Pinnacol Problems Revealed
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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