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.
February 11, 2010
Last year I carried SB 09-103 which prohibited bonuses or financial incentives by insurance companies to adjusters to deny claims. It passed the Senate but was killed by the insurance industry in the house. I am continuing this fight for consumers this year in SB 10-076.
Q: What is the problem?
A: When someone buys insurance they should get what they pay for and no one should receive a financial incentive to act directly against the interests and rights of the insured. This is a very serious conflict of interest and an act of insurance bad faith.
THE BILL: It is an unfair claim practice (bad faith) to be:
" (XVIII) PROVIDING COMPENSATION IN ANY FORM TO INDUCE OR ENCOURAGE THE DECISION TO DENY, OR DELAY THE RESOLUTION OF, A CLAIM OR TO CANCEL OR RESCIND AN INSURANCE POLICY."
You might be wondering who could actually oppose this. The insurance industry response ranged from honest surprise that some would actually do this and acknowledging that it should be against the law right now to suggesting this is a widespread practice and they fear the legislation because this is integrated into many insurance business models.
Q: Are there examples of this practice?
A: Yes, but the full scope is unknown because carriers are not generally forthcoming about these programs that they know are illegal.
Better insurance companies would know to stay far away from this practice and certainly wouldn't discuss it publicly. That said, Farmers sent their employees down to the capitol to lobby against the bill and included in their "fact sheet" that there are no examples of this happening. Extra credit for Chutspah considering.
- Farmers whistleblower Insurance Claims Supervisor Robert Dietz came out acknowledging software designed to deny 20%+ of claims and payment of bonuses to deny claims. In a memorandum dated September 17, 2001, Farmers Insurance explained that "employees whose locations achieve their Quest for Gold goals, will receive 1.25% of their eligible salaries ($100,000 maximum)." http://www.youtube.com/watch?v=A4roo153q9I
- There is currently litigation across the United States against Farmers, State Farm, and Allstate over these types of programs. Policyholders have sued both Farmers and State Farm claiming that these programs are and were designed to force insurance adjusters to deny or delay claims. In return for denial or delaying of claims, the insurance adjusters received bonuses. http://www.badfaithinsurance.org/
- BLUE CROSS was admonished in federal Congressional hearings by Republicans and Democrats for rewarding employees who dropped coverage for policyholders when they became sick. The panel found Blue Cross cancelled coverage of more than 20,000 avoiding more than $300 million in medical claims over 5 years. http://articles.latimes.com/2009/jun/17/business/fi-rescind17
This is an illegal bad faith practice in virtually every state in common law, and 16 other states clearly codify the prohibition against this practice and virtually any court familiar with the common law on bad faith would have to conclude it is an obvious bad faith conflict of interest.
However, Colorado has not codified the prohibition of this practice in statute and SB 10-076 seeks to remedy that. To find out which insurance lobbyists have worked defeat this year and last year's common sense reforms, go to:
In fairness there are good carriers who would not engage in this practice who have not and do not oppose codifying this bad faith practice.
February 04, 2010
What is "gender rating"?
Gender rating is the individual insurance market practice of charging same-aged women and men different premiums for identical health coverage. It is currently legal to discriminate against women in this way in Colorado. Carriers in the small group markets are already prohibited from using gender rating.
Why is gender rating a problem?
In individual plans, women are singled out to pay higher premiums as if being female is a "pre-existing condition" in Colorado. And as more and more employers phase out benefits and layoff workers, women are forced to purchase in the individual market at increasing rates or go without insurance.
- 90% of Colorado's best-selling plans practice gender rating in the individual insurance market
- Women pay up to 59% more than same-aged men for identical health insurance
- Now a woman pays more than a man for comparable coverage, even if she has fewer claims
- Actuarial data show that while women have higher average health care costs, men use more and costlier benefits as they age, averaging out the costs over lifetimes A level playing field is needed.
- Women are less able to afford health care insurance than men since the national median income for women aged 15 and older is $22,224, compared to $32,486 for men.
What would HB 1008 do?
HB 1008 would close a loophole that allows gender rating in Colorado's individual market even while small group markets are prohibited from this discrimination against women.
- Insurance carriers can still rate premiums based on claims history-if you use more, you pay more
Who would benefit from HB 1008?
- More than 130,000 Colorado women aged 19-64 purchased insurance in the individual market in 2006-7
Who supports HB 1008?
- Colorado Consumer Health Initiative
- National Council of Jewish Women, Colorado Chapter
- Colorado Medical Society
- Lutheran Advocacy Ministry
- National Women's Law Center
- 9to5 National Association of Working Women
- ARC of Arapahoe and Douglas County
- Colorado Academy of Family Physicians
- Latina Initiative
- Colorado Women's Bar Association
- Planned Parenthood of the Rocky Mountains
- The Women's Lobby of Colorado
- Colorado Senior Lobby
- Colorado Center on Law & Policy
- National MS Society
- CO Organization for Latina Opportunity & Reproductive Rights
- Colorado Progressive Coalition
- Persons Living with HIV/AIDS Initiative of CO
- NARAL Pro-Choice Colorado
- Colorado Ovarian Cancer Alliance
- Colorado Coalition Against Sexual Assault
- Advocacy Denver
- Colorado Coalition for Girls
- Colorado Black Women for Political Action, Inc
- The Bell Policy Center
- Boulder Valley Women's Health Center
Ensure Equal Treatment for Women and Men in the Individual Insurance Market
CO Individual Health Insurance Market Gender Rating Among Similar Plans
Health Insurance Premium Gender Gap
Source: National Women's Law Center analysis using data obtained from eHealthInsurance (www.ehealthinsurance.com) on August 5, 2009.
Standard Health Plan features: $2,500 deductible, no coinsurance, no maternity coverage, and Rx coverage
Methodology: NWLC submitted information for hypothetical male and female applicants, ages 25, 35, 45 and 55, using a coverage start date of September 1, 2009. Applicants were listed as healthy non-smokers living in Denver. NWLC then selected three distinct plans, "Plan A," "Plan B" and "Plan C," with similar features, as listed. NWLC then calculated the gender gap-the difference in the premiums charged to a woman versus a man for the same health plan, represented as a percentage of the man's premium.
Best-Selling Plans in Individual Health Insurance Market Across 4 Cities
Gender Gap in Health Insurance Premiums
Source, Plan features and Methodology: Same as above, except applicants were listed as healthy non-smokers living in the listed four cities.
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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