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Published: Monday, 8/4/2008

Lawsuit targets BWC discounts; program slashing premiums called unfair, 'excessive'

BY JIM PROVANCE
BLADE COLUMBUS BUREAU CHIEF

COLUMBUS - Frank Viviano has been on both sides of Ohio's workers' compensation program that slashes premiums by up to 90 percent for some employers with good safety track records.

The owner of three Bartz Viviano Flowers and Gifts shops in the Toledo area was thrilled when he was a member of a small merchant group and was paying annual premiums of just $1,400 as of 1999 to insure 50 employees.

But he was in shock when a slip-and-fall claim involving a temporary driver led his business to be kicked out of the exclusive club and sent his premiums skyrocketing. Today, he pays about $33,000 a year.

Although he admits desperately trying to get back into the club, he said he now understands why other businesses on the outside looking in were frustrated by a system that even the Ohio Bureau of Workers' Compensation acknowledges is actuarially unsound.

Tomorrow, a handful of employers outside the exclusive club will ask a Cuyahoga County Common Pleas Court judge to declare the program unconstitutional and issue a preliminary injunction against it. They hope to have an official class recognized to represent all 250,000 nongroup businesses that claim to subsidize to the tune of about $200 million a year "excessive" discounts for 95,000 employers in the groups.

"Having been on both sides of the equation, I would still be making this argument," Mr. Viviano said. "Having gone through what I've gone through, I know the system now is unconstitutional and very unfair. I'm competing with some florists that are in that group.

Frank Viviano, owner of Bartz Viviano Flowers, said a single claim by a temporary worker sent his premiums skyrocketing.
Frank Viviano, owner of Bartz Viviano Flowers, said a single claim by a temporary worker sent his premiums skyrocketing.
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"I'm at a competitive disadvantage because they're enjoying such large discounts," he said. "The Bureau of Workers' Compensation should not be in the position of establishing rules affecting competition in the same industry."

Ohio and Washington are the only two states running government monopolies to insure employees against injury in the workplace.

Ohio's group-rating program was created in 1991 by lawmakers to reward similar small employers with good claim histories by allowing them to pool their risk as if they were a single employer. At one time, the maximum discount was as high as 95 percent. It is currently 90 percent, and, beginning with premium bills in February, will drop to 85 percent.

That means businesses in the groups could pay as little as 15 percent of the premium paid by a similar business whose claims' history disqualifies it from participation.

Bureau actuarial studies have recommended much deeper cuts in the discount to as low as 60 percent of the normal premium, suggesting more cuts are likely in the future.

James Barnes, BWC's chief legal officer and general counsel, called the lawsuit "unfortunate, ill-timed, and misguided," adding that the bureau has worked to refine the insurance aspects of the system while continuing to meet the needs of a diverse business community.

"These steps are part of a deliberate and comprehensive effort to make rates and premiums even fairer and more accurate for all employers," he said. "Through comprehensive and well-thought reform, our efforts will enhance the competitiveness of Ohio's workers' compensation products with those of other states and aid in the growth of our economy."

But the changes aren't coming fast enough to suit critics of the program, which has become a hot-button issue in Columbus. When the bureau proposed reducing the maximum discount from 90 percent to 80 percent for the next billing cycle, the resulting backlash prompted the new board of directors to split the difference and set the maximum at 85 percent.

A recent investigation by the Ohio inspector general's office also raised serious questions. It noted that bureau staff had sometimes reversed without justification decisions to bump employers from groups because of claims, particularly when a lawmaker intervened on behalf of a complaining business.

Nongroup businesses claim they've paid a cumulative $2.7 billion over 17 years to subsidize overly generous discounts and hope to get some of that money back.

The lawsuit contends the program violates state law by trying to project what will happen in a coming year when setting discounts rather than applying them retroactively based on the group's actual claims experience in the prior year.

Despite complaints over the years, this marks the first direct legal challenge to the program.

"In the last several years, the problem has become so much more acute," said Stuart Garson, the Cleveland attorney representing the nongroup businesses.

"A total of about $11 billion had been taken from the bureau [investment] surplus between 1997 and 2007 to fund employer dividends. That may have camouflaged the problem, and it became more painful when the premium dividends and credits stopped," Mr. Garson said.

The dividends were halted after a 2005 investigation by The Blade revealed a $50 million BWC investment in highly unusual rare-coin funds run by Toledo-area coin dealer and GOP fund-raiser Tom Noe.

A few weeks after Noe's attorneys admitted that $13 million was missing from the fund, the bureau admitting to a $216 million loss in a risky off-shore hedge fund operated by Pittsburgh fund manager Mark D. Lay.

Both men were convicted and sentenced to prison for their separate roles in both scandals.

The debacles prompted the bureau to suspend the dividends as it questioned the accuracy of what its investment managers were telling it. Premiums climbed in the meantime.

For the first time since the scandals, the bureau in March approved the first real rate relief for all private employers that amounted to an average of 5 percent.

While conceding that the bureau is moving in the right direction, the lawsuit seeks to force its hand. It argues that even at the reduced maximum discount of 85 percent, nongroup businesses will pay $175 million a year more next year than they should to subsidize overly generous group rates.

The Ohio Manufacturers Association long has been a critic of the group-rating program, but it isn't a part of the lawsuit and doesn't want to see the program ended. The association has members on both sides of the fight.

"We think there's a role for groups to benefit from good-claims and risk-safety management," OMA Executive Director Eric Burkland said. "The boundary is that it should be actuarially sound. The studies are convincing that there needs to be some changes so that it's fair to both [group and nongroup employers]."

The Ohio Chamber of Commerce feels the same way and defends the bureau's authority to run its own programs.

"If the program is declared unconstitutional, it could be catastrophic to the economy and the state," said Tony Fiore, the chamber's director of labor and human resources policy.

"That's what is squarely on the bureau's shoulders. We have to ensure that the program in some way or form is moving forward. These are basic insurance policy decisions the bureau has to make and should make."

Contact Jim Provance at:

jprovance@theblade.com

or 614-221-0496.



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