Interim Joint Committee on Labor and Industry


Minutes of the<MeetNo1> 1st Meeting

of the 2012 Interim


<MeetMDY1> June 21, 2012


Call to Order and Roll Call

The<MeetNo2> 1st meeting of the Interim Joint Committee on Labor and Industry was held on<Day> Thursday,<MeetMDY2> June 21, 2012, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Senator Alice Forgy Kerr, Chair, called the meeting to order, and the committee assistant called the roll.


Present were:


Members:<Members> Senator Alice Forgy Kerr, Co-Chair; Representative Rick G. Nelson, Co-Chair; Senators Julian M. Carroll, Denise Harper Angel, Ernie Harris, Jerry P. Rhoads, Katie Stine, and Jack Westwood; Representatives C.B. Embry Jr., Bill Farmer, Dennis Horlander, Wade Hurt, Thomas Kerr, Charles Miller, Michael J. Nemes, Tanya Pullin, Tom Riner, Jim Stewart III, and Brent Yonts.


Guests:  Dwight Lovan, Commissioner, Department of Workers’ Claims and J.R. Wilhite, Executive Director, Kentucky Workers’ Compensation Funding Commission


LRC Staff:  Linda Bussell, Adanna Hydes, Carla Montgomery, and Betsy Nickens.


            Senator Kerr welcomed members to the first meeting of the committee during the 2012 interim. She informed members of the passing of former Representative Al Bennett and asked for a moment of silence in his memory.


            Senator Kerr stated that the agenda consisted of two presentations and that material related to those presentations was included in members’ folders.


            Update and Agency Procedure Relating to the December 2011 Ky. Supreme Court Decision Gardner v. Vision Mining

            Commissioner Lovan stated that the Supreme Court’s December 22, 2011 decision affirmed the Court of Appeals decision that found the consensus process was unconstitutional because it treated coal workers’ pneumoconiosis (black lung) differently than it treated other claims for benefits based on occupational pneumoconioses, of which there are several. In doing so, the court did away with the consensus process that was enacted in 2002 in an effort to make the decision-making process in coal workers’ pneumoconiosis claims as objective and independent as possible.


Under the consensus procedure, a panel of three “B” reader physicians was used to interpret x-rays and benefits would be awarded based on the consensus of the panel. A showing of clear and convincing evidence was necessary to overcome the consensus reached by the panel. The Supreme Court noted that the clear and convincing standard applicable to coal workers’ pneumoconiosis was a much higher standard than was applied to other occupational pneumoconioses. The agency is now in the process of determining how to comply with the decision. Commissioner Lovan said the agency will return, at least at this time, to the use of university evaluators, which was the process used for coal workers’ pneumoconiosis claims from 1996 to 2002 and is the process used for all other occupational pneumoconioses claims. University evaluations are afforded presumptive weight, which is a rebuttable presumption that may be overcome by other evidence. The agency is taking this approach because the Supreme Court decision emphasized that coal worker’s pneumoconiosis claims should be treated as other occupational pneumoconioses claims. Another reason for this approach is that case law dictates that when a statute is found unconstitutional, the prior law that was constitutional must be relied on. Returning to the use of university evaluators for coal workers’ pneumoconiosis claims presents some logistical issues for the agency because the universities have not been doing black lung evaluations since 2002. The universities do not have “B” reader physicians on staff, but Commissioner Lovan said that he is not sure, based on the Supreme Court decision, that a “B” reader is necessary to pursue a black lung claim. A “B” reader physician is a physician who has been specially trained and certified by the National Institute of Occupational Safety and Health in classifying x-rays of pneumoconioses.


            Commissioner Lovan said the agency will probably require a full pulmonary examination in every black lung claim because it is required in other occupational pneumoconioses claims. The 396 black lung cases being held in abeyance will be taken out in a measured way to avoid overwhelming the agency or the universities.


Commissioner Lovan said other issues that remain to be determined include what, if any, impact the court decision will have on the payment structure for black lung claims, which is different from the payment structure applicable to other occupational pneumoconioses claims. This issue was not addressed in the majority opinion of the Supreme Court decision. He expects this issue to arise early in the adjudication of cases as they are released from abeyance.


            Questions have been raised about the impact of the decision on cases decided under the consensus process enacted in 2002. Case law dictates that a case that has been finally decided, absent legislation to the contrary, cannot be reopened even if the courts determine the law to have been unconstitutional.


            Commissioner Lovan concluded by stating that the agency has a plan to comply with the Supreme Court decision, but there are many issues yet to be determined.


            In response to questions from Senator Kerr, Senator Rhoads, Representative Yonts, and Representative Pullin, Commissioner Lovan summarized the different payment structure for coal workers’ pneumoconiosis, set out in KRS 342.732, than for other occupational pneumoconioses. He said he thought the Supreme Court did not address this in its decision, probably because it would have had to overrule its previous decision that upheld the different payment structure for those claims. Approximately 2,500 claims have been denied under the 2002 law that the court found unconstitutional. A legislative remedy is available to provide a reopening provision similar to the one that was included in the 2002 law for those claims that had been denied under the 1996 law.


Commissioner Lovan said it is yet to be determined whether blood gas studies will be required in a full pulmonary examination. He discussed how opinion evidence is currently utilized in occupational pneumoconioses claims, and agreed that the absence of “B” reader interpretations in the claim probably would not preclude an award for benefits. He agreed that the low number of retraining incentive benefit awards may have resulted from the requirement that a claimant participate in retraining in order to receive benefits. Commissioner Lovan informed members that information about the agency’s procedures will be disseminated by email and will be included on the agency’s website, and informed members that examples of other types of other occupational pneumoconioses include farmer’s lung, asbestosis, and silicosis.


            Following the presentation from Commissioner Lovan, Senator Kerr introduced J.R. Wilhite, Executive Director, Kentucky Workers’ Compensation Funding Commission.


            Report on the 2011 Actuarial Study on the Workers’ Compensation Special Fund and the Coal Workers’ Pneumoconiosis (CWP) Fund and the 2012 Assessment Rates.

            Mr. Wilhite used a power point presentation to explain the purpose and history of the Kentucky Workers’ Compensation Funding Commission. The commission was created 25 years ago with a seven member board for the purpose of providing funding for the types of claims Commissioner Lovan discussed. The board of the commission consists of three cabinet secretaries and appointed members representing employers, employees, and the insurance industry. The duty of the commission is to control, invest, and manage the funds of the Special Fund and the CWP fund. The Special Fund has been in existence since 1946. In 1996, the Special Fund was closed to new claims, but it still includes about 9400 active claims with a liability, as of June 30, 2011, of about $1.5 billion.


The CWP fund was created in 1996 when the Special Fund was closed for new claims to pay the state’s share of the liability for black lung claims filed after 1996. As of June 30, 2011, the liability of the CWP fund was $17.6 million.


The commission sets annual assessment rates for the Special Fund and the CWP fund, collects and audits assessments for those funds, and invests the monies collected annually from the assessments. The assessment for the Special Fund is a percentage of workers’ compensation premiums and is paid by all employers, coal and noncoal. The two assessments for the CWP fund are paid by coal employers and are a percentage of premium and cents per ton of severed coal.


Mr. Wilhite further explained that the workers’ compensation statute, KRS Chapter 342, requires an actuarial study of the funds every other year so that the agency can report to the General Assembly on the actuarial soundness of the funds. The actuarial study also provides the basis for the annual assessment rates. The statute requires the commission, based on actuarial studies, to set a level assessment rate annually for the Special Fund that, if applied annually from now until the end of 2029, would produce sufficient revenue to pay annual claim payments as they arise and future claim costs that are required beyond 2029 when the annual assessments end. According to the actuarial study, payments obligations of the Special Fund might extend to 2087. The Special Fund assessment also funds the liabilities of the Uninsured Employers’ Fund, administrative expenses of the commission, and programs operated by the Labor Cabinet.


Based on the actuarial study from last year, the commission reduced the 2012 assessment rate for the Special Fund to 6.28 percent from 6.50 percent, and eliminated the assessment rates for the CWP fund. Mr. Wilhite stated that the assessment rates for the Special Fund for 2012 are the lowest rates that have been in place over the past 25 years.


Mr. Wilhite explained the different funding requirements that exist for the CWP fund. The statute requires annual funding and prefunding of the CWP liabilities for an 18 month period going forward. The liability of the CWP fund determined by the actuarial study done last year pre-dated the Supreme Court decision relating to black lung that was discussed by Commissioner Lovan. The liability of the CWP fund as of June 30, 2011 was $17.6 million with a fund balance of $19.3 million resulting in a surplus of $1.7 million. According to the actuarial analysis, the annual assessments for the CWP fund will probably have to increase in future years if the Supreme Court decision increases claim liabilities, but sufficient funds exist to pay liabilities over the 18 month period ending in December of this year.


Mr. Wilhite concluded by saying that the commission is preparing an update of the actuarial study done last year to determine whether any changes have occurred in the claims database from July 1 of last year that might change the overall liability estimations going forward and assessment rates for 2013.


In response to questions from Representative Farmer, Representative Yonts, and Senator Rhoads, Mr. Wilhite explained that the statutes require that the annual assessment for the Special Fund be sufficient to pay annual claim costs and administrative expenses of the Labor Cabinet and that the disbursements to the Labor Cabinet not exceed the amounts approved by the General Assembly in its executive budget. Secretary Mark Brown said the budget of the Labor Cabinet is approved by the General Assembly. This is the way the Labor Cabinet has been funded historically and the annual disbursements to the cabinet from the Funding Commission include claim payments and the administrative expenses of the cabinet. Mr. Wilhite further responded by stating that: the estimates of the projected payout of Special Fund liabilities to 2087 are based on actuarial determinations of life expectancy; the financial condition of the Special Fund and the CWP fund would be better if previous transfers by the General Assembly of funds from Special Fund and the CWP fund had not occurred; 58 percent of the Special Fund liabilities result from coal; medical costs are not paid by the Special Fund; annual administrative costs of the Labor Cabinet are approximately $20 million annually; the annual severance tax allocation to the Funding Commission that was put in statute in 1996, and later suspended, was intended to replace a previous additional assessment on coal; and, the assessments for the Special Fund could have ended in 2018 if the severance tax allocation of $19 million annually had been received by the Funding Commission. Mr. Wilhite also agreed to provide a breakdown of the coal-related liabilities of the Special Fund resulting from injuries versus black lung. Secretary Brown commented that the Labor Cabinet is about 35 people less than the number of budgeted positions in order to control costs and that the budget of the cabinet has been reduced by 34 percent over the past four years.


There being no further business, the meeting adjourned.