After scandals, state insurer on solid footing

Years after “Coingate,” the Bureau of Workers’ Compensation announces $1B rebate.

By the numbers

The Ohio Bureau of Workers’ Compensation is a state-run insurance program for injured workers.

$1.8 billion: Premiums paid annually

$1.8 billion: Claims paid annually

1.1 million: Current number of open claims

105,000: New claims opened annually

250,000 employers pay into the system

$25 billion: Investment portfolio, including $8.8 billion in net assets

7.38 percent: Average annual return on state insurance fund (2008-2012)

Source: Bureau of Workers’ Compensation

Upcoming changes:

  • $1 billion in rebates for 250,000 employers, beginning this summer
  • $15 million in safety grants, up from $5 million
  • Change the billing cycle to be prospective rather retrospective or the current arrears-based system    

Seven years after an investment and ethics scandal engulfed the Ohio Bureau of Workers’ Compensation and led to criminal charges against more than 20 people, the state-run insurance program for injured workers is set to return about $1 billion to public and private employers across the state.

The checks may be the strongest indication yet that the BWC is on solid footing again after the stock market collapse and the scandal that preceded it, forever known as “Coingate.”

But while employers welcome the rebates — the first doled out by the BWC since 2005 — workers’ compensation premiums through the program remain a potentially crippling expense for small and medium-size businesses that don’t have the option of being self-insured, some say.

“I’m happy to get anything, but at this point we need to review the entire system,” said Doug Barry of Barry Staff in Dayton, whose job placement company paid $426,000 in workers’ compensation premiums last year. “Come next year, I’m still going to be paying this same amount.”

Barry Staff is due for about $239,000 in rebates from the BWC.

The BWC Board of Directors, an 11-member body appointed by Gov. John Kasich, is expected to review the rebate plan Thursday, which returns approximately 56 percent of an employer’s annual insurance premium.

The bureau will also seek legislative approval to shift to a prospective or advance billing cycle (rather than retrospective billing based on past coverage), which the agency hopes will improve collection rates. If approved, it would mean a short-term break for employers because their 2014 premiums would be “forgiven” for six months due to the changeover, providing a savings of $900 million. In addition, the agency plans to triple the grant money for workplace safety programs to $15 million.

“At the end of the day, we have a proposal that will help employers, help workers and make the system better, which ultimately helps the economy of Ohio,” said BWC Administrator Stephen Buehrer.

Stock market gains

The big-money giveback is possible thanks to strong gains in the stock and bond markets. The state insurance fund delivered 7.38 percent average annual returns over the past five years — well above the bureau’s anticipated return of 4 percent. That boosted the total investment portfolio to $25 billion currently, up from $17.3 billion in fiscal year 2008, and left the bureau with a cash cushion of $8.8 billion.

“The Bureau of Workers’ Compensation is a large insurance company. It’s different than any other state agency you cover. We’ve seen the assets grow and it was time to do something,” Buehrer said.

The $1 billion rebate plan will send an average of $4,762 to the more than 200,000 Ohio employers that pay into the State Insurance Fund. Some will get checks as little as $5 while the biggest employers will see a rebate of more than $3 million. Generally, the largest employers will get the biggest checks.

“It is new money that (employers) weren’t expecting that can be invested in workplace safety programs and invested in their operations in the Dayton area,” said Chris Kershner of the Greater Dayton Area Chamber of Commerce.

The BWC is the largest state-run workers’ compensation insurance fund in the country. It collects $1.8 billion in annual premiums and pays out roughly the same amount for lost wages and medical expenses incurred by injured workers. The system has 1.1 million open claims, including about 105,000 new ones filed each year.

BWC invests premium payments in bonds, stocks and other instruments. Buehrer said because BWC is a unique animal, it is difficult to benchmark its investment performance against comparable large state investment funds.

The $1 billion, while seemingly a large figure, is much smaller than the rebates given between 1996 and 2005, when the BWC returned a total of $8 billion to employers.

‘Pay Us Back’

It was shortly after the last rebate when the public first learned of “Coingate.”

The BWC invested $50 million in rare coins through Maumee-based coin dealer Tom Noe, who had been a well-connected Republican but is now in state prison after being convicted of tapping millions from the fund for his own use. The bureau also lost $215 million in 2004 that had been invested in a high-risk hedge fund managed by MDL Capital Management in Pittsburgh, a firm with ties to Cleveland Democrat George Forbes. Forbes served on the BWC’s oversight board and was later convicted of six misdemeanor ethics charges.

Following the scandal, the Great Recession hit, the market took a nose dive and the state insurance fund lost 2.3 percent of its investment assets. With the market recovery, the portfolio has since bounced back.

The Kasich administration announced the rebate plan earlier this month and followed it up with data that shows nearly 3,800 local governments will receive $112.8 million in rebates. Crowing about the rebates to schools and cities that saw $1.8 billion in state funding cuts under the Kasich administration drew criticism from Ohio Democratic Party Chairman Chris Redfern, who is also a state representative.

“Today’s announcement amounts to a shell game — a grossly inadequate one at that — and shows once again that Gov. Kasich is more interested in public relations than doing right by Ohio families and making investments in our children,” Redfern said in a written statement.

While the bureau prepares to give back $1 billion, it is fighting a court ruling that it return $860 million to 270,000 employers who contend that they were overcharged for workers’ comp coverage between 2001 and 2009.

The lawsuit, filed in 2007, argues that the bureau unjustly gave big discounts to employers who were part of groups and required employers not in groups to subsidize them.

Cuyahoga County Common Pleas Court Judge Richard McMonagle in December ruled against the BWC and in March told the state to return $860 million to the business owners. The state is appealing, saying that the BWC’s actions were lawful and restitution is not warranted.

The BWC has set aside the $854 million in case it loses the appeal.

“Pay Us Back Now Ohio BWC” says 27,639 employers in the Dayton-Springfield area are owed $82 million through the lawsuit. The group also notes that the state is paying $73,000 a day on interest on the $860 million for each day that Ohio continues its appeal.

Brian Wright, director of the Pay Us Back group, said there is no connection between the rebate and the lawsuit.

“I think employers are certainly going to be happy to get that money back and they’re going to be even happier to get that $860 million back,” Wright said.

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