The state Workers' Compensation Fund faces $2.2 billion in liability.
How did it happen? And ...
CHRIS DORST/Sunday Gazette-Mail
A coal-mine roof fall crushed Dwight Bowers 13 months ago. Falling rock broke his back, ankles and legs. He worries about losing his benefits.
By Paul J. Nyden
MABSCOTT - Dwight Bowers lives on a gently sloping hillside near Beckley. He sleeps three hours a night. He never sits very long. When he stands, he leans on a metal cane.
For 22 years in the mines, Bowers had no accidents. He rarely missed a shift and made nearly $50,000 a year.
A week before Thanksgiving last year, Bowers' life changed in an instant shortly before dawn. Three tons of sandstone fell from the roof of the mine, cracking his legs, ankles and back like toothpicks. The heavy slab also crushed his cheek and jawbones.
"I heard something pop. The next thing I knew I was lying with the rock on top of me. I was down to one breath. I knew it was time to go," he said.
Mike Parks, his buddy from Coal City, and two other miners managed to free Bowers by lifting the rock.
"They saved my life. Mike held my hands all the way out of the mine. 'Do you think I'm going to die?' I asked. 'No. Not this time,' Mike said.
"I can't go back in the mines. I just sit around," Bowers said. "I'd mop floors at Raleigh General Hospital if that's all I can get.
"I used to make $16.50 an hour. Down the road, what will happen? They may take my comp away. A man who worked all his life, like me, will work at a hamburger stand and make nothing."
In 1995, faced with a mounting Workers' Compensation Fund deficit, the state Legislature made it much harder for injured workers to qualify for lifetime "permanent total disability" awards, often called "PTD awards."
Lawmakers and Gov. Gaston Caperton saw the Workers' Compensation Fund crumbling around them.
Today, it would take $2.2 billion in the bank to pay for the fund's "unfunded liability" or obligations the fund has to pay toward benefits and medical costs for workers who are already injured.
That deficit is almost as much as the state's entire General Revenue Fund, which was $2.4 billion last year.
When Caperton left office, a huge deficit still loomed. But a plan was in place to eliminate it within 40 years.
The deficit has many causes:
* In the past, West Virginia granted 123 PTD awards for every 100,000 workers, a rate 17.5 times as high as the national average of 7.0 PTD awards. By mid-1997, West Virginia granted 5.8 PTD awards for every 100,000 workers.
* For years, the Workers' Compensation Fund failed to collect premiums from employers, especially mining companies, amounting to hundreds of millions of dollars in losses.
* Workers' Comp officials also misclassified some employers into lower "risk classifications," which often meant significant drops in premium payments.
Now the question becomes: Who will pay the bill?
* It could be workers like Bowers. Every two weeks, the mailman delivers a $781 check from Workers' Compensation "temporary total disability" benefits. He could lose that.
* It could be small-business owners. This year, the state had 41,041 businesses. More than 40,000 are small businesses. Big employers, especially coal companies, ran up most of the $2.2 billion deficit. The corner grocer, the small printing-shop owner and the local florist could end up with the tab.
* And it could be anyone who gets a weekly paycheck. Today, 755,900 West Virginians have jobs to support themselves and their families. If things get worse, they might end up paying the lion's share.
The future is still uncertain.
During an interview earlier this month, Caperton warned, "This fund is for the workers in West Virginia. It is not something to be played with. In the past, people arbitrarily cut rates or abused the system to provide benefits beyond what they were intended to be."
Caperton, who headed the McDonough Caperton Insurance Group before he was elected, believes financial stability at Workers' Compensation is crucial.
"Not only did it improve our bond rating, it also created confidence among people investing in West Virginia and creating jobs.
"The only way you could bail out the fund, if we hadn't straightened it out, would be by raising rates so high as to make West Virginia uncompetitive with the rest of country.
"Or, we would have to raise taxes on the public for sins of the past," Caperton said.
Everyone has a stake
When the Legislature couldn't repay $259 million owed to the federal government for unemployment compensation benefits, it levied a special tax on all wage earners in 1987. The debt, with $50 million in interest, was paid by the end of 1991, one year early.
It could happen again. But this time, the debt is almost nine times as big.
West Virginia employers will pay more than $500 million in premiums this year. And 62,000 injured workers will get compensation benefits.
Most will simply get medical treatment. Others will get weekly compensation benefits while they miss work.
Workers' Compensation premiums are a major cost to many employers, especially those in high-wage, high-risk industries like mining.
Anytime an employer evades compensation payments, he wins a huge competitive advantage.
In 1996, a typical Logan County mine operator with 40 employees could have saved $717,400 by paying no compensation premiums. His payroll and compensation premium would have been nearly $2.1 million. An honest competitor down the road would have paid $2.8 million.
Three factors determine what employers pay: wages to employees, risk classifications and safety records of individual companies.
West Virginia has 92 different basic risk classifications requiring employers to pay between 53 cents and $42.46 for every $100 in wages.
A hardware store pays $1.88 for every $100 in wages, a steel mill pays $7.99 and an underground coal mine, $34.44, for every $100 in wages.
A "modification factor," based on each employer's own accident history, is used to raise or lower premiums.
It's like auto insurance. Drivers who cause accidents get bigger insurance bills than drivers with good driving records.
Explanations about how Workers' Compensation fell into debt, and proposals about how to pay off that debt, get complicated.
But one thing is clear. Every person in West Virginia has a stake in what happens.
In debt from the start
West Virginia has a big share of dangerous industries: coal mines, steel mills, chemical plants and glass factories.
In the 1930s, 764 workers who dug Union Carbide's Hawk's Nest tunnel near Gauley Bridge, died from silicosis. In 1978, 51 construction workers were killed when a cooling tower collapsed at the Willow Island power plant near St. Marys.
In 1907, 361 miners died in Monongah. In 1968, 78 died in Farmington. But most miners die alone, crushed in roof falls, mangled by machines.
During this century, West Virginia's mines killed 20,246 and injured nearly 500,000. Thousands more slowly suffocated to death from black lung.
Gov. Henry Hatfield, a Republican, persuaded the Legislature to create the Workmen's Compensation Fund on Oct. 1, 1913, modeled after a German program for injured miners.
The new fund was a "social contract" between workers and employers. Injured workers could collect compensation benefits quickly, no matter who was at fault. Employers win immunity from worker lawsuits, which saves them hundreds of millions a year.
From the outset, the fund was in debt. During the first fiscal year, the fund collected $605,000 from employers and paid $930,000 to injured workers.
Lee Ott, a former coal operator became the first commissioner in 1915. Gov. Howard M. Gore replaced him in 1927. An audit revealed the fund was insolvent and that one coal company never paid $300,000.
Gore's new commissioner, C.L. Heaberlin, raised premiums and sued the delinquent coal company.
But when William G. Conley became governor in 1929, he fired Heaberlin and rehired Ott, who promptly settled the suit against the coal company for $12,000, according to "Bloodletting In Appalachia" by Howard B. Lee, who was state attorney general at the time.
The social contract didn't always work.
For years, the Workers' Compensation system paid a pittance, or nothing at all, for bodies destroyed in the mines, mills and factories.
Ott was still commissioner in 1932, when 80 Hawk's Nest tunnel workers filed claims. All 80 were turned down. In 1933, labor backed a bill to provide compensation benefits for silicosis victims. It lost.
Diseased workers and their survivors filed 538 lawsuits by 1935. All were settled for $200,000, an average of $371 apiece.
U.S. Sen. Rush D. Holt, D-W.Va., praised Congress in 1936 for investigating the Hawk's Nest tragedy, since state officials did nothing.
Hawk's Nest finally forced minor reforms to compensation laws by the end of 1935.
The next big change came in the wake of the explosion at Consol No. 9 in Farmington. In February 1969, 95 percent of the state's 45,000 miners struck, forcing the Legislature to make black lung compensable.
Most compensation laws changed little during the agency's first 61 years.
Secretary or bridge builder?
In 1974, state lawmakers required almost all employers to participate in the Workers' Compensation Fund and increased benefits to workers.
Between 1973 and 1993, five state Supreme Court rulings made it easier for injured workers to collect benefits.
But when the economy slumped, Workers' Compensation became a kind of welfare system, particularly in coal towns where prospects for jobs were bleak. In 1981, the state had 18 percent unemployment.
Jay Rockefeller, governor from 1977 to 1985, increased employer premiums to solve short-term revenue problems. But revenues were never sufficient to cover future obligations to injured workers.
Gretchen Lewis, Rockefeller's Workers' Compensation commissioner from 1980 to 1984, commissioned a 1981 study that uncovered a $379 million deficit.
"We discovered a lot of firms were misclassified," Lewis said last week.
"High-danger jobs, like construction and bridge-building, were classified at secretarial or clerical rates by the previous Arch Moore administration."
Lewis, a Boston lawyer today, said a bridge-building company could save hundreds of thousands of dollars by paying rates as secretaries.
After Moore won his third term as governor in 1984, he cut compensation premiums by 30 percent for major industries, including coal, construction, steel and glassmaking.
Moore's rate cut cost the fund $570 million in lost premiums and interest, according to a 1996 report from Employment Programs Commissioner Andy Richardson. The report said the fund paid out $103 million more than it collected during Moore's term.
Lewis said, "I don't know how anyone could justify that. Compensation benefits were indexed to the state's average weekly wage, which increased every year. Medical expenses were increasing by 20 or 25 percent a year.
"With wages and medical benefits increasing, how could you cut revenues and expect to survive?" Lewis asked.
Moore made other deals, too. He allowed dozens of underfinanced companies, particularly coal companies, to become self-insured and stop paying premiums. When those companies collapsed, other state employers got the bill.
Caperton recalled problems he faced after defeating Moore.
"Before I was inaugurated, I appointed a special committee of financial people from the public and private sectors," he said recently.
"The state had $500 million in unpaid bills. And that wasn't all of it. The Teachers Retirement Program and the Public Employees Insurance Agency were in poor condition. The Workers' Compensation Fund was near bankruptcy.
"When we left office, we had a $100 million surplus in the General Revenue Fund; the Teachers Retirement Program was actuarially sound. And we saw the same kind of improvement in Workers' Compensation," Caperton said.
The Three-Call Rule
Until 1993, two clerks reviewed all 70,000 claims injured workers filed each year.
Most were routine.
About 25 percent were more complicated.
Each clerk had an average of three minutes to make a decision on each claim. Not surprisingly, the vast majority of claims were approved quickly.
Two problems developed.
First, employers protested more and more approvals, straining the agency's own appeals process. And more appeals went to court. By 1994, 61 percent of all cases before the state Supreme Court came from Workers' Comp.
Second, two overworked clerks could not record all information accurately.
Basic information, like age, sex or income, was often wrong or missing, a 1992 study revealed. The agency could not properly decide individual claims or predict future liabilities.
Ed Staats, the agency's chief financial officer, said the river of claims should have flowed into the big end of an organizational funnel, not the narrow end. The Workers' Comp funnel stood upside down.
Employers could not get answers to simple questions. Agency workers joked about the "Three-Call Rule."
Staats explained, "Before 1993, an employer would call and ask, 'How much do I owe Workers' Comp?' Someone would answer the phone and say, 'I don't know who is in charge of your account.'
"Then, the clerk wrote down the employer's name, the company name and the date of the call on a 3-by-5 card. The card went into a file.
"A couple of weeks later, when nothing happened, the employer might call again. The same information was recorded on another card. It went into the file.
"When another month went by and nothing happened, the employer might call a third time. The third card triggered a reaction. Our people finally looked at the account," Staats said.
By 1991, information was so bad that an Ernst & Young audit concluded agency records could not "produce reliable financial information."
Agency records about employers - who they were, how many people they employed, the wages they paid - was often incomplete.
Capitalizing on administrative chaos, hundreds of employers paid less than they should have, or nothing at all. Some never even registered with Workers' Comp.
These employers ran up at least $280 million in unpaid premiums and interest, probably much more. Coal companies owe $200 million of that total.
A year ago, Workers' Comp hired private lawyers to collect these debts. During Caperton's last month, lawyers filed three suits for $28.5 million owed by Island Creek Coal Co., National Mines Corp. and Bluestone Coal Corp.
Then Cecil Underwood, governor between 1957 and 1961, moved back into the Governor's Mansion.
'A number of concerns'
Underwood, a former Island Creek Coal vice president, received major contributions from coal companies during his gubernatorial campaign last year. Gary White, former West Virginia Coal Association president, chaired his "transition team."
In February, Gov. Cecil Underwood named William Vieweg as Employment Programs commissioner.
Vieweg was an executive and lawyer for Island Creek Coal Co. between 1976 and 1986, then worked for the private insurance industry.
Vieweg was a top Workers' Comp official from 1969 to 1973, during Moore's first term as governor. Twice, he had been acting commissioner.
In the past 10 months, Vieweg held scores of meetings with corporate executives and lawyers. He talked to union leaders a couple of times. His official appointment book lists no meetings with injured workers or small-business owners.
Vieweg pledged to "stay the course" set by the Caperton administration, but soon made decisions that could undermine the financial stability achieved during the previous eight years.
He immediately halted new lawsuits against coal companies and their contractors until at least one of the first three suits is resolved.
Jim Teets, Underwood's chief of staff, said, "It is questionable whether we should use employers' money to pursue a wild goose chase."
The private lawyers working on these suits, however, will get paid only if they win.
Vieweg slowed down criminal indictments of fraudulent employers and claimants and has not yet replaced Special Prosecutor Susan Tucker, who resigned in September.
In May, Vieweg capped rate increases for the 19 most dangerous industries, shifting $21.6 million in premiums to the safest employers. Coal companies pocketed $18 million of this break.
Vieweg said he plans to phase out these subsidies of the state's most dangerous industries in three years. Ending subsidies immediately, he believes, would force some companies to close down and hurt the state's economy.
In October, Vieweg tried to cut $22.2 million in premiums for self-insured companies.
The Performance Council, a special committee created by the Legislature in 1993, voted him down.
State legislators who backed the 1995 reform act said they tried to place financial burdens equally on business and labor. House Speaker Robert Kiss, D-Raleigh, said, "I believe what we did was fiscally necessary. We had a problem to solve."
Kiss, House Judiciary Committee Chair Rick Staton, D-Wyoming, and other legislators now fear too much of the burden might fall on workers, especially if delinquent and unsafe employers get off the hook.
"Occurrences of the last year have caused us a number of concerns," Kiss said.
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