Article: BWC is owed $775 million in premiums

Only $175 million can be recovered

December 3, 2005

T.C. Brown

Plain Dealer Bureau

"Greg Krohm, executive director of the International Association of Industrial Accident Boards and Commissions, was stunned when contacted and told of the bureau's outstanding accounts receivable.

"Wow. Holy guacamole," Krohm said. "I don't think there is any insurance company that could carry accounts receivable for more than 90 days without writing it off."

Columbus -- Employers owe the Ohio Bureau of Workers' Compensation $775 million, a debt that in some instances stretches back decades.

But bureau officials said Friday they expect to recover only $175 million in premiums owed, leaving an outstanding uncollectable balance of $600 million.

The yet-to-be recovered $175 million in premiums is factored in as an "asset" that allows the bureau to say it has a $1.1 billion surplus, a figure often used to promote its solvency.

The uncollected premium debt is the latest bad news for an agency rocked in recent months by revelations of rare coin investments, sloppy accounting practices and investment losses of more than $300 million.

In July, independent consultants said the bureau's investment reports relied for years on unreliable, often unconfirmed data.

Greg Krohm, executive director of the International Association of Industrial Accident Boards and Commissions, was stunned when contacted and told of the bureau's outstanding accounts receivable.

"Wow. Holy guacamole," Krohm said. "I don't think there is any insurance company that could carry accounts receivable for more than 90 days without writing it off."

But state law requires the bureau to carry $600 million on its books as uncollectible.

The bureau's newly appointed administrator, William Mabe, a former insurance executive, has his hands full, Krohm said. "He has found out this isn't Kansas anymore," Krohm said.

Some of these employer premiums are so far in arrears they should have been written off as uncollectible long ago, Mabe said.

"We've not been doing a good job of collecting our money," Mabe said. "It should be written off or collected."

Some of the debt comes from scofflaw employers; some comes from bankrupt businesses.

Ohio Attorney General Jim Petro collects money owed to the state, including tardy workers' compensation premiums.

But over the years, the bureau certified for collection only about $500 million of the $775 million it was owed.

"I think sometimes it didn't become a priority, but we are trying to make it a priority," Mabe said.

In fiscal year 2005, Petro collected $48.9 million of the $144 million the bureau certified for collection, said Petro spokeswoman Kim Norris, a marked improvement over past years.

Part of the problem was the bureau's delay in getting the bills to Petro, Norris said.

"We told them, 'Don't sit on it for 90 days,' " Norris said. "We want to speed up the process."

Annually, the bureau is unable to collect $65 million to $70 million out of the $2 billion it is owed for premiums, officials said.

The bureau has returned $10 billion in credits to employers in the past decade, including savings of more than $2 million last year to Cleveland employers. The bureau's proposal to give back an additional $70 million in June - to emphasize the agency's solvency - was nixed by the bureau's Oversight Commission.

Commissioners were concerned about investment losses, including a $13 million potential shortfall in a $50 million investment into rare coins managed by heavy-lifting Republican fund-raiser Tom Noe.

Commissioner Bill Burga, president of the Ohio AFL-CIO, was surprised at the outstanding employer debt when told Friday. He opposed the June rebate.

"We need to make sure how much money we actually do have before we give any kind of rebate," Burga said. "Once it looked like they were not managing money properly, there might not be so much reserve on hand as they say."

Patrick Hanratty, a Cleveland CPA, criticized the bureau's past management practices.

"The lack of controls is appalling," Hanratty said. "If we ran our businesses like, that we would be bankrupt."

But the bureau is working to clean up its act. Last month it fired its equity investment managers and is moving to passive investments. Mabe will also look at reducing costs while trying to recover the premium debts.

"We don't expect any rate increases," Mabe said. But employers shouldn't look for any dividend soon, either.

"We're going to put off dividend discussion until the next Oversight Commission meeting," Mabe said. The commission meets later this month.