Gazette photo by LAWRENCE PIERCE
Rick Paugh runs a small printing business on Quarrier Street in downtown Charleston. He says he doesn't mind paying Workers' Compensation premiums for his workers, but thinks it is unfair that he also has to pick up the tab for those who don't.
By Paul J. Nyden
Who created the Workers' Compensation Fund's $2.2 billion deficit? A precise answer is impossible.
The deficit's effects, however, are crystal-clear. Business owners and injured workers will pay for the next 40 years. If things get worse, every tax-paying West Virginian could get stuck with a big bill.
R.C. Belcher runs a masonry business in Princeton. "I've been in business 2 years and would like to continue. Paying employees a decent wage, plus taxes and a 16 percent Workers' Comp premium is increasingly difficult for me.
"I feel I'm being gouged to pay more than my fair share so big companies can wine and dine officials and get all the breaks," Belcher said.
Rick Paugh started Pro Print Professional Printers nine years ago in downtown Charleston. Today, he has seven workers.
"They need to start making everybody pay. Some big companies owe hundreds of thousands of dollars. If I didn't pay, I wouldn't be in business.
"I don't mind paying my share. It only bothers me when you carry a burden that's not fair," he said.
Paugh pays $2,400 a year in compensation premiums. In nine years, Pro Print has had two minor injuries costing less than $700.
For years, the fund suffered from mismanagement, misinformation and back-room deals.
For years, some employers cheated the fund out of hundreds of millions of dollars.
And for years, West Virginia workers were more likely to collect "permanent total disability" (PTD) lifetime benefits than workers in any other state. By 1995, the rate was 17.5 times the national average.
Ed Staats, the agency's chief financial officer, has a chart hanging on his office wall. It lists more reasons.
Some file false claims. In 1995, a Workers' Comp investigation found 35 widows collected $385,000 illegally. Nationally, Workers' Comp analysts believe somewhere between 5 percent and 10 percent of all claims could be fraudulent.
Then there is "provider fraud." Some psychologists, chiropractors, physicians and rehabilitation specialists gouge the agency.
Chief U.S. District Judge Charles Haden sentenced Thomas Richard Filippi, a 29-year-old Morgantown rehabilitation counselor, to five years in prison last month. Filippi bilked Workers' Comp out of $350,000 by billing for up to 72 hours of work in a single day.
And some workers who get PTD awards keep right on working.
The late Rev. Lee Beard, for example, collected a PTD award while working as publications director for the West Virginia Federation of Labor. Beard violated no laws. It was all legal. Beard was also a Presbyterian minister and Charleston Gazette contributing columnist.
Incompetence and carelessness inside the agency helped, too.
David Caldwell, former director of employer accounts, said he had too few field auditors in 1993 to verify mine employment figures. Yet this information was readily available at the Office of Miners Health, Safety and Training. State inspectors keep detailed mine-by-mine employment records, updated every three months.
A mine operator could cut premiums in half by reporting 20 workers, when he actually had 40.
Former Commissioner Andy Richardson moved Caldwell to another post in 1994.
But the huge deficit has more basic, more systemic causes.
"The issue of ripping off the system is not merely an issue of criminal activities," Richardson said. "Rather, it is also an issue of people taking advantage of a system in disarray."
Four causes stand out: generous or "liberal" PTD standards, self-insurance, the Second Injury Fund and coal contractor fraud. Each of these created hundreds of millions of dollars in unfunded liabilities.
Permanent total disability
Today, West Virginia pays lifetime PTD benefits to 9,846 injured workers. This will ultimately cost $3.2 billion, according to figures released under a Freedom of Information Act request.
More than half the benefits, or $1.8 billion, will go to 5,200 coal miners.
Other PTD awards go to: 1,072 building and road construction workers, 609 steel and metal manufacturing workers, and 568 public employees, including teachers.
Sally Smith heads the Workers' Comp unit for Bowles Rice McDavid Graff & Love, a Charleston law firm. Before the 1995 law that made it much harder to get PTD awards, Smith said, Workers' Comp was a system "out of control."
Whenever companies laid off miners, coalfield PTD applications ballooned. Thad Epps, a retired Union Carbide spokesman, said in 1993, "Costly permanent total disability awards are based more upon the availability of work than upon the ability to work."
Today, a miner with a PTD award gets $23,708 a year, tax-free. Workers who made lower wages get lower benefits.
Before 1995, West Virginia also had benefits more generous than other states. Maximum "temporary total disability" (TTD) benefits were 70 percent of wages here. In 42 other states, TTD benefits were capped at 66.7 percent.
Second Injury Fund
Today, the Second Injury Fund has a deficit of $540 million, about 25 percent of the agency's $2.2 billion deficit.
Over the years, the Second Injury Fund boosted the number of PTD awards. This fund pays workers disabled from multiple injuries, including childhood, military, sports and automobile-accident injuries, as well as previous workplace mishaps.
Created after World War II, the Second Injury Fund tried to protect wounded veterans from hiring discrimination. Today, the federal Americans With Disabilities Act, passed in 1990, prohibits discrimination against disabled job applicants.
For years, coal companies and other employers paid scant attention to "second injury" claims. Costs for those claims were shared by all employers.
This is how it worked:
A miner hurts his back and wins a 10 percent permanent partial disability. He then claims an additional 20 percent impairment for injuries from playing high school football and an old automobile accident.
The miner, now 50, never graduated from high school. He lives in McDowell County, which has few job opportunities.
The 1974 "Posey-Cardwell" state Supreme Court decision allows this hypothetical miner to use all these factors to argue he is unemployable and eligible for a PTD award.
The miner then gets a total disability award for the rest of his life.
Bill Raney, West Virginia Coal Association president, said there was little financial incentive for employers to fight these cases. Second Injury Fund premiums didn't increase beyond the basic industry rate, even for companies with dozens of PTDs.
Smith explained, "An employer with second injury coverage only paid for injuries on that employer's job. Thus, if the employer felt benefits related to a claim for an injury on that employer's job were fair, there wasn't a direct incentive for employers to fight.
"And since the Workers' Compensation commissioner ultimately ruled on the cases, the commissioner's staff couldn't defend the Second Injury Reserve Fund," Smith said. "If the employer was satisfied, no one defended the claim. Some people who might not have been permanently and totally disabled received awards."
Employers can avoid paying premiums if they promise to pay benefits directly from company funds, under the "self-insurance" program at Workers' Compensation.
Self-insurance works for financially stable employers. Self-insured employers who disappear, or go bankrupt, hand big bills to every other employer.
Today, 147 employers are self-insured. They include companies such as Chemical Leaman Tank Lines; Charleston Area Medical Center; Columbia Gas; E.I. DuPont de Nemours; Exxon; Georgia-Pacific; Kroger Co.; Monsanto Co.; Mountaineer Gas; Shell Chemical; Union Carbide Corp.; and some of the larger coal companies.
There are 150 inactive self-insured companies. Many would not qualify under stricter self-insurance guidelines developed when Gaston Caperton was governor.
H. Paul Kizer ran up $44.6 million in future liabilities, which would have required about $15 million in the bank, before his coal empire collapsed in the mid-1990s. In 1995, Workers' Compensation declared $25 million in losses from self-insured companies.
Other bankrupt self-insured coal companies - Olga Coal, W-P Coal and Youngstown Mines Corp. - also left millions in Workers' Comp debts when they went belly up.
Another $38.2 million in "unfunded liabilities" was accumulated by companies that are not bankrupt, such as New River Co., ACF Industries, Allied Chemical Corp. and Kaiser Aluminum & Chemical.
Other employers may have to pick up all these bills.
In May, Workers' Compensation officials released statistics about Second Injury Fund payments to workers from 157 self-insured companies, including detailed statistics about 1,820 injuries.
* Underground coal miners suffered 87 percent of these injuries. Workers in all other industries suffered the other 13 percent.
* Workers from 10 underground coal companies made up 76.5 percent of these claims.
* Workers from just four underground coal companies ran up 55.2 percent of the total.
The companies are not identified, but they include longtime producers like Island Creek Coal Co. and Pittston Coal.
Coal contractor debt
Historically, coal companies have been the most likely employers to run up huge debts.
In 1966, Workers' Compensation officials released a list showing at least $280 million in unpaid premiums and interest. Coal companies owed $200 million of that total.
Unpaid premiums are charged 18 percent interest each year, so huge debts can accumulate rapidly.
Contractors, small operators who mine coal for bigger companies, ran up most of this debt.
Some major producers, such as Arch Mineral Corp., did not allow their contractors to run up Workers' Comp debts. Every three months, Arch required all contractors to prove they paid their premiums.
Other companies, such as Massey and Island Creek, did not have that policy. Their contractors accumulated tens of millions of dollars in unpaid premiums.
Coal mining along Elk Creek, on the border between Logan and Wyoming counties, illustrates the problem.
For most of the century, hundreds of miners dug coal in two big mines on Elk Creek. They lived in company towns, working until they retired.
After the best coal was mined, the big mines shut down and things changed. Since 1980, 60 companies gouged coal from mountainside mines along the nine-mile hollow. Some mines were run by a half-dozen different companies.
Island Creek Coal hired them all. Island Creek got the coal. The little companies, their employees and the Workers' Compensation Fund got stuck with the debts.
By 1993, 52 of the 60 small companies disappeared. Nine filed for bankruptcy. Most simply left their debts behind.
Tuesday: For injured workers, the pendulum has swung too far since the 1995 law change.
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