups would talk to WorkCompCentral reporter Michael Whiteley - not surprising since it seems the children got caught with their hands in the cookie jar.

The SWCB seeks dismissal of the lawsuit on lack of standing.

Yeah, I know, the carriers are acting prudently within the four corners of the law and making their shareholders happier with the resulting financial results - i.e. just doing their jobs.

But this is just wrong.

It's not fraud, but it is improper.

I hear all of the time about unintended consequences from the insurance industry - usually in reference to some loophole that either claimants or vendors are exploiting.

But the insurance industry itself is just as guilty as any other interest in workers' compensation.

When it comes to greed, hypocrisy dominates and morals take a back seat.

Insurers that are parties to the lawsuit (and by association implicated in this scheme) 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.