August 24, 2010
Senate Democrats began an inquiry into possible rate irregularities at Pinnacol back in 2009. Initial efforts to hold interim committees or hold a peformance audit were vigorously opposed by Pinnacol and some of their political allies.
The state audit report found several problems, but specifically identified irregularities in Pinnacol's rate and premium practices. Pinnacol had relied on several rate factors that were never filed with the Division of Insurance, in violation of state law. They also were "double" or "triple" dipping on some rate factors leading to some businesses being over-charged.
The Division of Insurance promptly responded with another indepedent investigation indicating that Pinnacol had filed to file all of their rate factors and could not justify their rates. Specifically, the Division found Pinnacol's rates to be excessive and discriminatory -- which also violate Colorado law.
DORA was scheduled to present its evidence to an independent hearing officer tomorrow, when Pinnacol agreed to a settlement to avoid the hearing. DORA's press release about the terms of the settlement is replicated below:
Division of Insurance Assesses Pinnacol $80,000 Civil Penalty;
Pinnacol to Credit $15 Million to Certain Policyholders in 2011
The Division of Insurance announced it has reached a settlement agreement with Pinnacol Assurance, the state’s largest workers compensation insurer.
Pinnacol has agreed to credit policyholders a minimum of $15 million against premiums in 2011. Only policyholders who are schedule-rated will receive credit. A schedule rating is a tool that workers compensation carriers can use to adjust premiums, either up or down.
In addition, Pinnacol Assurance will pay a civil penalty of $80,000 (representing $10,000 per year for violations where the company used unfiled schedule rating factors to set premiums for some policyholders.)
“We have come to an agreement that the Division of Insurance believes will provide relief to Pinnacol policyholders,” said Colorado’s Commissioner of Insurance, Marcy Morrison. “Because Pinnacol is the workers compensation insurer of last resort in Colorado, employers who are Pinnacol policyholders often accept the rates without question or complaint. It’s important that the Division of Insurance maintain its vigilance to be sure that rates are not excessive, inadequate or unfairly discriminatory.”
Pinnacol will cease to use two rate filing factors which the Division of Insurance asserted were violations of Colorado law. The use of these two unfiled rating factors resulted in an agreement for Pinnacol to credit the $15 million to certain policyholders.
Pinnacol Assurance was the focus of a state-ordered audit in the spring of 2010. Details uncovered in the audit identified the use of rating factors which were not filed with the Division of Insurance as required by law. Findings in the audit raised concerns that Pinnacol’s practices could result in excessive, inadequate, or unfairly discriminatory rates.
“Thanks to the leadership of the Commissioner of Insurance, premiums for workers compensation have decreased over 35 percent in the past three years in Colorado. This agreement continues that trend and helps employers in Colorado by keeping their costs low so they can invest their capital in growing their businesses,” said Barbara Kelley, Executive Director of the Department of Regulatory Agencies.
The settlement agreement and original notice of hearing (now cancelled) can be viewed on the Division of Insurance website at
The “Notice of Hearing” is at
The settlement agreement addresses four main violations outlined in the “Notice of Public Hearing.”
June 09, 2010
If you are an employer, employee or taxpayer in Colorado, you are impacted. Pinnacol is Colorado's quasi-governmental workers compensation carrier of last resort.
Because they hold nearly 60% of the market they impact practices for employers and employees throughout the state, either directly or indirectly. They are taxpayer subsidized in a few significant ways: they pay no federal corporate income tax, no state corporate income tax, no premium tax, no state court fees, no property or sales and use tax and their employees participate in PERA (the public employee's retirement).
The performance audit was triggered by SB 281 and the results of that audit were presented June 7, 2010. Key findings in the audit were:
- Bonuses significantly high
- Setting bonus goals for execs artificially low to ensure executives received maximum bonuses from 2002-2008
- Pinnacol paid more than $1.9 million in bonuses from 2007 – 2009, which if divided by their 611 employees is almost $88,000 in bonuses per employee.
- Pinnacol cannot adequately document their rationale
- Bonuses were awarded on duplicative and unclear criteria
- Gainsharing targets too low, lack rationale
- Reward programs do not consider any component about injured workers experience or satisfaction.
- Golden Parachute Agreements for executives if change of control
- Salary, benefits, bonuses for up to 2 years
- If terminated without cause Pinnacol’s exposure would be more than $4.3 million
- The agreements are "very unusual" for state WC funds
- This limits the Board's ability to fire the CEO even if doing a poor job
- Pinnacol Rates excessive and unfairly discriminatory as follows:
- Pinnacol Loss Cost Multiplyers (LCMs) may unfairly discriminate among employers,
- Overcharge employers with policies in Standard and Non-Standard tiers relative to employers in Preferred or Superior tiers.
- Used inaccurate information, unsubstantiated assumptions to calculate LCMs
- Lack of adequate controls over rate-setting process
- Pinnacol’s method of determining employer’s eligibility for Schedule Rating may not be fair to all employers.
- Pinnacol used rating factors from 2006 – 2010 that was not filed with the Division of Insurance which violates CO law
- Pinnacol Insurance has no insurance actuary on staff
- This is highly unusual and likely to impact accuracy of rates
- Pinnacol surplus continues to exceed range established by Board
- Surplus continues to exceed levels recommendd by Board
- Level of surplus is adequate to cover claims
- Claims Handling Problems
- 8% of sample not in compliance with statutes and rules
- Does not use injured worker satisfaction surveys as component of exec performance plan or gainsharing program, but does use policyholder satisfaction.
- Travel and Entertainment that "borders on abuse"
- Pinnacol paid $1.5 million in travel and entertainment in 2009
- Weaknesses in Pinnacol’s policies and controls over travel & entertainment expenses
- Weaknesses in controls over 3rd party payments made on behalf of Pinnacol personnel and Board members
- 45 out of 60 travel & entertainment expenses did not comply with Pinnacol’s own policy.
- Routine reimbursement of expenses that violate its own policies renders those policies virtually meaningless as controls on spending for travel & entertainment
- Pinnacol had subordinates approving supervisors expenses
- Found potential for conflicts of interest
- Pinnacol has failed to set limits on lodging and non-business meals
There were 14 audit recommendations. indicated they agreed and would comply by December 31, 2010, but will be brought back before the audit committee in September to ensure they are making actual progress.
Pinnacol has been in the press lately and over the last year for resisting the Interim Committee to review their performance and status, for resisting the performance audit (above), for seeking to eliminate state oversight through privatization, for tying defeat of Pinnacol reform legislation to a several hundred million dollar proposal for privatization, for a highly publicized luxury trip to Pebble Beach Resort and for trying to claim they are not subject to Colorado's Open Records Act.
Injured workers in the interim committee reported significant problems with denial of appropriate claims, inability to get timely access to appropriate medical treatment, harassment through surveillance in unwarranted circumstances, going into bankruptcy and foreclosure for non-payment of benefits from Pinnacol and expressed great frustration at having to fight for everything in a system that is not supposed to require litigation or hiring of legal counsel.
To their credit, in the audit committee Pinnacol agreed with the audit findings to fix problems they were defending just days before.
You can download a full copy of the audit by going to the State Auditor's website.
February 16, 2010
Pinnacol is Colorado's quasi-governmental workers compensation carrier of last resort in Colorado that has existed since 1914. It enjoys several tax exemptions and its employees are currently in PERA (the public employee retirement plan). They are currently being audited by the State of Colorado and were the subject of investigative hearings this summer, finding:
- problems with claim payment to injured workers
- interference and non-payment of owed medical care
- improper bonuses & financial incentives that reward non-payment of claims
- overcharged premiums (even including issued dividends)
- amassing a surplus higher than their private peers in CO
- amassing a surplus higher than their quasi-gov peers across the US
So when CEO Ken Ross wants to reduce state oversight, 55,000 businesses and 2.5 million workers in Colorado have a very real reason to worry. The problem has been too little oversight, not too much.
The Governor's office has been willing to get appraisals of the potential worth of Pinnacol apart from any ultimate decision about whether or not to sell them. Here is their joke of an offer to the state:
- $200 Million, paid $75 million in the 2010-11 budget year and $75 million the year after that. Pinnacol also would pay the state $50 million over 30 years. [Pinnacol is worth over $2 Billion in assets on the books. No higher math degree needed to see getting $200 million for a $2 billion asset is no deal.]
- They keep their tax-exempt status, avoiding taxes other carriers pay.
- They keep their current employees in PERA, a benefit reserved for public employees.
- They governor would have reduced appointment powers to the Board of Pinnacol Assurance.
- They would no longer be subject to oversight by the state auditor. [Just as they are undergoing the first performance audit ever in the entity's history]
- They would no longer be subject to Colorado's Sunshine Laws, Open Meetings or Open Records laws.
- Defeat the Pinnacol reform legislation (!?) [To be clear it is not legal offer money or something of value for the passage or defeat of legislation in Colorado, so how they intend to accomplish this is unclear].
Tim Hoover in the Denver Post wrote this article, which is worth reading: http://www.denverpost.com/ci_14407533
The offer in its essence is asking the state to:
- accept $0.10 on the $1.00;
- let them keep all the perks of being quasi-governmental (tax exempt, PERA);
- with NONE of the oversight;
- with condition of defeating legislation addressing their current deficiencies.
Seriously? This is the best laugh I have had all year. Perhaps this joke is meant to look so bad that when they make their next "offer" to the state, it can only look better in comparison.
That said, their process is bizarre, to say the least. Negotiators had been appointed to determine and craft and offer for consideration.
CEO Ken Ross (previously exposed for excessive salary, lavish and questionable expenses) got in front of the entire process and unilaterally declared this "offer" and skipped the part of the negotiators.
I'm not sure if CEO Ken Ross thinks he is also the CEO of Colorado but someone please give him a tutorial in checks-and-balances. Oh wait, this is what the Board is supposed to do.
I have never seen a quasi-governmental (or even a private entity for that matter) so adverse to any oversight or checks-and-balances. It reeks of a culture of autocracy. He is playing Russian Roulette with the lives of millions of workers and businesses in Colorado and needs to know this is not a game.
But make no mistake, a sale for any sum, will be a permanent mistake that will haunt Colorado's businesses and workers in perpetuity.
November 11, 2009
After a summer of testimony, review of thousands of pages of documents, the Interim Committee on Pinnacol Assurance found a few key areas to improve the state's workers compensation carrier of last resort.
- unpaid or delayed claims and medical care
- insufficient information to workers about their rights
- high rates compared to claims paid out
- questionable CEO pay, perks, and expense policies
- inadequate representation of workers interests on Pinnacol Board
- cost-shifting from unpaid work comp claims to ERs, health insurance
- unpaid claims leading to foreclosures, bankruptcy for workers
- payment of financial incentives to deny claims and medical care
- inadequate annual oversight data, transparency
- lack of standards to trigger surveillance on workers
- the enforcement of current law was lagging
- the Div. of Workers Compensation lacks appropriate complaint info online
Despite the evidence and testimony, Pinnacol doesn't think there is any problem and says "if it's not broken, don't fix it." For workers who couldn't get medical care, surgeries, lost their jobs and their homes it was broken. For doctors who couldn't get care approved, necessary records or paid, it could be improved. For employers who prefer lower rates or higher dividends, it could be improved.
The committee recommended 7 reasonable measures to make improvements to Colorado's WC carrier of last resort:
- Bill A (Hodge) – Restores Annual Report, Satisfaction Surveys of Injured Workers, Put Division of Workers Compensation Complaint Information Online
- Bill B (Ryden) – Lowers rates to the lower between NCCI filing and an independent actuary, triggers a dividend to policyholders at 800% of Risk Based Capital.
- Bill C (Pace) – Creates standard prior to initiating surveillance to have reasonable basis to suspect fraud or material mis-statement, gives injured worker right to expedited hearing and right to materials.
- Bill D (Miklosi) - Adds injured worker to Pinnacol Board, ensures 2 out of 3 employee appointees are non-management, gives public notice about Board meetings and opportunity for Public Comment.
- Bill E (Tochtrop) – Increases penalties for non-compliance with the Workers Compensation Act for better enforcement of current law.
- Bill F (M. Carroll) – Prohibits financial incentives to delay / deny claims or medical care, gives parties right to know financial relationships of doctors on the Division IME panel to ensure a truly independent opinion, prohibits Pinnacol from giving itself a reversionary interest annuities upon death of the injured worker.
- Bill G (Miklosi) – This creates notice to injured workers of their current rights under the current system to avoid confusion and reduce need for litigation.
These bills were approved November 10 by the Legislative Council committee as being within the scope of the interim charge and these bills will proceed as Interim Committee bills recommended to the Legislature for the 2010 session.
So far, Pinnacol, has opposed everything:
- the hearings
- the performance audit
- the need for any improvements
- every bill from the interim committee
September 29, 2009
Colorado's non-profit state compensation insurance fund (Pinnacol) has amassed over $2 billion in assets, $1.2 billion in reserves, $700 million in surpluses and the surplus is growing at a rate of about $100 million per year. Our state workers compensation fund, Pinnacol, insures 57% of the market, 55,000 businesses and covers 1.5 million employees in the State of Colorado.
The extraordinary level of surpluses have raised questions about whether policyholders are being overcharged or whether injured workers are receiving the benefits they should.
The State of Colorado has oversight responsibility for all government and quasi-governmental entities in Colorado. Pinnacol is no different.
The committee heard testimony about several things that Pinnacol does well. Their employees generally find it a good place to work, their safety and injury prevention programs have earned the accolades of many, and their volunteer and foundation programs have left many grateful recipients. Likewise their "association marketing fees" and dividends are well-liked by those who receive the funds.
The input from injured workers, their advocates, from employers and from Pinnacol was not to privatize nor to return to a full state agency but to leave Pinnacol in its current structure as a quasi-governmental agency. Many employers were satisfied with having this public option for workers' comp insurance. The committee listened and will not seek to change the structure of Pinnacol.
There are problems, however, that came to our attention, which would be irresponsible to ignore.
*Extravagent Spending, Perks, Junkets. (hundreds of thousands of dollars in Pinnacol expenses on golf outings, retreats at luxury hotels, trips and lavish meals that included a $2,500 dinner with $144- per-plate lobster and $115 bottles of wine, paying for CEO's wife for retreats where CEO wasn't present for business). (See Receipts).
*Executive compensation packages that are far in excess of those typical for state compensation insurance funds (2002 avg = $268,000, Pinnacol = $419,000), far exceeding the state's usual pay scale and not in compliance with the 2003 audit. . The current CEO pay at Pinnacol is at $448,812.64. (See Pinnacol Annual Financial Statement and 2003 Audit Report).
*Inflated Premiums by NCCI: The rating entity by the insurance industry NCCI is regularly setting rates higher than those recommended by independent actuaries (by ~ 10%!). (2006 NCCI +5.9%, Independent Actuary -5.9%, (2007 No changes), 2008 NCCI – 0.6%, Independent Actuary -16%, 2009 NCCI – 9.7%, Independent Actuary -19.8%. (See Rate Chart).
*Medical providers reported difficulty in getting treatment approved, bills paid, and getting access to all of the necessary documentation to review claim. Providers are now reporting difficulty in getting approvals or payment even for care within the medical treatment guidelines (See Physician Testimony).
*Injured workers had difficulty with denied claims, denied medical treatment and prompt payment of reasonable and necessary medical care. Some workers testified that Pinnacol's non-payment led to foreclosures, bankruptcy. We also heard evidence that Pinnacol's non-payment led to cost-shifting (to private health insurance, Medicaid or in emergency room visits). We heard from workers who had been crush victims, amputees, fire victims some blinded or in wheel chairs who reporting having to fight Pinnacol at every step of the way. (See Worker Testimony, Letters)
*Pinnacol has financial incentives to deny of claims and medical treatment. Some of the problematic bonus structures include basing bonuses or gainsharing on "net income" – total minus claims paid, the number of days prior to medical discharge (MMI), time for claim closure. These financial incentives exist for everyone but most problematically claims managers, nurse case managers and even the Medical Director. This is a direct financial conflict of interest with the statutory purpose of Pinnacol and workers compensation. (See Pinnacol MBOs, Gainsharing Reports)
*Injured workers also reported frequent harassment with surveillance and while Pinnacol spent $4.7 million in surveillance on thousands of workers, only 10 workers (out of 50,000+ claims) were actually convicted of fraud (0.02%). (See Witness Testimony, Pinnacol Document on Surveillance).
These issues are real and compelling and can be addressed with some simple, common sense solutions. Most of the proposals coming forward focus on a few common sense themes designed to help the current system work better:
- increased transparency & accountability
- improving enforcement of existing law
- giving workers plain language notice of their rights under current law
- removing conflicts of interest in the system
The committee is not looking to:
- sell or transfer any of Pinnacol's current assets
- change the legal structure of Pinnacol or its function as carrier of last resort
- make any sweeping changes to Colorado workers comp laws
For copies of all materials provided to date you can visit:
The following recommendations were passed out of committee for modest, but essential improvements:
Rate Reduction Act (Ryden – Tochtrop):
- Lower Premiums: Lower Rate of NCCI or Independent Actuary Unless Good Cause
- Transparent Rate Filing: – Open to Public for Review
- Increases Dividends: Dividend Trigger 800% RBC well above solvency requirements or other CO carriers.
Workers Bill of Rights (Miklosi – M. Carroll):
- Notice to Injured Workers Upon filing of Claim of their Rights Under WC
Pinnacol's Board Transparency Act (Miklosi – Hodge):
- Balance the Board: Add injured worker, 2/3 employees non-management, Dir. DOL
- Public Notice, Publicly Posted, Opportunity for Public Comment
- Board Compensation X$ Amount –$250 per diem.
Injured Worker Privacy Act (Pace – M. Carroll):
- Requires reasonable basis to suspect fraud prior to triggering surveillance
- Gives injured worker right to expedited hearing to challenge
- Gives injured worker right to receive all materials
Transparency Act (Hodge – Ryden):
- Restore Annual Oversight Report
- Put Division of WC Complaint Process Online
- Survey Feedback from Injured Workers: Results Posted Publicly
Conflicts of Interest (M. Carroll – Miklosi):
- No Financial Incentives or Bonuses to Delay / Deny Claims / Medical Treatment
- Disclosure of Financial Interests in Division IME Panel:
- No Reversionary Interests to Self (Pinnacol / Carrier) upon death of injured worker
- No ex parte 3rd Party communications with physicians unless in writing or in presence of patient
Penalties (Tochtrop – Pace):
- Increases Penalties (unchanged in decades) to Better Enforce Current Law
- Changes Willfully to Knowingly regarding penalty for unpaid bills
These bills will be considered by the Legislative Council Committee on November 10, 2009. Bills passed from there will be considered as part of the regular 2010 Legislative Session.
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