Interim Joint Committee on Labor and Industry


Minutes of the<MeetNo1> 3rd Meeting

of the 2001 Interim


<MeetMDY1> November 15, 2001


The<MeetNo2> 3rd meeting of the Interim Joint Committee on Labor and Industry was held on<Day> Thursday,<MeetMDY2> November 15, 2001, at<MeetTime> 10:00 AM, in<Room> Room 149 of the Capitol Annex. Senator Katie Stine, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Katie Stine, Co-Chair; Representative J. R. Gray, Co-Chair; Senators Dick Adams, Walter Blevins, David Boswell, Julie Denton, Alice Kerr, Vernie McGaha, Joey Pendleton, and Richard Roeding; Representatives Charlie Hoffman, Dennis Horlander, Joni Jenkins, Thomas Kerr, Stan Lee, Russ Mobley, Rick Nelson, Stephen Nunn, Johnnie Turner, and Brent Yonts.


Guests:  Bill Londrigan, President, Kentucky AFL-CIO; Bill Caylor, President, Kentucky Coal Association; Terry Bethel, Peabody Energy Corporation, St. Louis, Missouri; Bryant Brown, Vice President, Marketing, American Mining Insurance Company; Tommy Thompson and Ed O’Daniel, Economic Progress Initiative Council (EPIC).


LRC Staff:  Linda Bussell, CSA; Adanna Hydes, Melvin LeCompte, Betty Davis, and Reni Krey.


Representative J. R. Gray, Co-Chair, noted that Representative Butler’s wife was still not feeling well and asked the members to remember the Butler family in their thoughts and prayers.


Senator Stine said the intent of the meeting was to give interested parties an opportunity to express their views on the black lung situation in Kentucky, including their recommendations, or proposals, so that the members of the committee and the General Assembly would have a better idea of what to expect in terms of efforts to revise the black lung provisions which have been in effect since December 1996.


Bill Caylor, President, Kentucky Coal Association, provided a handout to the members that contained statistics regarding the economic health of Kentucky’s coal industry. He said that Kentucky employs about 17,000 miners who earn approximately $44,000 per year. Another 68,000 are indirectly employed statewide. He said coal pays around $150 million in coal severance taxes each year and generates total state tax revenues of around $400 million. In addition, coal sales generate approximately $3.1 billion in gross sales and brings around $2.7 billion to Kentucky from the sale of coal to other states and countries. According to figures from the United States Department of Energy, 131 million tons of coal was mined in Kentucky in 2000. He further stated that the price of coal peaked in 1982 at $30.44 per ton, and has declined since then. In 2000, the average price of coal was $23.74. He attributed the decrease to coal companies not being able to take advantage of the higher spot market because many companies are locked into 20-year contracts, a lack of coal miners to expand production, and environmental restrictions which continue to impede the issuance of new permits.


Mr. Caylor also noted that coal’s abundance, affordability, and reliability clearly indicates its strong role in America’s growing demand for energy resources. He said that the health of Kentucky’s coal industry is fair, but it has become a lean industry without enough margin to provide capital for expansion.


He pointed out that the coal industry has unique concerns regarding workers' compensation because of the black lung provisions. He said it was important that Kentucky not return to the entitlement days when miners felt that their black lung award was simply a right. He said specific areas of concern to the industry include obtaining objective medical evidence in evaluating a miner’s condition. He said statutory presumptions were no substitute for medical evidence and a miner should only be paid when he is medically impaired from a work-related condition, but not on the basis of statutory presumption. He also said that under no circumstances should there be an artificial standard that would allow any miner, regardless of age or education, to receive an award in lieu of retraining. In closing, Mr. Caylor said any potential legislation to revise the black lung provisions should be based on several objectives, including insuring access to adequate medical treatment, maintaining objective measures for determining benefits, promoting competitive job growth and economic development, and streamlining the benefit delivery system with minimum litigation, while preserving the exclusive remedy provision.


Terry Bethel, Vice President, Peabody Energy, addressed the impact of his company’s operations in Kentucky. Peabody Energy has operating locations in Muhlenberg, Logan, Union, and Henderson Counties in Kentucky with a total annual production of approximately ten million tons. Noting challenges such as utility deregulation, environmental standards created by the Clean Air Act of 1990, and shorter long-term price agreements, he said it is becoming more difficult to maintain or expand production base, and the business environment is more complex and competitive. He said, like other multistate employers, Peabody will continue to invest capital dollars where the greatest return can be achieved. Currently Peabody is investing $50 million in a four-million-ton-a-year underground mine in Union County, but this mine is just replacing capacity for a mine that was shut down. He said that although the decreasing production rate in Kentucky makes it very difficult to justify a new investment, expanded production is planned. He expressed concern about possible changes in the workers’ compensation law which could possibly further burden the industry and jeopardize future investments in the state. Mr. Bethel applauded the 1996 workers’ compensation reforms.


Bryant Brown, Vice President of Marketing, American Mining Insurance Company, said that prior to the 1996 reform, competition in the workers’ compensation market in Kentucky was non-existent and the rates were approaching $70 per $100 of payroll. He said those changes brought rate relief and competition back to Kentucky. He said currently for each miner making $44,000 per year, the employer will pay approximately $22,000 in workers’ compensation insurance premiums. He said the new federal black lung regulations has caused his company's rate to increase from $2.05 to $6.91 per $100 of payroll, and that those rates may increase. He also said traumatic rates in Kentucky will need to increase to accommodate the new court cases which have liberalized the 1996 reforms.


Representative Nunn asked Mr. Caylor to qualify a statement he made during his testimony during which he stated that there is a shortage of miners, but that the industry has survived by laying miners off. Mr. Caylor said that not enough young miners are coming into the workplace. He said that many miners are going to start retiring and that this is a prime time for young miners to come into the workforce.


Representative Turner pointed out that the $44,000 salary was an average amount and that many miners did not make that much annually. He also established that traumatic injury rates did not have a bearing on black lung rates. In response, Mr. Brown said that if legislation liberalizes benefits, rates will go up. He said he could not say exactly what the increase would be because that would be determined by legislation, but that an insurance carrier had to reserve what it expects to pay out for the claim. In response to questions by Representative Turner, Mr. Brown said that his company, which insures one hundred companies in Kentucky and approximately 1500 to 2000 employees, incurred $324,315 in losses in 1999. Representative Turner asked Mr. Brown to provide him with a breakdown of expenses and the amount of awards miners actually received.


Representative Yonts asked Mr. Brown to explain the change in federal law that caused rates to increase from two percent to six percent. Mr. Brown said that the Department of Labor instituted new regulations which determine how black lung claims are adjudicated. He said said the number of federal black lung claims filed since 1999 has more than doubled. He said all claims filed since January 19 will be adjudicated under the new process and provides for retroactivity to 1982.


Senator Roeding told Mr. Bryant, that in addition to the figures requested by Representative Turner, he would like to know how much of the money paid out by his company went to attorneys.


Senator Adams established that the coal workers’ pneumoconiosis (CWP) fund was established to pay half of any CWP claim paid after December 12, 1996. The fund has accumulated a balance of approximately $15 million. Senator Adams further stated that the best indicator of the coal workers’ pneumoconiosis claims process is that of the status of the CWP fund which currently is only paying on four claims. He said not enough money is being paid out in benefits. Mr. Brown said the rates the insurance companies charge is based on the amount they would ultimately have to pay for claims.


Representative Lee asked Mr. Caylor what other employee costs, in addition to the $46.09 per $100 of payroll for workers’ compensation insurance, were incurred by coal companies. Mr. Gooch, President, Coal Operators and Associates, said health insurance for an individual runs approximately $500 monthly, and $750 to $900 for family plans. In addition 7.65 percent social security withholding, plus other benefits such as life insurance and dental policies. Mr. Brown said that NCCI recommended that rates effective September 1, 2001, be reduced for underground and surface mines by 14 percent. He said the Department of Insurance ultimately approved an average rate decrease of 9 percent rather than 14 percent. He said his company has elected not to follow the 9 percent decrease because of its views on the quality of the data on which the rate indications were based. Representative Lee commented that the cost of workers’ compensation insurance is going up, and that whatever the committee or the legislature could do to control the cost of premiums would be helpful to the coal companies. In response to a follow up question by Representative Gray, Mr. Gooch confirmed that approximately ten percent of coal companies do not provide health care benefits for their employees.


Representative Nelson asked the panel how many black lung claims were paid prior to the 1996 legislation, and how many claims were paid in 2000, or according to the most recent available information. Mr. Caylor said that the Department of Workers’ Claims would have that information, but it had been stated in an earlier comment that four claims have been paid out of the CWP fund since December 12, 1996. Senator Adams said 11 claims were awarded. Representative Nelson said it was his opinion that the occurrence of black lung was not as obscure as the number of awards might indicate.


Representative Horlander requested that hourly wage rates and job classifications for mine workers be provided to the committee.


Senator Stine introduced Tommy Thompson, President, Thompson Homes, and a Board Member of EPIC; and Ed O’Daniel, EPIC. Mr. Thompson explained that EPIC was formed in 1995 by the Kentucky Chamber of Commerce, Kentucky Coal Association, and Kentucky Economic Development Corporation to determine why Kentucky’s workers’ compensation costs exceeded those of surrounding states. It was also the purpose of EPIC to propose changes to restore fairness to the system. Since 1996 AIK and other businesses have formed a coalition to insure preservation of the core concepts of the 1996 reforms. Mr. Thompson said that EPIC had opposed proposed legislative changes of the workers’ compensation law during the last few sessions. He said workers’ compensation should provide adequate compensation for injuries directly related to the individual’s job. He said workers should not be compensated for lifestyle choices, which Representative Yonts requested him to clarify. Mr. Thompson said he meant impairment due to cigarette smoking.


In response to a question by Senator Adams, Mr. O’Daniel said EPIC’s opinion regarding the $16 million in the CWP fund should be that coal related conditions should be compensated if there is disability involved, not simply because money is available for that purpose. He expressed the opinion that changes to the workers’ compensation law do not appear warranted.


Senator Stine recognized Bill Londrigan, who said addressing the inadequacies of the black lung portion of Kentucky’s workers’ compensation law was long overdue. Mr. Londrigan, who serves as a member of the Coal Workers’ Pneumoconiosis Fund Board, said financing benefits for victims of black lung was addressed under the 1996 House Bill 1. He pointed out that only coal operators were responsible for financing benefits for victims of black lung, and that employers not engaged in mining had no financial obligation for those benefits. He stated that the initial assessment on workers’ compensation premiums for coal industry employers was at a rate of three percent of premium and two-and-a-half cents per ton of coal which generated approximately eight million dollars the first year. Because anticipated claims based on actuarial assumptions in 1996 never materialized, those rates were lowered in subsequent years to one percent of premium and one-quarter-of-a-cent per ton of coal. He said that although the establishment of the CWP fund was a logical mechanism for funding the anticipated claims, the difficulty surrounding the diagnosis of black lung has created the current debacle and must be addressed.


Mr. Londrigan said that the current method of identifying black lung and assessing impairment is so stringent, only a few miners are getting a positive diagnosis. He said the presumption that cigarette smoking is a contributing factor further complicates the diagnosis. Mr. Londrigan said his organization still supports the proposed changes of the last legislative session contained in House Bill 132. He said his members still believe some form of consensus reading is a more fair method of evaluating x-rays, and support the use of spirometric testing to determine if a miner has pulmonary dysfunction. He added his members still believe that a fifteen year rebuttable presumption that working in a mine and breathing coal dust is the primary cause of a miner’s breathing impairment should be a factor in the evaluation process for black lung.


Mr. Londrigan emphasized that he would like to see the benefit schedule adjusted so that more miners will qualify at the lower levels based on x-rays and pulmonary function studies. He said that currently the bar is set too high which precludes miners with early stage pneumoconiosis from qualifying for benefits. He added, upon review of the testimony of the expert doctors who appeared before the committee on August 23, 2001, that he supports utilization of Computerized Tomography, or CT scans, to assist in the diagnosis of black lung, particularly to resolve a difference of opinion. He acknowledged that there were more significant costs associated with CT scans, but that mine operators have indicated they are willing to accept the cost to obtain the most fair and objective evaluation.


Representative Mobley said the overwhelming evidence presented by medical experts during the last few months indicates that the testing system currently being used is fair and equitable. Mr. Londrigan responded that the low number of miners being found to have coal workers’ pneumoconiosis indicates that the system is flawed. Additionally he noted that new information is available which indicates that CT scans are a clearer and more objective way of determining the presence of black lung disease.


Representative Lee asked Mr. Londrigan to provide information to the committee on the number of union and non-union coal miners. In response to Representative Lee’s questions, Mr. Londrigan said that unionized members typically work in mines where air quality safeguards and standards are not routinely abused. He also confirmed that the United Mine Workers encourages its members to report violations, and that there is more compliance with safety standards because of that effort. Mr. Londrigan also pointed out that the assessments on coal companies for the CWP fund, which is currently overfunded, were lowered because of statutory requirements. He said, upon review of the previous testimony of the expert doctors, he did consider it a problem that cigarette smoking is being utilized as a method for eliminating claims.


Senator McGaha told Mr. Londrigan that he appreciated his endorsement of the use of CT scans but noted that in his testimony, Mr. Londrigan also stated that he would like to see the schedule adjusted so that more miners will qualify at lower levels of impairment. In response to further questioning by Senator McGaha, Mr. Londrigan said that it was his objective to obtain the most adequate, appropriate, and objective diagnosis for miners and that simply making awards to persons who do not have the disease or do not have impairment was not his purpose.


Senator Roeding asked Ed O’Daniel to explain the impact the governor’s decision to end the state’s 19 million dollar contribution to the special fund will have on workers’ compensation costs to all businesses. He noted that $4.7 million was transferred in the first quarter and $14,250,000 was actually the amount that was not transferred. Mr. O’Daniel said beginning with the 1996 workers’ compensation reforms, an annual transfer of $19 million dollars from the coal severence tax was transferred to the special fund through the Kentucky Workers' Compensation Funding Commission. The premium assessment rate for all employers for 2001 is 9 percent, which will produce approximately $70 million. The Funding Commission has voted to increase the premium assessment from nine percent to 11.5 percent, effective January 1, 2002,. The additional 2.5 percent will produce about an additional $17.5 million.


The meeting adjourned at 12:30 p.m.