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REVOLTING DEVELOPMENT
SOARING WORKER'S COMPENSATION BILLS LEAVE OFFICIALS SEEKING WAY OUT

The Niagara County worker's compensation fund used to be the sort of government program that quietly did its work and went unnoticed, year after year.

But now, months after the fund told its member communities their bills would bolt upward -- some more than doubling in a year -- the county has a small revolt on its hands.

As local officials were faced with skyrocketing bills, some communities are spurning the county's fund for alternatives, and the county is suing to make them pay what they owe for past claims.

Now the staple of headlines and court cases, the worker's compensation fund -- which pays the lost salary and medical bills of injured workers employed by who work for local governments and fire departments -- is threatening to become another example of Niagara County government gone awry.

North Tonawanda has pulled out, and the county has sued over how much that city owes the fund.

The Town of Niagara and Royalton have pulled out. The Town of Wheatfield is preparing to do the same, said Supervisor Timothy Demler. The City of Niagara Falls, the fund's largest member, has told the county that it's seriously contemplating leaving if its bill isn't cut considerably.

Faced with a growing crisis, county officials have called a special meeting for Wednesday Feb. 7, to air concerns about the fund's future. The fund, which today covers about 5,800 municipal employees and about 1,400 volunteer firefighters, was started in 1956.

Concerns about the fund's operations have been growing for years, local officials said, but peaked when the 2001 bills were sent to its members, including six school districts and every community in the county except North Tonawanda and the Town of Lockport.

When the Town of Niagara got its 2001 worker's compensation bill last October, officials discovered the town was being told to pay $216,714, an increase of 132 percent over the previous year.

"That's when I said, 'Wait a minute, what's going on here?' " said Town of Niagara Supervisor Steven Richards.

The previous year, when the Town of Niagara's bill was $93,387, the fund had actually paid out substantially more -- $155,126 -- to cover claims from the town's workers. So in 2000, Richards said, you could say the Town of Niagara had actually gotten a good deal from the county fund.

The instability was a troubling sign, though, Richards said, and overall premiums were rising steadily, from about $25,000 five years ago. His town researched leaving the system and decided it could get worker's compensation coverage for about $114,000, probably by joining a group of New York State communities in a worker's compensation fund called the New York State Public Entity Trust.

But the point isn't whether the county fund is a good deal or a bad deal this year, Richards said. The larger question is how the fund is being managed -- what it's doing to hold down costs for its members, and what that suggests for more increases in the future, Richards said.

Richards said he's been wondering what the county has done to limit worker abuse since 1998. That's when he saw a person covered under the town's workers' compensation coverage working on a roof. The man was receiving full workers' compensation benefits at the time, after the county determined he couldn't work, Richards said.

When he called the county workers' compensation office to complain, Richards said, he was surprised by the response he got. "I was told, basically, 'Why are you making such a big deal out of this?' " Richards said.

Sure, there are many reasons why workers' compensation costs are increasing, especially the rising cost of medical care. But if the system doesn't have mechanisms to help keep people honest, he said, why should taxpayers have to pay for that?

The county workers' compensation system doesn't have a staff investigator or other routine systems for fighting abuse, though it has employed surveillance in certain cases, said Rodger Smith, who has overseen the fund since 1999.

Smith said he believed that some workers might abuse the system, though perhaps not to the point of outright fraud. Fund administrators "haven't been very successful in fighting that," he said, although he did know of cases where surveillance had apparently prompted able workers to return to their jobs.

The reasons for the workers' compensation increases had more to do with other factors, Smith said. He did anticipate a reaction from the fund's members when the 2001 bills went out, he said. After all, the bills' total jumped from $4.17 million the previous year to $6 million for 2001.

The biggest reason for the increase was miscalculating how much money the fund would need to pay its claims, Smith said. Each year, fund officials review the amount of claims that have been paid in recent years and estimate how much will be needed the next year.

The 2000 estimate was off, Smith said. "If we knew we were going to have more claims in 2000," Smith said, "we would have estimated higher."

Another important factor was a clearing of backlogged workers' compensation cases, Smith said. The administrative company formerly handling the fund's claims had fallen behind in arranging reimbursements from other sources, a problem that's since been addressed, Smith said.

Among other increases, Smith said, were the settling of more cases with one-time payments, an unanticipated expense, and a rise in the state's assessment for its Special Disability Fund, a mandated cost.

Another key concern voiced by Richards was the fund's lack of catastrophic coverage. Most municipal workers' compensation pools buy insurance limiting the cost of any one claim to a preset threshold, such as $250,000. That way, Richards said, if there's a terrible accident, and the fund is hit by a huge claim, the amount over the threshold is paid by the insurance company, not the fund.

It's not an idle question in Niagara County. In 1997, a Cambria volunteer fireman covered by the fund was killed by a passing car as he worked at the scene of a car accident.

Richards, who was part of a municipal ad hoc committee on workers' compensation fund issues last year, said that he was told the settlement in the Cambria case was large, well into six figures. It was also not clear if the county got reimbursement from the insurer of the car that struck the firefighter, he said.

That's the sort of case that would make catastrophic insurance a prudent step, Richards said.

Smith said he was not at liberty to discuss individual claims. But although the fund has not purchased catastrophic coverage insurance, the matter has been considered carefully and is periodically reviewed, Smith said. So far, the expense has not been deemed prudent.

Also, the county does have a policy of actively seeking reimbursement from third parties, such as insurers of a car that struck a covered worker, Smith said.

Despite the shock of the 2001 bills, Smith said, the coming year should bring the easing of many cost issues facing the fund and not another 44 percent increase.

Communities that think they can save money elsewhere might find that the second and subsequent years with other carriers aren't so inexpensive, Smith said. In his opinion, Smith said, "it would be harder to find a better value than the county fund."

Before the county fund sets its 2002 bills, however, it will have to determine how many members it has left.

The fund's existance should not be endangered by the withdrawal of communities, Smith said. If they choose to leave, communities like North Tonawanda have to pay the fund for the claims that the fund still has to administer. Figuring out just how much that is has turned out to be more complicated than first thought.

North Tonawanda, which was the first to pull out, has been embroiled in a legal dispute with the county over how much its severance should cost.

First ,the county said North Tonawanda owed $2.2 million. The city countered with the figure of $1.2 million.

Last week, the county upped its demand to $3.4 million, on advice from its auditors. The case goes to trial in May. The county has to see which formula for calculating severance charges the judge approves before setting charges for other communities that want to leave the fund, Smith said.

Meanwhile, Niagara Falls is watching with interest. Its 2001 workers' compensation bill is $2.1 million, but it's received estimates from other sources for about $1.2 million.

Clearly, "there are more cost-effective ways of addressing workers' comp," said Niagara Falls' director of human resources Paul Dziama.

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