WAMO

WAMO New York State Workers’ Compensation Board November 17, 2009

Common Understanding of W(H)AM(-)O

WAMO Waiver Agreement Management Office

WAMO • Purpose: To negotiate and seek Board approval for waiver agreements on behalf of the Special Disability Fund.

WAMO • More generally, WAMO refers to a number of provisions of the 2007 Workers’ Compensation Reform Legislation pertaining to the closure of the Special Disability Fund (Second Injury Fund), and management of its ongoing obligations.

Purposes of WAMO Provisions • Close Special Disability Fund (SDF) to new claims. Claims with a date of accident or date of disability on or after July 1, 2007, are ineligible for SDF reimbursement. • All claims must be filed with all documentary evidence by July 1, 2010.

Purposes of WAMO Provisions • Stabilize and reduce SDF liability in established cases by one or more of the methods provided by legislation.

NYS Special Disability Fund • Largest in the nation, twice as large as the next biggest. • Approximately 60,000 open, established claims. • Present value of the SDF’s projected liabilities is approximately $18 billion.

Legislative Options for Reduction of Established SDF Liability • Creation of Waiver Agreement Management Office, or WAMO. WAMO may enter directly into WCL §32 settlement agreements with individual claimants. • WAMO is not required to consult with nor obtain the approval of any carrier, self-insured or SIF relative to any such settlements. • Settlements are limited to cases where SDF liability has been established.

Legislative Options for Reduction of Established SDF Liability: • WAMO may contract with a third party Administrator (TPA) to manage, administer or settle claims on its behalf, as defined in WCL §32(i)(1).

Legislative Options for Reduction of Established SDF Liability: • The Chair, subject to SDF Advisory Committee approval, may procure one or more private entities to assume liability for and management, administration or settlement of all or a portion of the SDF claims, as defined in WCL §32 (i)(2).

Legislative Options for Reduction of Established SDF Liability: • Buy Backs: Qualified carriers, self-insured employers, or the New York State Insurance Fund (SIF) may assume the liability for claims, or the management, administration or settlement of those claims where SDF liability was established.

Funding • Statute authorizes the Dormitory Authority of the State of New York (DASNY) to issue bonds or commercial paper to fund the WAMO initiative. • Using the bond proceeds in any of the options just discussed will not constitute payments by the SDF. Thus, successful use of those options will result in stabilized SDF payouts, which in turn will stabilize SDF assessments. • Up to approximately $4.5 billion in bonding is authorized (25% of the SDF projected liabilities).

Funding • The statute provides for a separate assessment for debt service relative to the DASNY bonds. • However, the bottom line for carriers, self-insured employers, and SIF should be an initial stabilization and ultimate reduction in the overall annual assessment associated with SDF.

Progress to Date • Request for Information (RFI) was issued, seeking input from financial experts regarding the best use of the options presented by the statute. • WCB received and reviewed submissions from multiple sources and, in conjunction with Division of the Budget (DOB), held meetings with many respondents to gain further understanding of the implementation and challenges presented by the various options.

Progress to Date • State agencies gathered information from Connecticut, which administered (on a much smaller scale) a similar program several years ago. • Actuarial review of SDF database was conducted by Milliman on behalf of DOB. • WAMO issued data request letters to more than 1,300 carriers and self-insureds doing business in NYS. Data was collected and referred to Milliman.

Progress to Date • In consultation with DOB and State Insurance Dept. (SID), it was decided to focus initial efforts on pursuing buy back agreements with the major carriers. • As the carriers already have primary liability for their claims, this option eliminates delays in transfer of liability, and permits swift settlement of claims with interested claimants, via WCL §32 agreements. • Of great importance, buy back of a carrier’s complete SDF portfolio equals immediate and meaningful reduction in SDF payouts and, therefore, reduction of assessments.

Progress to Date • An initial meeting of the Special Disability Fund Advisory Committee was held. The Committee consists of: WCB Chair; Comm. of Labor; Director of the Budget; Comm. of Tax & Finance; and Superintendent of Insurance. • The committee was briefed on activities and gave their approval to proceed accordingly.

Progress to Date • A Request for Proposal (RFP) was issued to solicit the services of a financial advisor to assist the state with these initiatives. Multiple submissions were received and reviewed; interviews were conducted; and Willis of NY was awarded a contract to provide financial advisory services.

Progress to Date • Multiple meetings have been held, and continue, involving WCB, DOB, NYSID, DASNY, bond counsel, and investment bankers in preparation for issuance of DASNY bonds. • Rating agency presentations were made on Sept. 10 and 11 of this year. The DASNY Board approved the program at its Sept. 23 meeting. • DASNY Board approved the initial offering at its October meeting. • Next steps underway toward closing of bonds. • The present target date for availability of funds is January 2010.

Progress to Date • WCB issued an interest inquiry letter to the major carriers to ascertain if they were interested in pursuing the buy back option. • A series of meetings were held with the various individual carriers. Data was gathered, and analysis performed. Contract negotiations with a number of carriers will be held in the near future.

Next Steps • Finalize DASNY bonding. • Negotiate buy backs with interested major carriers. • Launch a cooperative effort with the self-insured community to reach WAMO-funded §32 settlements with individual claimants.

WAMO & Self-insureds Cooperate • Limited WAMO staff now, but plenty of money. • Self-insureds know their own claimants, and can readily identify cases that could settle at a fair price. • Solution: Self-insureds provide the labor to negotiate §32 agreements with their own claimants. WAMO directly funds these settlements.

What Will WAMO Pay? • WAMO will fund the §32 agreements in the first instance, to the extent that SDF liability is established. For example: • One case, 100% SDF liability: WAMO funds the entire settlement. • Two cases; SDF liability established in one case only; cases apportioned 50/50; WAMO pays half. • WAMO will fund the Medicare set-aside agreements (to the extent of the established SDF liability). • WAMO will pay the cost of obtaining MSA approval (to the extent of the established SDF liability).

Procedures • Flexibility: WAMO can be flexible; let’s see what works best for individual self-insureds. • Suggestions: Reach out to your SDF claimants to gauge interest in fair value of §32 settlements. • Contact WAMO for a pre-authorization limit for settlements in each case, and provide WAMO with your proposed maximum offer. • Negotiate Fair Settlements: WAMO has two responsibilities. • A fiduciary duty regarding using the bond proceeds. • As an arm of the WCB, a duty to protect the best interests of claimants.

Closing the Deal • Provide WAMO with near-final documents. • This permits WAMO to cut and paste. • This reduces time between negotiations and the §32 hearing. • WAMO will be signatory to the §32 settlement • Note: Special Funds will not be a signatory. Self-insureds will not make initial payment and await reimbursement.

Results • A win/win/win scenario. • Claimants have the opportunity to settle cases at reasonable amounts. • Self-insureds close cases and reduce administrative costs. • The entire carrier/SIF/self-insured community benefits via reduced assessments when cases are removed from the SDF payment stream.

Conclusion • The Workers’ Compensation Board, State Insurance Department, Division of the Budget, and Dormitory Authority are working diligently to craft the best set of transactions to minimize the long term obligations of the Special Disability Fund.

WAMO

WAMO

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