How persistent fraud led to a pitched battle over workers’ compensation
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FreightWaves explores the archives of American Shipper’s nearly 70-year-old collection of shipping and maritime publications to showcase interesting freight stories of long ago.
In this week’s edition from the August 1981 issue, a heated debate over growing cases of fraud in workers’ compensation almost led to a revision in the act.
Workmen’s comp fraud
Longshore and shipyard union members have an uphill battle on their hands trying to sell Congress on the idea of leaving the 1972 Longshoremen’s and Harbor Workers’ Compensation Act intact.
Workmen’s compensation claims shot up enormously after the act was revised in 1972 to permit workers and their unions to choose the doctors who would determine whether or not they were disabled and the degree of injury. Enough cases of outright fraud have been uncovered to convince management that the system lends itself to corruption and must be controlled.
Senate hearings conducted during June indicated a substantial number of Congressmen agree.
The unions will soon be faced with a Senate floor battle over tough, new sweeping reform legislation which tightens up claims procedures, puts a cap on disability benefits, provides for mandatory rehabilitation, and removes shoreside employees from coverage.
Drawn up by Labor subcommittee Chairman Don Nickles (R-Okla.) and Sen. Sam Nunn (D-Ga.), whose Senate hearings in early spring divulged a long litany of abuses all along the East and Gulf coast waterfronts, the bill has put the unions, along with a handful of liberal Senators, in an almost impossible position of overcoming formidable opposition from a number of conservatives in the Senate and industry groups, including the National Association of Stevedores, the Shipbuilders Council of America, the U.S. insurance industry, major U.S. ports, and the powerful National Association of Manufacturers.
Stafford & Weicker are the key
Labor representatives testifying against the legislation before the subcommittee in mid-June later admitted that they have an uphill fight on their hands, but some feel they might be successful in having the bill killed when it reaches the full Committee on Labor and Human Resources. The International Longshoremen’s and Warehousemen’s Unions’ Washington representative Mike Lewis feels opponents of the legislation have a chance in getting GOP Senators Robert T. Stafford of Vermont and Lowell Weicker of Connecticut to vote against the legislation when it comes before the full Committee. This, according to the labor strategy, would defeat the legislation in Committee, assuming most of the Democrats go along with the unions.
Sometimes strange things happen in Washington, but it’s hard to see how the unions will prevail, in view of last spring’s hearings conducted by Sen. Nunn which divulged a widespread pattern of corruption on the waterfront and testimony before the Labor subcommittee showing skyrocketing and often fraudulent claims under the Compensation Act.
Nickles sides with management
Testifying before the Labor subcommittee, a parade of witnesses supporting the legislation received a sympathetic ear from Chairman Nickles, who in an opening statement read a stinging indictment of the current Longshoremen’s and Harbor Workers’ Compensation Act. Referring to the 1972 amendments to the statute which were rushed through Congress at that time, Nickles said the act has turned into “a free ticket to rip off the consumer and taxpayer … so much so that in the five years after the changes were made, reported injuries jumped 185%.”
System called ‘a national disgrace’
Continuing, the GOP lawmaker said the law has “become a national disgrace,” adding that “there are many cases that describe the absurdity of the system, which would sound like horror stories to the average working man or woman, but are commonplace on our nation’s waterfronts.”
“At a time when common sense seems to be finding its way back into government, now is the time to revamp the Act in line with commonsense policy,” Nickles said.
Houston firm example cited
To back up the subcommittee chairman, cited as a “commonplace” example was a case involving an employee of Shippers Stevedoring Company in Houston, Texas, who injured his right forearm on the job in May of last year. It so happened, according to Nickles, that the longshoreman, because of his $33,000 yearly salary, automatically received about $426 per week in tax-free compensation, totaling over $18,500 for nearly one year’s time. In addition, Nickles said, the worker’s doctor said he would have a 25% impairment during the next 61 weeks, so the stevedoring firm was forced to pay an additional $26,000 during that time. In total, the Houston firm paid out nearly $45,000 tax-free dollars to the dockworker.
On top of this, according to Nickles, the longshoreman in question is still receiving $26,000 due to his 25% impairment while working on another job which is paying him about $25,000. “The two total far more than the salary he made before his injury,” Nickles said.
Corruption
Sen. Nunn and Sen. Orrin Hatch (R-Utah), Chairman of the full Committee on Labor and Human Resources, also attacked the current system in no uncertain terms. Skyrocketing costs of insurance and workmen’s claims in the Port of New York-New Jersey area “were the direct result of a flourishing fraudulent claims racket operated by members of organized crime,” Nunn said. “The threat of corruption continues to hang over large segments of the shipping industry. Congressional action must be taken to attempt to restore some semblance of free enterprise to the waterfront.”
Sen. Hatch lauded Sen. Nunn for making a “major contribution” as a result of his hearings in laying the groundwork for the compensation reform bill. “He [Nunn] has helped to document the way in which the Longshore Act has become a tool for extortion,” Hatch said. “And I am confident that the reform bill, with the support of Senators from both sides of the aisle, will put this program beyond the grasp of organized crime.”
High Costs At Port of N.Y. Hatch, as well as industry witnesses, presented figures showing that premiums for longshore coverage in the port of New York account for $87 out of every $100 per payroll. Also, another key charge which cropped up over and over again was that the high compensation costs are driving U.S. East and Gulf coast cargo to Canadian ports. It was contended that if the current situation continues, a lot of West coast cargo will soon be routed out of Mexico.
Nickles introduced figures from the final report of the Interagency Task Force on Workplace Safety and Health showing compensation costs as a percentage of longshore payroll registering 50% as opposed to the national average of 1.5%.
Choice of doctor
The bill under consideration will do away with free choice of claimants’ doctors. In effect, the new legislation will turn back to 1972, when claimants were required to use physicians approved by the Labor Department and employers. Nunn said that under the current setup there is often a tie-in between doctors and attorneys, resulting in false diagnosis. “The situation right now is ripe with fraud,” Nunn said. “The premiums go up; then after the payoffs, they go down.”
The Braswell Shipyards case
Braswell Shipyards Inc., headquartered at Charleston, S.C., was forced to close down a ship repair and overhaul operation in Brooklyn in 1976 due to excessive insurance premiums and substantial settlement costs, according to the firm’s vice president in charge of operations James Braswell. Braswell said he was unable to provide details involving the situation in Brooklyn since “all company records, including medical and personnel records were stolen” just before the firm closed the facility.
In Boston, claims were also excessive between March 1977 and March 1980, aggregating some 1,000 in number and $1.8 million in dollars. These high costs also contributed to the closing of the Boston facility, Braswell said. “What is particularly crippling to a company of Braswell’s size is the fact that while the paid-out claims in this period ran in the vicinity of $1.8 million, the premiums paid were in the vicinity of $3 million,” he said.
On top of this, Braswell contended that when the company went to the Department of Labor or the unions for help, it was treated in a “hostile” manner.
NAM/Port testimony
National Association of Manufacturers and New Orleans Steamship Association spokesmen Daniel W. Vannoy and R.A. (Red) Osborn Jr. appeared jointly to support the legislation and charged that the current system permitting an unlimited choice of physicians “has led to the practice of shopping for doctors who have consistently been shown to be less than fair and impartial.”
Here are more articles from the archives of American Shipper.
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