State legislature intervenes to stave off unintended workers comp surcharges in more than 60 towns
One of the crucial aspects of the pending financial reform legislation involves strengthening requirements for banks to have more cash reserves on hand. Here’s a quick summary from John Waggoner at USA Today: “The legislation would give regulators more information on mortgages and derivatives, which are complex agreements whose value depends on the level of interest rates, indexes or other financial instruments. Financial companies would have to keep bigger cushions against losses. And the government would be able to seize failing institutions and liquidate them or sell them off, as it can with commercial banks.”
The entities that finance the monetary benefits awarded to injured workers face similar issues and constraints. When employers game the system, by, say, under-reporting headcount or by claiming employees as subcontractors, there’s less funding in the account than there should be. This is why states wrangle with so many permutations of systems to legitimately address treatment for injured workers.
So what happens when the regulators or the fund itself get things out of whack?
MIMRA deep in the hole
Such is the case in Connecticut, where, according to theday.com, “The Municipal Interlocal Risk Management Agency (MIRMA) was formed in 2002 by the towns of Chaplin and Willington to provide an alternative risk management pool through which towns and other public entities could buy workers’ comp and other insurance.
“But MIRMA has racked up deficits in every year since its formation and now teeters so close to insolvency that a recent report by an external auditor questioned how long the agency would continue to exist.”
Since its creation, designed to provide competition with the Connecticut Interlocal Risk Management Agency (CIRMA), MIMRA has grown to include more than 60 towns and other public entities. Apparently, there’s been warning signs before, but recently the client towns have have had to digest the disturbing news that they are on the hook for more than $9 million.
Creating risk?
Instead of managing risk, MIMRA has been running deficits and was planning on tapping its clients via increased fees, distributed among its 60-plus clients in varying schedules–which could hit some towns to the tune of several hundred thousands of dollars.
According to an April 24 piece at insurancenewsnet.com, “Among the affected towns are North Branford, which will have to pay $600,000 to the agency, and Westbrook, which will pay $158,000, officials said.
” ‘Obviously we were very surprised to hear about this assessment. …. Somehow or other [MIRMA] fell short with projected revenue and had a variety of issues,’ Westbrook First Selectman Noel Bishop said.”
Legislators to the rescue
But facing a major deadline resulting from prior legislation, state legislators have intervened. According to The Day: “But on Wednesday, the state Senate stepped in, voting 33-0 for a measure that postpones by six years the date when MIRMA must bring itself into compliance with the contingency fund requirements. The House of Representatives had earlier passed the bill by a vote of 145-2. The bill awaits action by Gov. M. Jodi Rell.”
In an opinion piece April 25 in the Hartford Courant, Kevin Rennie takes everybody to the woodshed.
“A compelling example of why we don’t trust government to use its authority wisely has been unfolding in the General Assembly. It is a cautionary tale about a small insurance company, bad decisions and legislators who ignore startling facts.”
MIMRA has a “straightforward mission,” Rennie writes, “and it’s a failure. If MIRMA were a private insurance company, it would have been shuttered long ago. MIRMA, however, enjoys friends and advocates in the legislature, so it careens on toward an expensive abyss. Its financial health has never been robust.”
A series of mistakes
If Rennie’s right, the whole mess is a chain of bad decisions, dating back at least several years, when “the legislature took away the state Department of Insurance’s authority to regulate MIRMA, according to frustrated officials in that agency.
“It has power to review the condition of MIRMA but it cannot act when it sees trouble, and there’s plenty. The department raised the prospect of MIRMA shutting down five years ago. Instead, the legislature passed a bill exempting it from prudent financial standards that require reserves to pay expenses — the medical bills of injured workers.”
Apparently, MIMRA was begun with state-provided capital, unlike its competitor, but by 2004 was running $2.2 million in the hole and about $10 million by the end of 2009. In its most recent audit, an independent outfit found MIMRA’s fiscal condition shaky enough to raise doubts about its ability to continue.
“These bare facts ought to be enough to prompt the legislature to authorize state regulators to intervene,” writes Rennie, adding that, “Instead, a bill extending MIRMA’s exemption from sound business practices sails through the legislature. Swaddled in isolation, the legislature’s Insurance and Real Estate Committee ignored terse February testimony from the Insurance Department describing MIRMA’s troubles.”
Workers’ Compensation Commission Chairman John Mastropietro, “sent a searing letter to MIRMA chairman David Denvir of Killingworth,” says Rennie, “telling him MIRMA must pay the medical bills for the injured workers it insures.” He quotes the chairman: “If doctors and hospitals were to opt out of treating injured employees due to your failure to compensate them in a timely manner, our Workers’ Compensation System would be severely compromised.”
According to The Day, at least part of the impetus in creating MIMRA was because “fully private insurers were not often serving the municipal market, [Rep. Craig] Miner said, noting that MIRMA’s primary approach had been to try to beat CIRMA, its primary competition, on price.”
Co-sponsor claims ignorance of bill
This next revelation from Rennie demonstrates the depth of chaos and confusion. He says he asked one of the new bill’s co-sponsors about the criticism from the WCC chairman–but she said didn’t know about the bill.
“This came as a surprise to one of the co-sponsors of the MIRMA bill, state Rep. Marilyn Giuliano, R- Old Saybrook. She sang the praises of MIRMA and its mission to provide affordable insurance coverage to small towns, when I spoke to her last week. She appeared not to have a clue that the reason it’s affordable is that the premiums it collects don’t cover the cost of paying claims, and haven’t for years.
“When asked why she co-sponsored the bill to exempt from state regulators a company that isn’t paying medical bills incurred for the care of injured workers, she went wobbly. ‘I don’t know where this [bill] might have come from,” she claimed. Perhaps in my research I might ask, she suggested.”
The Day piece closes with a quote from Insurance Commissioner Thomas Sullivan, describing both the way MIMRA was created as well as the dangers of not requiring enough reserves: “This bill is an illustration of the dangers of legislative carve-outs,” said Sullivan. “When companies are permitted to operate with less money than they need, the taxpayers in those towns could be asked to pay more money in taxes to keep the company afloat.”
***********************************************************************************************************************
Whether you’re an injured employee or an aggrieved employer, if you’re facing legal problems regarding workplace injuries, be sure to seek counsel with attorneys trained and experienced in workers’ compensation. Here’s some resources:
