BrickStreet Defends Salaries, Dinners, Rates

The Register-Herald, August 5, 2007

CHARLESTON — Weaning the troubled workers’ compensation system away from government control admittedly hasn’t been an error-free mission, but BrickStreet is moving toward the ultimate privatization goal of enticing outside carriers to compete for its clients.

By law, that cannot come until next year, but already, some insurers are releasing trial balloons with the insurance commission. Until then, the firm’s president and CEO, Greg Burton , says steps are accelerating to turn workers’ compensation into a system that deals speedily and justly with injured laborers while keeping premiums at a livable level for employers.

BrickStreet has come under some heavy criticism of late, some of that leveled by Delegate Mel Kessler, D-Raleigh, over expensive dinners, the handling of claims and employer rates.

In a wide-ranging interview, Burton point-by-point responded to Kessler’s critique.

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First off, the matter of salaries.

Kessler contended about 10 employees are pulling down paychecks ranging from $210,000 to $275,000 annually. “There’s no five people making that kind of money,” Burton said. Actually, only three fall within that range, and Burton says it was critical to attract the kind of people outside West Virginia with the expertise to guide BrickStreet into privatization.

Burton put his salary at $160,000, noting he oversees a company with half a billion dollars and some 500 employees. In another firm with those numbers, Burton says he could easily earn between $350,000 and $500,000.

“There are eight to 10 people making more money than I am,” he said. “That’s fine. I think there are people out there who think the people that were here enriched themselves by the process. We didn’t.” Two independent surveys revealed BrickStreet’s salary schedule was “way below” the market, he said.

Perception often blurs into reality for some critics, however, he emphasized.

Consider, for example, Kessler’s complaint about employer premiums rising. Overall, Burton says, the rates are down a collective 27 percent, but some business owners actually are paying more — for two reasons.

Under the old state-run system, there were 94 classifications, but that number has swollen to more than 500. “When you do that, you can better spread out those loss-cost rates or their premium rates in order to make sure that everybody is paying their fair share,” Burton said.

Experience modifiers are computed differently and this task now is in the hands of the National Council of Compensation Insurance in Boca Raton , Fla. Modifiers are used in the industry to adjust rates. For example, a motorist with five accidents can expect to pay more to insure his vehicle.

In the former system, a minimum $100 premium was assessed for some. Examining what carriers elsewhere charged, Burton said premiums ranged from $500 to $1,000, so $750 was chosen as the median, albeit not all will pay that much.

The record for a payout, he pointed out, resulted from a minimum premium — a whopping $3 million entailing severe burns a worker sustained after his employer elected to burn down a building rather than demolish it with a bulldozer. If the victim had survived, the claim conceivably would have gone even higher.

In fact, in the former system, Burton said, the minimum premium bracket accounted for a loss of between $3 million and $5 million, which prompted BrickStreet to level out the rate schedule, a move necessitated as well by the expanded classification system.

“Some years, people are going to make money off insurance,” the CEO said.

“Other years, they’re not. But where you can close the gap, you’ve got to close the gap. Companies aren’t going to come into this market place and write policies for 100 bucks. They’re just not. So what we wanted to do over this 2 1/2-year period of time is get people used to that.”

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Kessler and others have attacked changes in the benefits structure, but Burton is quick to point out these were ordered by the Legislature, first in the major reform package of 2003, then a year later with additional tweaking. Not only were benefits lowered, but vendor payments were reduced and employers were hit with a one-time, 15 percent rate hike.

“Everybody participated in what I call the pain,” Burton said. “We’re not saying everything was done right, but people have to always remember where we were, and where we are today. It’s a night and day difference.”

Before the massive rewrite, the system was predicted in that 2003 session to go belly up within three years. Once privatized, the new and improved workers’ compensation was flush with $1 billion in the bank. Burton attributed the turnaround to many voices — Govs. Bob Wise and Joe Manchin, the Legislature, vendors, claimants and employers.

“Name anybody, they all participated, just about equally,” he said. “I think the system is better than it was. It’s not where it needs to be yet. But it’s better than it was.”

For now, BrickStreet corrals 100 percent of the market, but by law, rivals may invade the state next July 1. “People say we have a monopoly like it’s great,” Burton said. “We’ve got a lot of accounts we’d love to give somebody tomorrow.”

Legislation turning workers’ compensation over to BrickStreet deliberately allowed a 2 1/2-year window to make a slow and steady transition before competing carriers could come into the state, noted Becky Neal, vice president of government relations for the firm.

Nevada , the model for West Virginia , erred by opening its new system to competition immediately, she said. “When we talked with them, they said if they had things to do over again, they would have left that window there to get the market stable,” she said.

Burton pointed to a recent business survey by the West Virginia Chamber of Commerce, one that is radically different from those performed in the last five to 10 years, when workers’ compensation ranked first or second among employer worries.

“We’re off the radar screen,” Burton said. “So something must be being done right. I don’t want you to walk away thinking everything is great, because it’s not. Focus on some of the good we’ve done, don’t just look at the bad things. When other carriers come in, these same problems are going to be there.”

BrickStreet could survive even if rivals a year from now woo 50 percent of its business away, he said.

“We are a $500 million company now,” he said. “We could be a $10 million company. Now, if you went from $500 million to $10 million, you’re going to have to make some dramatic decisions. We won’t fully know the impact of the new competition coming into the market place probably until the end of 2009.”

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BrickStreet is free of the old fund, and all those accounts filed before July 1, 2005, are in the hands of Cambridge , but Burton said his firm often is criticized for decisions in which it no longer has a voice. Until the last claim is satisfied, the old fund remains a troublesome ghost from a much troubled past.

Burton hasn’t seen the most updated figure, but two years ago, its red ink had swollen to $3 billion. “There’s a bunch of old claims in that old fund,” he said. “And until the last person is paid, or the last person dies, that money has to be there.”

Andy Wessels , director of corporate affairs, recalled one permanent total disability case dating back to the 1930s. And with widows eligible when the fund commenced, some benefits only a few years ago were paid to centenarians. Now, the cutoff age is 70, except in a fatal worksite accident, in which the widow may collect for the rest of her life.

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One of Kessler’s criticism that Burton found offensive was that BrickStreet had a cavalier attitude toward hurt workers. While not every decision has been applauded by workers, Burton said the company has “bent over backwards” to educate and rehabilitate workers, and provide the care that assures them a swift return to the work site.

“We are now going after and aggressively going to ask our employers and the injured workers to make sure they report their injuries in a timely manner,” he said.

Four years ago, the average reporting time was 42 days. “How can I help you if I don’t know about your injury for 42 days?” he asked. “Now we’re down to about 12 or 13 days. That’s a lot better than 42. But it needs to be down to 24 to 48 hours — tops. We’ve always tried to make sure our injured workers got taken care of. Has that always happened the best? No. But it was not because we weren’t trying.”

Claims number about 40,000 annually. “We’d love to say we can do every single one of them correctly,” Burton said. “But given everything that’s on the plate right now, this just doesn’t happen. It’s not because we’re not trying. We’ve got a great staff here. They’re working very hard. But we want to know when things fall through the cracks. We want to know about it so we can fix it and make sure it doesn’t happen again. We can’t fix something we don’t know about. Tell us if there’s something wrong. You’re not going to get your way every single time, but let’s work on it.”

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Dinners at pricey restaurants in Charleston and Beckley prompted more criticism.

At Lowery’s in the capital, Burton said, BrickStreet fed one of the more knowledgeable people in the business to advise them on setting up the market. Turning down an offer to be a paid consultant, Burton said, the man offered his services free. Numerous talks ensued.

For the six who dined at the restaurant, he said, the tab ran about $300. “I’ll pay $300 any day to be able to tap this guy with unlimited resources and expertise,” Burton said. “If you want to beat me up about it, beat me up about it. But in the end, the knowledge we got from him was invaluable and it helped us get this thing up and running. I still talk to him this day.”

Two other dinners again cost about $300, and once more, Burton said, the idea was to entertain consultants during the transition process. “So much was going on,” he said. “We only had about 10 months to get everything done. So we were running non-stop. I worked here — a lot of people worked here, not just me — 16 to 18 hours a day, trying to get things done,” he said. “There were days I had breakfast, lunch and dinner meetings because so much had to be done and you had to cram it int.”

In a recent outing at The Resort at Glade Springs near Beckley , he said, a second annual agent event catered to 150 people as an educational affair to apprise them of what BrickStreet was doing. “We have spent a lot of time educating them,” he said. “And they have spent a lot of time educating us on how that carrier relationship is going to have to work. So it’s new to everybody. So we spent some time at Glade Springs to do that. We will continue to do those things.”

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Kessler revealed an informal poll by his wife that found that four of 10 doctors she telephoned weren’t dealing with workers’ compensation injuries.

Burton said the company has devised its own preferred provider organization known as Street Select, and some 2,000 medical providers have been recruited. “All of them, the ones in our network, take our patients routinely, give them the quality care that they needed and get them back to work,” Burton said. And Street Select likely will expand. “We are trying to build that up,” Wessels said. “We’re actively recruiting more providers.”

As for criticism about assets that went to software, equipment and legal firms, Burton also went on the defensive. “We said all along when we were setting up this company that there were going to have to be payments made,” he said. “There was a price to privatization. We didn’t have all our systems. A lot of the stuff was run on state government. We had to turn over and get them up and running. So we bid everything out.”

On the legal expertise, Burton said the firm now has a legal panel, unlike in the past when employers had to foot the bill for such fees. “That’s part of our premiums,” he said. “That’s another savings that’s within the system. We take care of all those legal fees now. That’s above and beyond the 27 percent premium reduction. And that’s multimillions of dollars that we’re paying in legal fees that employers used to pay.”

An audit showed a $70 million profit a year ago when premiums ran around $700 million. “If you look on the national average, the return on investments for companies similar to us is 15 percent,” Burton said. “We made 9 percent. Is $70 million a lot of money? Yes, it is. It could have been a lot higher. But what are we going to do with that $70 million? We put it in our reserves to make sure we have extra money in case something happens.”

More importantly, he said, the profit will help satisfy the loan from the original $200 million extended by the state.

“The faster we pay that note off, everybody wins,” he said. “That money goes back into the old fund. The faster you get that old fund built up, the quicker you can take off those surcharges that are out there on the employer community.”