Rigged Premium Rates in Ohio’s Workers’ Compensation System Were Illegally Covered Up for Years

In it’s Sept. 2014 issue, The Columbus Free Press reported on illegal and unfair premiums that the Ohio Bureau of Workers’ Compensation (BWC) charged to hundreds of thousands of employers from 1991 to 2009. BWC agreed in July to pay $420 million to settle a class-action lawsuit brought on behalf of the harmed employers, rather than continue the agency’s appeal to the Ohio Supreme Court.

In upholding a common pleas court’s ruling that BWC owed employers hundreds of millions of dollars, Ohio’s Eighth District Court of Appeals in Cuyahoga County said a “cabal” of lobbyists and BWC bureaucrats had “rigged” the employers’ premium rates. The common pleas court said BWC knowingly and intentionally established the illegal and unfair premiums and admitted at trial to doing so.

As shown in the previous article, the rigged premium rates were set up to enrich the group sponsors and third-party administrations (TPAs) that formed and administered the groups of employers participating in BWC’s group-rating program. By giving unreasonably large premium discounts to employers in the groups, BWC enabled the group sponsors and TPAs to make exorbitant profits, partly by taking a percentage of the huge discounts as their fees.

The excessive discounts meant employers in the group-rating program weren’t paying enough premiums to cover the risk of loss they brought to the workers’ compensation system. As the courts found, this led BWC to illegally and unfairly require employers not in the group-rating program to pay excessive premiums to make up the difference.

Also as a result of the extreme premium discounts in the group-rating program, employers whose workers’ compensation claims experience caused them to be removed from groups could see their premium rates skyrocket, sometimes by 1,000% or more. BWC’s own statistics indicate these premium increases caused severe financial hardship to thousands of employers each year, forcing many of them to close.

With a government program inflicting so much harm, employers’ complaints about its operation could come to the attention of the news media and the public, causing elected officials to feel pressure to correct the problems. But BWC committed additional illegal and unfair acts that kept this from happening.

As a result, the inflated revenue stream kept flowing to the politically influential group sponsors and TPAs despite the severe financial damage resulting to tens of thousands of Ohio employers.

The illegal, unfair, and destructive group-rating program was kept running by even more illegal and unfair BWC behavior

After employers were removed from group rating and received eye-popping bills from BWC, many of them complained loudly and passionately. The manner in which BWC responded to the complaints depended on where they were made.

For complaints made only to BWC, the agency could turn them down with little fear. BWC could explain that the administrative rules had been applied, resulting in the employers being removed from group rating and suffering exponential increases in their premiums. The employers could go through an internal appeals process at BWC, where they likely would receive the same response.

Those employers, along with the ones that didn’t complain, were left to suffer in silence. They coped as best they could, such as by reducing investments in the businesses and laying off employees. Many thousands of them were forced into bankruptcy and closed.

Other employers, however, did not go so quietly into the night. They were outraged by the premium increases and couldn’t believe such a thing could happen. They complained loud and long not only to BWC but to their state legislators. Some of them said they would go to the media unless something was done.

Those employers were a threat to the continued rigging of the premiums and the resulting huge dollar amounts being made by group sponsors and TPAs. If employers made enough noise to legislators and caused the media to inform the public about the outrageous premium increases forcing many businesses to close, political pressure could cause the corrupt system to be substantially modified or even ended.

But BWC developed a method that silenced the aggressive employers. The agency would violate the law by giving them the same premium rate as if they were still in group rating. Or BWC would otherwise arbitrarily and unlawfully assign them a lower rate that they would accept.

As a result, legislators would stop hearing complaints from these employers, who also would no longer be threatening to contact the media. And the group-rating program could continue being a cash cow for group sponsors and TPAs.

Of course, that method of addressing the problem was unfair to the employers who had not complained to a legislator or threatened to contact the media. BWC forced them to pay the unlawful, inequitable, and exorbitant rates applicable to nongroup-rated employers.

This manner of dealing with the problem was also inconsistent with federal and state constitutional requirements of equal protection of the laws – which require similarly situated persons to be treated equally. And it violated a number of workers’ compensation laws and rules prescribing equal treatment of employers.

The concept of equal justice under law is such a fundamental American legal principle that it is inscribed above the entrance to the U.S. Supreme Court. But none of these legal requirements mattered to BWC any more than the laws governing the setting of employers’ premium rates did.

An Ohio Inspector General’s investigation revealed illegal manipulation of employer premiums at BWC

In October 2006, the Democratic candidate for Ohio Attorney General that year, then-state Sen. Marc Dann, received reports of illegal premium manipulation and favoritism at BWC. He publicly demanded an investigation. After extensive media coverage of the reports, the Ohio Inspector General’s Office began investigating in November 2006.

The investigators saw that a major problem they were finding was that BWC gave premium reductions to some employers but not to others who were either in the same position or more in need of financial relief. An investigator told a BWC manager that “it makes us scratch our head and say, ‘Well how come this company’s getting this but yet this case which is clearly even more worthy of getting some type of help isn’t getting anything[?’] In fact . . . some of those companies [that didn’t receive help] are now out of business.”

Several BWC managers indicated that a reason for the different treatment was that some employers had contacted their state legislators. For example, Vicky Pickens, a BWC supervisor of the group-rating program, said some requests for premium reductions came through BWC’s legislative affairs office. As for the influence a legislator’s involvement could have on how BWC officials responded, she said, “I think that had an effect on their decision on whether they would do it or not.”

Pickens described a situation where a number of employers were in the same situation but only some of them received premium relief. She said the employers receiving relief “had gone to their legislator.” When asked why the other employers didn’t receive the same treatment, she explained “because obviously they didn’t go to their legislator.”

Based on such information, an investigator told Tina Kielmeyer, BWC’s then-assistant administrator and chief operating officer, that “it seemed if there was a legislative inquiry, the case did get preferential treatment.” Kielmeyer, who was also BWC’s acting administrator (i.e., chief executive officer) for several months in 2005 and 2007, didn’t object to his assessment.

The investigators also obtained evidence that certain employers received premium relief because they had threatened to go to the media. Kielmeyer explained that after being removed from group rating, some employers “wouldn’t accept it” and “were just very adamant, very aggressive, they felt very strongly that there was some unjustice (sic) done to them and their rates just were not appropriate. Those were the ones typically that you see that start threatening to go to the press or threatening to involve their legislators.”

Kielmeyer agreed that those employers sometimes received relief. She further explained: “Do I think that someone felt that they wanted to do something to relieve an issue whether it was going to create bad press, . . . yeah.” But she admitted this practice wasn’t fair to employers who were in the same position and didn’t complain aggressively or make threats.

Tracy Valentino, BWC’s chief financial officer, told the investigators that the process for adjusting premiums was “inherently wrong” and had become a political system.

The unethical process was likely a reason BWC declined to issue written policies for adjusting employer premiums despite a law’s direction that it do so. BWC similarly refused to document in writing the reasons for adjusting many employers’ premiums.

The Ohio Inspector General’s report covered up illegal manipulation of employer premiums at BWC

An investigator summed up the investigation’s findings on how employers received premium relief after being removed from group rating: “One phrase we’ve heard over and over again . . . is the squeaky wheel got the grease. That seemed to be the common theme with everybody we’ve talked to.”

In other words, the premium adjustments – which could determine whether employers stayed in business or not – weren’t based on law or fairness but on how much noise and trouble individual employers could make at BWC.  

The investigation documents indicate BWC greased the squeaky wheels of employers who complained to their legislators or threatened to go to the media about the absurd and potentially ruinous increases in their premiums. BWC thereby silenced their complaints and kept the legislature and media from scrutinizing what was going on with the group-rating program.

But the Inspector General’s report, issued in August 2007, said nothing about how these BWC acts covered up the wrongdoing in the group-rating program and allowed the corruption to continue. That is, the Inspector General covered up BWC’s cover-up.

 The report did say: “We did find that BWC responded in a more urgent manner to legislative inquires regarding overrides [i.e., premium reductions] than they did when employers contacted the agency on their own.” The report also said: “There was no consideration of fairness and equity” in BWC’s process of granting premium relief. Instead, the process was “arbitrary” and “not fair to all employers who contribute to the state insurance fund.”

Amazingly, though, the Inspector General’s report found no illegality in those practices, which are clearly unconstitutional and contrary to Ohio statutes and administrative rules requiring fair and consistent treatment of employers.

During the investigation, an investigator predicted that “when all this is done and all this is a public record, there’s going to be hundreds of thousands of employers screaming . . . to be treated equal.” But the report helped prevent such public outrage by making the bogus assertion that although the unequal treatment of employers was unfair, it was legal. The mainstream media also helped promote public calm by accepting and repeating that ridiculous claim without questioning it.

At least the report said BWC committed an “act of omission” by ignoring eight actuarial studies, issued between 1990 and 2006, recommending that the agency lower the discounts in its group-rating program. This was a recognition that the problem of premium manipulation was caused in large part by the program’s excessive discounts, which the courts eventually found were not only unfair but contrary to state law governing the setting of premium rates.

Sadly, after the Inspector General’s investigation was completed and report issued, BWC’s group-rating program continued to impose unfair and illegal premium rates on employers until the lawsuit and the courts forced corrections to be made. In addition to the report’s failure to find the premium manipulation and favoritism illegal, this outcome was another indication that Ohio’s state government is ineffectual at exposing and ridding itself of corruption.

Ohio’s door is open for more lobbyist-state government cabals and rip-offs

In view of what happened in the group-rating scandal, the public is left with little to be satisfied with and much to be disturbed about even after BWC agreed to pay back $420 million charged illegally to employers.

Here’s the picture: (1) nearly two decades of unrestrained, intentional lawbreaking and inequity in the setting of employers’ premiums; (2) tens of thousands of employers financially devastated or destroyed; (3) state officials slyly and unlawfully hiding the wrongdoing and harm from the public and elected officials for years; (4) premiums illegally lowered for favored or aggressive employers but not for other employers in the same circumstances or more in need of financial help; (5) politically powerful group sponsors and TPAs reaping huge ill-gotten gains they can keep; (6) much of the problem covered up and allowed to continue by a 2007 Ohio Inspector General’s report; (7) only a limited measure of justice for some of the harmed employers; (8) the limited justice being funded by all Ohio employers and not by the wrongdoers; and (9) no one inside or outside of state government being held accountable.

The appeals court acknowledged that there was a limit to how much relief it could provide. It said: “In cases such as this, it is not easy for a court to craft an equitable remedy. A court cannot turn back the clock; it cannot ‘put the genie back in the bottle’; it has no means by which to ‘claw back’ and redistribute all of the years of undeserved subsidy benefits group sponsors secured for group-rated employers at the expense of those excluded from groups.”

In a footnote to that statement, the court added: “For this reason, perhaps the best remedy in this case would have been for the legislature to have more promptly intervened, to have conducted a thorough investigation as to how this situation came about . . . and to have fashioned a timely and equitable legislative remedy.”

For such a remedy to be sought and implemented, though, the legislature needed to be less willing than BWC was to serve special interests at the expense of the public interest. The legislators’ many failures to respond properly to this problem (not to mention other BWC problems) indicate they weren’t and still aren’t.  

Based on the handling of BWC’s group-rating scandal so far, the lesson appears to be that those with sufficient political influence can, with impunity, make themselves extremely wealthy by illegally shafting countless thousands of honest and hardworking Ohioans. And state officials can, with impunity, let the scam go on for many years until forced by a court to end it.

[This is part 2 of a 2-part series. Here’s the link to part 1: “Successful Lawsuit Exposes Bureaucrats and Lobbyists Betraying Employers in Ohio’s Workers’ Compensation System.”]