Source: https://www.scribd.com/document/1710143/Department-of-Labor-blregana
Timestamp: 2018-06-21 05:45:34
Document Index: 380837890

Matched Legal Cases: ['§ 73', '§ 94', '§ 70', '§ 93', '§ 32', '§ 85', '§ 32', '§ 81', '§ 1995', '§ 1995']

Department of Labor: blregana | Coal | Self Insurance
By Microeconomic Applications, Inc. 4354 Warren Street, N.W. Washington, D. C. 20016
Page III. REGULATORY COSTS . . . . . . . . . . . . . . A. Qualitative Assessment of Costs . . . . . . . . . . 1. Sources of Costs of the Proposed Amendments . . . . a. Evidentiary Development . . . . . . . . b. Identification of Responsible Operators . . . . c. Civil Money Penalty . . . . . . . . d. Treating Physicians’ Opinions . . . . . . e. Waiver of Overpayments . . . . . . . . f. Definition of Pneumoconiosis . . . . . . g. Establishing Total Disability and Total Disability Due to Pneumoconiosis . . . . . . . . . . h. Additional or Subsequent Claims . . . . . . i. Medical Benefits . . . . . . . . . . j. Fees . . . . . . . . . . . . . . 2. Cost Characteristics . . . . . . . . . . B. Estimated Changes in Approvals, Claims, and Medical Benefits . . 1. Increase in Approvals . . . . . . . . . . a. Baseline Level of Approvals . . . . . . b. Projected Increase in Approval Rate . . . . 2. Increase in Claims . . . . . . . . . . . . a. Baseline Level of Claims . . . . . . . . b. Projected Increase in Claims . . . . . . c. Cost of Increase in Claims . . . . . . . . 3. Increase in Medical Benefits . . . . . . . . 4. Total Compliance Costs . . . . . . . . . . 5. Total Annual Cost to the Coal Mining Industry . . . . IV. REGULATORY IMPACTS . . . . . . . . . . A. Methodology . . . . . . . . . . . . 1. Impact Measures . . . . . . . . . . 2. Vulnerability Factors . . . . . . . . B. Potential Price Impacts . . . . . . . . . . 1. Potential for Price Increases . . . . . . 2. Ability to Pass Cost Increases Through to Consumers 3. Implications for Impacts . . . . . . . . C. Potential Impacts on Profits . . . . . . . . 1. Profitability of Coal Mines . . . . . . 2. Potential Reduction in Profitability . . . . 3. Implications for Impacts . . . . . . . . D. Potential Closures . . . . . . . . . . . . 1. Conditions for Closure and Their Likelihood . . 2. Baseline Entry and Exit . . . . . . . . 3. Implications for Impacts . . . . . . . . E. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 25 25 25 25 26 27 28 28 . 30 31 31 32 33 35 35 35 38 39 39 40 42 43 44 44 46 46 46 46 47 47 52 52 52 52 56 56 57 57 57 58 59
Page V. DEVELOPMENT OF REGULATORY FLEXIBILITY ALTERNATIVES A. Approaches to Regulatory Flexibility . . . . . . . . 1. Exemption . . . . . . . . . . . . . . 2. Tiering . . . . . . . . . . . . . . 3. Deferral of the Effective Date . . . . . . . . B. Constraints on Regulatory Flexibility Alternatives . . . . 1. Targeting Regulatory Relief to Small Businesses . . . . a. Regulatory Costs and Insurance Premiums. . . . b. Designation of the Responsible Operator . . . . 2. Legal Requirements . . . . . . . . . . a. The Black Lung Benefits Act . . . . . . b. Case Law . . . . . . . . . . . . C. Development of Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 60 60 60 61 61 61 61 62 62 62 62 63
Exhibit D: Companies, Employment, and Production in Coal Mining, by Company Size . 12 Exhibit E: Identified Self-Insurers and Other Coal Mining Companies, by Company Size . 13 Exhibit F: State and Federal Underground Mine Premium Rates for Black Lung Disease, by Major Coal Producing State . . . . . . . . . . . . . 15 Exhibit G: Mining Techniques Used by Size of Mine and Mining Company Exhibit H: Mines, Production, Employment, and Productivity in the Coal Mining Industry . . . . . . . . . . . Exhibit I: Mines, Production, Employment, and Productivity in the Anthracite Coal Industry . . . . . . . . . Exhibit J: Qualitative Summary of Impacts, by Source Exhibit K: Black Lung Initial Findings, by Year Exhibit L: Black Lung Claims . . . . . . . . . . . . . . . . . . . . . . . . 18
Exhibit O: Percent Increase in Price Needed to Cover Costs of the Proposed Regulation . 51 Exhibit P: Profitability of the Coal Mining Industry . . . . . . . . . . . 53
The Regulatory Flexibility Act of 1980, as amended, 1 requires agencies to perform a regulatory flexibility analysis for any regulation that has a significant impact on a substantial number of small entities. 2 While the definitions of “significant” and “substantial” are both subject to interpretation, the practice recommended by the Small Business Administration is to perform at least a preliminary regulatory flexibility analysis for all regulations that affect more than a handful of small entities. Accordingly, the Department of Labor has prepared a regulatory flexibility analysis for the proposed amendments to regulations to implement the Black Lung Benefits Act. In practice, the RFA requirements, which are designed to minimize regulatory impacts on small entities, can be summarized by two principal imperatives: • • An agency must identify affected small businesses and assess the impacts on them, as opposed to the impacts on the industry as a whole. An agency must consider and assess regulatory alternatives for small businesses that would minimize small-business impacts and adopt such alternatives to the greatest extent that does not compromise the purposes of the regulation.
The rationale behind a regulatory flexibility analysis is that regulatory compliance costs are often subject to substantial economies of scale. As a consequence, small businesses often bear disproportionately -- sometimes highly disproportionately -- large costs. Where this is the case, regulations can put small businesses at a competitive disadvantage. At the same time, small businesses frequently contribute a disproportionately small part of the problem addressed by a regulation. 3 In such a case, regulation of small businesses produces relatively few benefits to society. Where either -- or both -- of these conditions exists, regulation of small businesses in the same manner as large businesses may well reduce the total net benefits of the regulation to society. Regulatory flexibility analysis is designed to identify, address, and correct such situations. A regulatory flexibility analysis also serves a useful function in the scope of a regulatory impact analysis as a whole. A separate analysis of the smallest -- and presumably most vulnerable -- businesses affected by a regulation serves as a type of sensitivity analysis for the regulation as a whole. Clearly significant impacts on small businesses may serve as a warning to
examine impacts on the industry as a whole more thoroughly, and consideration of regulatory flexibility alternatives may be helpful in developing alternatives for the regulation a whole. Thus, irrespective of whether distinct regulatory alternatives for small businesses are adopted, regulatory flexibility analysis enhances the quality of a regulatory impact analysis.
a. Coal Mining Industries The Black Lung Benefits Act requires employers engaged in the extraction and preparation of coal to pay and to “secure the payment” of benefits (i.e., provide insurance coverage) to former employees for which they are found liable. Thus the full requirements of the Act apply only to the coal mining industry (SIC 12). Exhibit A shows the number of establishments 4 in surface mining of bituminous coal and lignite (SIC 1221); underground
mining of bituminous coal and lignite (SIC 1222); and mining of anthracite coal (SIC 1231), which are the industries that engage in extraction and preparation of coal.
____________________________________________________________________________ Bituminous , Bituminous, Surface Mining Underground Mining Anthracite ____________________________________________________________________________ Establishments b Employment
Productiond 629,731,928 395,454,398 4,330,078 ____________________________________________________________________________
Workers in other industries who are exposed to coal dust at mines may contract black lung disease and be eligible for benefits. In this case, the employer may be responsible for the cost of the benefits. The industries that may incur such costs are transportation and construction, whose workers may enter mines and be exposed to coal dust. Because these employers are not engaged in extraction and preparation of coal, they are not required by the Act to “secure the payment” of benefits. Nevertheless, some of these employers do obtain insurance. Data limitations preclude considering these industries in the analysis. Data are available only for identification of the companies that voluntarily decide to purchase commercial insurance. Data are not available on the number or size of non-mining companies with employee exposure to coal mine dust. We will assume that impacts on them are no more significant than coal mine impacts.
In most industries, including coal mining, the vast majority of firms are small by any definition, but small businesses account for a far smaller share of employment and output. From a purely statistical perspective, relatively high costs to small businesses get washed out when they are averaged in with costs to larger businesses. Identification of disproportionately large impacts on small businesses depends on having a working definition of “small” that is reasonably accurate in separating average compliance costs from disproportionately high costs. Such a cut-off varies with the specific costs of each regulation, but it is likely to be in the range of 10 to 50 employees. 5
____________________________________________________________________________ Bituminous , Bituminous, Surface Mining Underground Mining Anthracite ____________________________________________________________________________ Alabama Establishments b Employment c Productiond Alaska Establishments b Employment c Productiond Arizona Establishments b Employment c Production d Arkansas Establishments b Employment c Productiond California Establishments b Employment c Productiond Colorado Establishments b Employment c Productiond Illinois Establishments b Employment c Productiond 85 1,637 7,366,140 2 128 1,669,618 3 842 11,862,917 5 14 36,706 3 48 81,621 13 791 8,792,976 34 1,996 2,867,931 11 4,285 17,726,768 1 4
____________________________________________________________________________ Bituminous , Bituminous, Surface Mining Underground Mining Anthracite ____________________________________________________________________________ Indiana Establishments b Employment c Productiond Kansas Establishments b Employment c Productiond Kentucky Establishments b Employment c Productiond Louisiana Establishments b Employment c Productiond Maryland Establishments b Employment c Productiond Missouri Establishments b Employment c Productiond Montana Establishments b Employment c Productiond 50 2,289 22,631,747 1 65 284,787 413 9,094 57,552,238 2 134 3,382,334 19 228 774,595 10 211 545,282 6 996 40,029,791 3 277 2,004,413 373 13,401 92,806,034 3 262 3,042,185 1 17 7,800 -
____________________________________________________________________________ Bituminous , Bituminous, Surface Mining Underground Mining Anthracite ____________________________________________________________________________ New Mexico Establishments b Employment c Productiond North Dakota Establishments b Employment c Productiond Ohio Establishments b Employment c Productiond Oklahoma Establishments b Employment c Productiond Pennsylvania Establishments b Employment c Productiond Tennessee Establishments b Employment c Productiond Texas Establishments b Employment c Productiond 7 1,842 25,858,819 7 1,001 30,064,896 136 1,950 13,190,017 12 220 1,826,423 333 3,344 16,609,882 25 339 1,232,211 18 2,902 57,756,051 9 1,675 12,909,817 2 57 45,228 52 5,308 41,614,037 15 360 1,863,560 221 1,765 3,668,316 -
____________________________________________________________________________ Bituminous , Bituminous, Surface Mining Underground Mining Anthracite ____________________________________________________________________________ Utah Establishments b 3 15 Employment c 25 1,996 d Production f 25,100,795 Virginia Establishments b 87 168 Employment c 2,142 5,188 d Production 8,934,066 25,667,398 Washington Establishments b 2 Employment c 642 d Production 4,856,769 West Virginia Establishments b 227 315 Employment c 7,503 14,953 Productiond 53,567,360 110,429,480 Wyoming Establishments b 30 3 c Employment 4,314 224 Productiond 260,840,119 2,007,955 ____________________________________________________________________________
____________________________________________________________________________ Bituminous , Bituminous, Surface Mining Underground Mining Anthracite ____________________________________________________________________________ Under 20 Employees Establishments b Employment c Productiond 20 to 49 Employees Establishments b Employment c Productiond 50 to 99 Employees Establishments b Employment c Productiond 1,054 6,604 24,165,769 316 9,967 61,609,281 118 7,813 66,672,609 425 4,381 1,627,224 367 11,385 69,356,135 111 7,523 55,722,199 106 25,230 198,754,630 201 947 2,532,986 16 499 333,695 4 319 801,635 -
100 to 499 Employees Establishments b 93 Employment c 19,198 Productiond 467,182,881
500 Employees and Over Establishments b 2 9 c Employment 1,115 5,242 Productiond 13,038,756 25,631,625 ____________________________________________________________________________
____________________________________________________________________________ Companiesb Employment c Productiond ____________________________________________________________________________ Under 20 Employees 20 to 49 Employees 50 to 99 Employees 100 to 499 Employees 423 249 122 104 3,805 7,842 8,275 19,398 12,436,641 43,690,797 62,223,637 182,884,994
____________________________________________________________________________ Companies Identified as Self-Insurers b Other Coal Mining Companies Companiesc Employmentd Companiesc Employmentd ____________________________________________________________________________ Under 20 Employees 20 to 49 Employees 50 to 99 Employees 100 to 499 Employees 2 1 4 11 13 33 309 2,525 421 248 118 93 3,792 7,809 7,966 16,813
SOURCE: Size data from the Mine Safety and Health Administration; data are for 1995. Self-insurance identification from Division of Coal Mine Workers’ Compensation records. b Nearly half (37 of 75) self-insuring companies on the Division of Coal Mine Workers’ Compensation list could not be matched with parent companies in MSHA data. c Controlling parent company. d Employees in the coal mining industry.
Many qualifying companies do self-insure. Exhibit E shows the self-insuring companies that could be matched with MSHA data by name -- nearly half could not be matched -- by the size of their coal mining operations. The self-insuring companies are predominantly quite large. Over half of the matched parent companies employ more than 500 coal miners. Many small coal mine operators are subsidiaries of companies that mine little coal in the United States; the parents of the two self-insurers with fewer than 20 employees, for example, are Union Pacific and a German multi-national corporation, Ruhrkohl International GMBH. Most of the selfinsuring companies that could not be matched with MSHA data are also large. However, some are companies no longer active in the coal industry which continue to self-insure residual liabilities from their previous operations. It is reasonable to infer that self-insuring companies have lower costs of complying with the existing regulations implementing the Black Lung Benefits Act -- and will probably incur smaller impacts from the proposed amendments to the regulations. How much smaller the impacts may be is not clear. Since self-insurance is not an option for coal mining companies that are small 6 (at least by MSHA or similar definitions), the question is not critical to a regulatory flexibility analysis.
Firms with less than $10 million in net worth that do not purchase insurance are not in compliance with the Act. Firms that are too small to pool their own risks are making a strategic decision not to insure. In effect, they are gambling that claims will be low enough not to bankrupt them, with the option of going out of business if they lose the gamble. If such a firm does go out of business, the cost of benefits will devolve on another responsible operator
or on the Trust Fund. Neither is an acceptable or fair option; the underlying failure to purchase insurance while being unable to pool risk internally is inherently a violation of the Act. Among other implications, expanding the self-insurance option to the smallest firms is not a viable regulatory alternative. Nor is it correct to consider costs of coming into compliance with existing statute and regulations an impact of a proposed amendment to those regulations.
Voluntary Market Assigned Risk Voluntary Market Voluntary Marketb Assigned Risk Voluntaryc & Assigned Assigned Risk
$5.04 $8.50 $2.70 $9.40 $11.28 $1.90 $4.73 $17.56 $6.45e $16.86e $7.34 $1.79 $2.65f $4.39f $29.71
1/1/96 1/1/96 12/1/95 1/1/96 1/1/96 1/1/96 6/22/88 7/1/94 10/29/93 10/29/93 7/1/95 1/1/96
Pennsylvania Bituminous Coale Anthracite Coale Tennessee Utah Virginia West Virginia
$0.56e $5.38e $4.31 $4.79 $1.24f $1.24f $3.00
Voluntary & Assigned Voluntary Market Voluntary Market Assigned Risk
SOURCE: National Council on Compensation Insurance and the states of Ohio, Pennsylvania, and West
Virginia. Advisory rate. Advisory loss cost is $6.12 for state and $3.48 for federal. Advisory rate. Advisory loss cost is $1.58 for state and $4.10 for federal. d Represents the total premium for trauma and disease; no further breakdown is available. e Represents the loss cost only. Aggregate loss cost adjustments are factored into rate by the individual insurance companies. f Quoted state rate is total rate, effective 1/1/96, for which no state/federal breakdown is available. Quoted federal rate is the rate effective 10/1/82, when the state rate was $15.50.
Highly mechanized (i.e. capital-intensive) operatio ns, which substitute machines for workers, have relatively low payroll costs. This issue arises in several contexts: • • • Surface mining, particularly in the western United States, is generally more mechanized than underground mining. For underground mining, long wall mining technology is far more mechanized than older manual techniques, such as continuous miner technology. Contract miners -- mining companies that extract and process coal under contract to other companies -- typically have very low investments in equipment (or mines) and thus are comparatively labor-intensive.
The implication of these factors is that underground mines using older techniques and contract miners are expected to incur higher compliance costs and impacts than other coal mines. Surface bituminous coal mining, underground bituminous coal mining, and anthracite coal mining are different SIC industries, so that data are available for these differences. While the use of contract miners is a well-known phenomenon, data are not available on the extent of their use or on the share of value of shipments that is represented by payroll. Partial data are available for the use of long wall mining, as compared with other underground coal mining techniques, but these data do not include the labor intensiveness of the techniques. Exhibit G shows the use of conventional, continuous miner, and long wall mining techniques in 941 underground mines, by size of mine and size of mining company. Exhibit G is based on MSHA inspection data that show the job classifications of miners for whom air samples were taken. Mining techniques were identified through job classifications that are unique to each mining technique. Exhibit G shows an extremely strong relationship between size of mine or company and mining technique used: • Conventional mining is used almost exclusively in very small mines and by very small mining companies: ∗ Of the mines using conventional mining: § 73 percent have fewer than 20 employees, and § 94 percent have fewer than 50 employees. ∗ Of the mining companies using conventional mining: § 70 percent have fewer than 20 employees, and § 93 percent have fewer than 50 employees. Continuous miner techniques are used principally in small mines and by small mining companies:
SOURCE: MSHA 1995 inspection data on worker classifications sampled. The sampling data cover 941 underground mines, of which three use all three techniques and 81 use various combinations of two techniques.
Of the mines using continuous miner techniques: § 32 percent have fewer than 20 employees, and § 85 percent have fewer than 100 employees. Of the mining companies using continuous miner techniques: § 32 percent have fewer than 20 employees, and § 81 percent have fewer than 100 employees.
The value of shipments for the coal industry in 1995 was $19,389 million. 7 The MSHA data show production in the three industries (See exhibit A), and we will assume that the value of shipments was divided among the three industries in the same proportion of output. 8 Industry data on annual payroll 9 can then be compared to the value of shipments estimates. This comparison indicates that in 1995 payroll was: • • • 15.6 percent of value of shipments for surface bituminous coal mining; 32.0 percent of value of shipments for underground bituminous coal mining; and 49.4 percent of value of shipments for anthracite coal mining.
Exhibit H10 shows coal industry output, employment, and productivity since 1983. 11 Total production rose through the 1980s, fell in 1991, and since 1993 has resumed a more modest upward trend. The recession of 1991 and a coal miners’ strike in 1993 are principally responsible for the pause in growth in the early 1990s. The U.S. Department of Commerce projects a modest increase in demand for coal of one percent per year over the next several years. 12 Within these trends, there have been several important shifts, which are reflected in the data of Exhibit H. Production of western low-sulfur coal has expanded substantially, principally at the expense of high-sulfur coal produced in several eastern basins. Environmental concerns and regulations have encouraged this shift in production, but high transportation costs from western mines to eastern markets have somewhat constrained the shift. Since western coal is mined mostly in large-scale surface mines, while much eastern coal is mined underground, this shift is reflected in an expansion of surface mine production at the expense of underground mine production. The coal industry has achieved large increases in productivity, which are also reflected in Exhibit H. In underground mines, increased productivity has been achieved by the adoption of highly mechanized long-wall mining techniques utilizing equipment that cuts coal from large faces of coal deposits, conveyors that remove the coal, and movable hydraulic roof supports that collapse the roof evenly once mining from an area is complete. In surface mining, increased productivity has been achieved by methods such as using larger dump hauls and larger draglines that are made of improved metals. These productivity gains have required very high capital costs for the massive equipment that is required, and they have resulted in sharp declines in demand for the labor of coal miners. Coal prices have fallen during the 1990s. In part, this is a result of the mechanization of the industry, which has reduced the cost of mining coal. Increases in productivity also have led to excess capacity in the coal industry, which has tended to depress coal prices. In addition, prices of oil and gas have fallen over this period, which provides further competitive pressure on the price of coal.
____________________________________________________________________________ 1983 1985 1990 1991 1992 1993 1994 1995 1996 ____________________________________________________________________________ Underground Mines Mines Productionb Employment c Productivityd Surface Mines Mines Productionb Employment c Productivityd 2,173 292.1 101.5 2,878 2,362 470.2 64.4 7,301 2,103 343.6 96.9 3,546 2,249 519.6 63.7 8,157 1,777 1,605 1,455 1,323 1,256 1,081 981 419.0 404.3 406.9 348.4 396.6 396.1 410.6 82.4 76.4 72.0 64.1 65.4 59.8 56.9 5,085 5,292 5,651 5,435 6,064 6,624 7,216 1,782 1,693 1,543 1,429 1,372 1,275 1,152 599.4 583.5 585.5 594.9 625.1 635.9 654.8 56.6 53.4 52.2 50.4 50.6 46.6 45.4 10,590 10,927 11,216 11,804 12,354 13,646 14,360
All Mines Mines 4,535 4,352 3,559 3,298 2,998 2,752 2,628 2,356 2,133 b Production 762.3 863.2 1,019 987.8 989.4 943.3 1,032 1,032 1,065 Employment c 165.9 164.7 139.0 129.8 124.2 114.5 115.9 106.5 102.5 Productivityd 4,595 5,241 7,331 7,610 7,966 8,238 8,904 9,690 10,390 ____________________________________________________________________________
a. Coal for Electricity Generation Approximately 90 percent of domestic demand for coal comes from electricity generation, principally electric utilities. Coal provides the fuel for generation of about half of the nation’s electricity, and this share has remained relatively stable for several decades. The energy crisis of the 1970s and early 1980s, with its high oil and gas prices and concern about security of supplies, led electric utilities to expand coal-fired generating capacity during that era. In the current environment of deregulation, smaller and more flexible generating capacity using other fuels -- particularly gas -- are becoming far more attractive. Because it is so long-lived, however, installed coal-fired generating capacity will ensure coal a reasonably stable market share for decades. Environmental concerns are not expected to dampen the growth of demand for coal in the near term or intermediate term. Demand for coal used in electricity generation is projected to grow by about one percent per year over the next five years. This growth in demand for electricity generation is expected to account for essentially all of the net growth of coal output over this time period. b. Metallurgical Coal and Steam Coal The remaining 10 percent of domestic demand for coal comes from industry. Industrial uses include consumption of metallurgical coal in coking plants and steam coal in other industrial plants. Together, these two uses have remained a fairly constant share of demand for coal, although the mix of these uses has shifted. Coking coal was the predominant non-electric use of coal prior to 1980. Since then, however, demand for coking coal has fallen sharply due to changes in the steel industry. These changes have included reduced demand for steel as other metals were substituted for it, changes in production techniques (particularly use of mini-mills that recycle scrap and do not use coking coal), and increased foreign competition in steel. Industrial steam is needed in heavy industries such as cement, paper, and chemicals. Coal penetrated these markets in the 1980s, when it had a significant cost advantage over other fuels. Since these industries are mature and slow growing, there has not been growth in demand for steam coal since 1992, and little is expected in the future. c. International Trade The U.S. exports less than 10 percent of its coal output, although it is the second largest coal exporter in the world economy. In the world market, U.S. coal is used as good-quality steam coal and premium metallurgical coal. Metallurgical coal plays a larger role than steam coal in U.S. exports. U.S. coal is relatively expensive, due to transportation costs from mine to port and the relatively high cost of mining eastern coal. Thus the U.S. coal industry often serves as a swing producer in world markets, filling in when there is a short supply in particular markets. The volume of U.S. coal exports decreased somewhat in the early 1990s. The principal
factors were de-emphasis on coal consumption in Europe, economic weakness in some trading partners, and increasing competition from foreign producers. Exports recovered in 1995. The U.S. imports less than one percent of its domestic coal consumption. Although the amount is increasing, coal imports are too small for foreign competition to be a significant factor for the proposed regulation.
____________________________________________________________________________ 1983 1985 1990 1991 1992 1993 1994 1995 1996 ____________________________________________________________________________ Underground Mines Mines 88 Productionb 0.422 Employment c 574 Productivityd 735 Culm Bank Operations Mines 32 Productionb 0.971 Employment c 184 Productivityd 5,277 Other Surface Mines Mines 95 Productionb 2.442 Employment c 1,145 Productivityd 2,133 88 0.626 589 1,063 35 1.026 187 5,487 88 2.113 932 2,267 76 77 73 59 56 53 44 0.416 0.323 0.370 0.400 0.322 0.415 0.387 416 388 364 297 280 267 246 1,000 832 1,016 1,347 1,150 1,554 1,573 37 46 40 44 49 47 47 0.893 1.253 1.462 2.160 2,137 2.043 2.391 250 273 309 372 301 327 319 3,572 4,590 4,731 5,806 7,010 6,248 7,270 80 76 68 68 68 66 66 1.862 1.827 1.817 1.654 1.813 1.872 1.839 699 670 629 557 602 524 575 2,664 2,727 2,889 2,969 3,012 3,573 3,198
All Mines Mines 215 211 193 199 181 171 173 166 157 Productionb 3.835 3.765 3.170 3.404 3.649 4.215 4.273 4.330 4.617 Employment c 1,903 1,708 1,365 1,331 1,302 1,226 1,183 1,118 1,140 d Productivity 2,015 2,204 2,322 2,557 2,803 3,438 3,612 3,973 4,050 ____________________________________________________________________________
SOURCE: Mine Safety and Health Administration statistics. Data exclude separate milling/preparation plants, to which MSHA assigns no production so as not to double-count. b Millions of short tons. c Miners. d Short tons per miner.
responsible operator, it must do so at this preliminary stage. The proposed regulations also impose on all of the potentially liable operators collectively the evidentiary limitations described above. While this does not entirely prevent any potentially liable operators who are in the queue (so to speak) from defending against the claim, 13 it severely restricts their scope to do so. This proposed change can be expected to result in an increase in awards for weak or nonmeritorious claims only to the extent that the responsible operator fails to mount an adequate defense. While coal mine operators may be understandably nervous at potential dependency on someone else’s defense, there is no clear reason to expect that -- in the aggregate -- the quality of defense will deteriorate. This is especially true in view of the fact that insurance carriers do the bulk of defending against claims, and in such cases it makes little difference who the named responsible operator is. If a coal mine operator defends poorly, he probably would have defended just as poorly, and with the same result, in another case under the current regulations, although the party that paid might be different. As in the case of the proposed regulations on evidentiary development, the rate of filing of claims can be expected to rise as a result of heightened expectations of an increased approval rate. For reasons similar to those for evidentiary development, these expectations will largely be disappointed. As a result, any increase in filing of claims will be transitory. The proposed regulation will also increase the number of claims for which an operator will want to document that it is not a potentially liable operator or the responsible operator. Under the existing rules, an operator could wait until after the initial decision, when the issue would be moot for all denials that were not appealed. In most cases, however, this burden appears to be minimal. (See the results of the Briscoe survey quoted in B.2.c. below.) As part of the initial procedures, a claimant provides a work history and the District Director may provide some corroboration through consulting Social Security Administration records. The mine operator need only consult its own personnel records to confirm this information. In cases where the mine operator is no longer in business and personnel records are thus not available, contesting a designation will be significantly more difficult. If the next potentially liable operator is insured by the same carrier, however, there is no point in contesting a designation, because the same carrier will be responsible for payment of benefits for either operator. The extent and costs of the difficult cases is not clear, although it is clear that these costs will be born by the insurance carriers. c. Civil Money Penalty The proposed regulations contain new provisions implementing the Act’s civil money penalty provision, which directs the assessment of a penalty of up to $1,000 per day against operators that fail to secure the payment of benefits. The proposed regulations establish criteria and streamlined procedures; provide notice of the Department’s intention; and provide a graduated series of possible penalties based on the operator’s size, its prior notice of the Act’s insurance requirements, and the operator’s action (or inaction) following this notice. This proposed provision will doubtless result in certain operators’ incurring costs. Yet
This provision is designed to adjust the balance between the sheer weight and length of the resume of an expert who does not know the claimant and a qualified physician who is directly familiar with the case. The proposed criteria are closely parallel to a similar regulation used by the Social Security Administration, and they generally summarize the factors listed in existing appellate case law for determining the weight to be given to medical opinions. It is difficult to see how this provision would lead to an increase in approval of weak or non-meritorious claims. It does not give controlling weight to the opinion of a local physician who hardly knows and has rarely treated a claimant; who offers a poorly reasoned and undocumented opinion; and/or who is not competent to render an opinion in the first place. Quite the contrary, the factors to be considered in assigning the weight offer grounds for challenging the unsupported opinion of an unqualified doctor. Any increase in approvals that may result from this provision can be expected to consist of valid claims that would otherwise have been disapproved. Like other proposed provisions, this one can be expected to produce an increase in the rate of filing of claims as a result of heightened expectations by miners about the chances of claims being approved. As with the other provisions, any such surge in filing of claims can be expected to be transitory.
e. Waiver of Overpayments The proposed regulations would make available to all overpaid claimants the provisions
governing waiver of recovery of an overpayment incorporated from the Social Security Act. These provisions entitle a claimant, who was not “at fault” in creating an overpayment, to waiver of the recovery of the overpayment if he can demonstrate that permitting recovery would “defeat the purpose of the Act” or “be against equity and good conscience.” Currently these provisions apply only to a claimant who receives an overpayment from the Black Lung Disability Trust Fund. To the extent that an overpayment was made and a claimant can meet the two-part test to qualify for the waiver, this provision apparently imposes costs on coal mine operators and insurance carriers. Closer inspection of the circumstances for meeting the qualifying test, however, reveals that there would be little (if any) incremental cost in practice. To “defeat the purposes of the Act” essentially means that the claimants are unable to pay, so that the operator would not be able to recover any overpayment even if it were entitled to. Moreover, the Department is not aware that operators currently collect a significant percentage of overpayment amounts that they pay, so that imposition of the test for waiver will not significantly alter the current rate of recovery. f. Definition of Pneumoconiosis The proposed regulations make explicit in the regulatory text two aspects of the definition of pneumoconiosis that have been implicit and thus have been the subject of contention and litigation. One aspect has to do with the broad legal definition of pneumoconiosis, as opposed to a narrow clinical definition. The other issue is the explicit inclusion of obstructive, as well as restrictive, pulmonary disease as a possible category of pneumoconiosis. Legal Pneumoconiosis. For purposes of the black lung benefits program, the definition of pneumoconiosis is quite broad. The medical community, on the other hand, confines the definition of “coal workers’ pneumoconiosis” to the pathologic reaction of lung tissue to dust inhalation, which is diagnosed by the resulting characteristic patterns or markings on chest Xrays. There is no question that the Black Lung Benefits Act recognizes a far broader concept of the disease than does the medical community. The statutory language is quite clear on this point: The term “pneumoconiosis” means a chronic dust disease of the lung and its sequalae, including respiratory and pulmonary impairments, arising out of coal mine employment. 14 The proposed regulations seek to eliminate any further confusion by explicitly acknowledging that the medical and legal definitions are distinct. This provision simply clarifies the regulations by making them explicitly consistent with the statute. Since no change in requirements is involved, any related costs are not incremental costs associated with the regulation. Obstructive Pulmonary Disease. The proposed regulations explicitly define
pneumoconiosis as “any chronic restrictive or obstructive pulmonary disease” arising out of coal mine employment. This explicit inclusion of obstructive pulmonary disease was intended to foreclose litigation attempting to narrow the definition with medical opinions that categorically exclude obstructive lung disorders from occupationally-related pathologies. The proposed rule is consistent with case law. The court of appeals for the 4th circuit has ruled that occupational dust exposure could not be ruled out as a possible cause of chronic obstructive lung disease. The court of appeals for the 7th circuit left the issue of occupational dust exposure and chronic obstructive lung disease to be answered by “the facts and medical opinions in each specific case.” The proposed regulation codifies the decision of the 4th circuit that obstructive pulmonary disease cannot categorically be excluded from the definition of pneumoconiosis. The issue is essentially one of medical opinion. For questions of medical criteria, such as this, the Black Lung Benefits Act provides a clear directive: The Secretary of Labor, in consultation with the Director of the National Institute for Occupational Safety and Health, shall establish criteria for all appropriate medical tests under this subsection which accurately reflect total disability in coal miners [due to pneumoconiosis] as defined in subparagraph (A). 15 The Department of Labor duly consulted NIOSH. The NIOSH study on occupational dust exposure, which included a review of all other available studies, contains ample medical authority suggesting at least some relationship between coal mine dust exposure and the development of chronic obstructive lung disease. 16 NIOSH has since confirmed its opinion twice, in comments on the January 22, 1997 proposed rule 17 and in response to industry comments on the proposal. 18 The Department has followed the statutorily mandated procedure for resolving the medical question of whether obstructive lung disorders can categorically be excluded from the definition of pneumoconiosis. This procedure has provided a clear answer that such exclusion is not correct. Thus the proposed regulatory language merely clarifies existing law; it does not make changes. Accordingly, any related costs are not incremental costs attributable to the proposed regulation. g. Establishing Total Disability and Total Disability Due to Pneumoconiosis The proposed regulations amend the definition of “total disability.” Under the proposed definition, a finding of “total disability” requires:
This provision can also be predicted to cause an expectations-driven increase in filings. For the most part, this surge can be expected to be transitory. Only to the extent that expectations of an increase in the approval rate are realized can this increase be sustained. Even then, costs of the remaining increase in filings (after the initial surge has subsided) can be attributed to the proposed regulation only to the extent that court decisions have not already made the provisions the prevailing law. h. Additional or Subsequent Claims
The proposed regulations clarify claimants’ right to file claims more than one year after denial of a previous claim; in particular, they clarify the claimant’s burden of proof to obtain full consideration of a refiled claim. Under the proposal, such “additional” or “subsequent” claims must be considered if the claimant demonstrates that a change in one of the applicable conditions of entitlement (i.e., those conditions upon which the prior denial was based) has occurred since the date upon which the order denying the prior claim became final. This proposal is based on the premise that pneumoconiosis is a progressive condition that can worsen well after exposure to coal dust has ceased. The proposed change codifies the decisions of courts of appeals in the 3rd, 4th, 6th, 7th, and 8th circuits. This proposal entails the same legal issues as the previous proposal. The position that it is prevailing law is almost as strong in that appeals courts in five circuits have upheld it, although the 10th circuit has ruled against the provision. Nevertheless, it appears reasonable to conclude that the proposed regulation codifies settled law, and that associated costs of compliance are not incremental costs attributed to the proposed regulation. In practice, some increases in filings and approvals can be expected. The increases in approvals are likely to be quite small, however, since the proposal represents at most a minor adjustment in the right to full consideration of a refiled claim. Also, the claimant has the burden of proving that a condition of entitlement has changed. Even then, this showing guarantees full consideration only of the subsequent claim, with any award of benefits payable only from the date of its filing forward. The previous decision remains binding as to earlier time periods. The previous decision may still be considered in the current decision, however, and the claimant must make the case that the change was substantial enough19 to obtain an award. Some increase in refilings can also be expected to occur. As with other provisions, this surge will be largely transitory. i. Medical Benefits The proposed regulations provide that, in any claim for compensation for treatment of a pulmonary disorder filed by a miner entitled to medical benefits, there shall be a rebutable presumption that the treatment was for a disorder caused or aggravated by pneumoconiosis. In effect, this provision shifts the burden of proof: Instead of the claimant being required to prove that a treated pulmonary disorder is related to coal dust exposure, the mine operator or insurance carrier will be required to prove that the disorder is not related to coal dust exposure. The proposed regulation also provides that evidence that challenges the miner’s underlying entitlement to medical benefits is insufficient to demonstrate that the specific treatment for which compensation is claimed is not compensable. To understand the force of this proposal, it is helpful to play out a scenario under the current regulations. A miner who receives medical treatment for a pulmonary disorder files a claim for medical benefits (i.e., payment of the bill). The insurance carrier routinely denies the claim on the grounds that the problem was not related to pneumoconiosis. It is then up to the miner to prove that the treated disorder was caused or aggravated by pneumoconiosis. This can
be done as simply as obtaining a letter to that effect from the treating physician. If the insurance carrier wishes to challenge the claim, it must develop superior evidence that the treatment was not related to pneumoconiosis. Under this scenario, the proposed regulation replaces the physician’s letter with a presumption that the treatment was for a disorder caused or aggravated by pneumoconiosis. The insurance carrier (or operator) may still rebut the presumption. Indeed, in cases where a miner seeks a hearing on a refusal to pay a medical claim the means of rebutting a presumption will be no more expensive than the means of rebutting the physician’s letter. This provision will increase costs of medical compensation to some extent. Under current regulations, miners with valid claims for medical benefits who do not obtain a physician’s letter or otherwise support the claim for medical benefits do not receive benefits. In such cases, additional medical benefits will be paid under the proposed regulations. Insurance carriers may also choose to pay questionable claims for medical benefits if the amounts are small enough that it is not cost-effective to challenge them. Additional payments due to this strategic decision, however, will be self-limiting in size. The provision is not likely to increase costs of medical compensation for mine operators that self-insure. Such mine operators have a more wholistic perspective on medical costs, since they are likely to have to pay them through a medical plan if they do not pay them as black lung benefits through workers’ compensation. Either way, the benefits will be covered -- and would have been covered in the absence of the proposed regulation. This proposal should not lead to any significant increase in filings or award of disability benefits. j. Fees The proposed regulations make two minor amendments of the allocation of fees. One amendment concerns attorney’s fees. The other concerns witness fees. Attorney’s Fees. The proposed regulation extends the coal mine operator’s or insurance carrier’s liability for claimant’s attorneys fees back to the beginning of the procedure. Under current regulations, this liability begins only when the process becomes adversarial. The proposed provision does not change the nature of the liability; the claimant has a right to attorney’s fees only if he prevails, and a test of reasonableness applies. This proposed amendment is designed to provide claimants with better and more prompt access to legal representation where it is needed. Costs are expected to be quite small. At the pre-adversarial stage, most of the work that an attorney might do for a claimant is actually performed by the District Director. Cases where attorney’s fees have been at issue at this stage have generally been in the low hundreds of dollars. While some expansion of use of attorneys is to be expected from this provision, costs will not be imposed on businesses unless an award is made. Thus the expansion of costs is likely to be proportionally much smaller than any expansion of use of attorneys.
Witness Fees. The proposed regulations would amend the provision on witness fees to allow costs of claimants’ witnesses related to cross-examination to be apportioned between both parties in cases where the claimant is indigent. Under current regulations, each party is responsible for all of the witness fees for its own witnesses. This provision is designed to limit the financial impact on indigent claimants that may result from a vigorous defense. The costs of this proposed provision are expected to be minimal. The provision applies only when a claimant is indigent, and it generates costs only when the mine operator or insurance carrier chooses the tactic of cross-examination (as opposed, for example, to rebutting claimant’s witness with witnesses of its own).
A very small 20 increase in the approval rate, due to a fairer adjudication process, can be expected to result from the proposed provisions on: ∗ Evidentiary development, ∗ Identification of responsible operators, and ∗ Treating physicians’ opinions. A small increase in the approval rate, due to somewhat broader eligibility criteria, can be expected to result from the proposed provisions on: ∗ Definition of total disability and ∗ Additional/subsequent claims. Higher benefits payments can be expected to result from the proposed provisions on: ∗ Waiver of overpayments and ∗ Medical benefits.
____________________________________________________________________________ 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 ____________________________________________________________________________ Responsible Operator Claims 4,032 3,695 3,616 3,732 3,991 4,181 5,230 6,086 4,082 4,247 3,557 Approvals 141 127 139 159 203 231 273 282 262 293 238 Approval Rate 3.50% 3.44% 3.84% 4.26% 5.09% 5.52% 5.22% 4.63% 6.42% 6.90% 6.69% Denials 3,891 3,568 3,447 3,573 3,788 3,950 4,957 5,804 3,820 3,954 3,319 Trust Fund Claims 3,194 3,252 3,621 2,295 2,166 2,006 1,867 2,177 1,512 1,376 1,212 Approvals 129 122 123 123 150 156 137 116 110 125 125 Approval Rate 4.04% 3.75% 4.69% 5.36% 6.93% 7.78% 7.34% 5.33% 7.28% 9.08% 10.03% Denials 3,065 3,130 2,498 2,172 2,016 1,850 1,730 2,061 1,402 1,251 1,087 All Initial Claims Claims 7,226 6,947 6,237 6,027 6,157 6,187 7,097 8,263 5,594 5,623 4,769 Approvals 270 249 262 282 353 387 410 398 372 418 363 Approval Rate 3.74% 3.58% 4.20% 4.68% 5.73% 6.26% 5.78% 4.82% 6.65% 7.43% 7.61% Denials 6,956 6,698 5,975 5,475 5,804 5,800 6,687 7,865 5,222 5,205 4,406 ____________________________________________________________________________
Total Claims MINER FILINGS One-Time Miner Filings Responsible Operator Trust Fund Combined Refiled Miners Responsible Operator Trust Fund Combined All Miner Filings Responsible Operator Trust Fund Combined SURVIVOR FILINGS One-Time Survivor Filings Responsible Operator Trust Fund Combined Refiled Survivors Responsible Operator Trust Fund Combined All Survivor Filings Responsible Operator Trust Fund Combined
Number Percent Number Approved Approved Denied
ALL CLAIMS Respons ible Operator 58,141 4,260 7.33% 53,881 Trust Fund 47,497 5,786 12.18% 47,497 Combined 105,638 10,046 9.51% 95,592 ____________________________________________________________________________
SOURCE: Division of Coal Mine Workers’ Compensation. Data are for claims filed on or after January 1, 1982. Automatic survivor conversions have been excluded.
Approval rates for Trust Fund claims are higher than approval rates for responsible operator claims for all types of claimants. Refiled miner approval rates are higher than one-time miner filing approval rates for both types of claims, but the difference is relatively large for Trust Fund claims and relatively small for responsible operator claims. This increase appears to reflect deterioration in the
health of refiling claimants, which is greater for older Trust Fund claimants. • • Approval rates for one-time survivor filings are greater than approval rates for one-time miner filings for both types of claims. Approval rates for refiled survivors are quite small compared with any other approval rates, which is reasonable in light of the fact that the miners’ health can no longer deteriorate because they are already dead.
The overall approval rate for responsible operator claims has been 7.33 21 percent. For Trust Fund claims the overall approval rate has been 12.18 percent. Thus the Trust Fund claims approval rate has been about two thirds (66.2 percent) higher than the responsible operator claims approval rate. b. Projected Increase in Approval Rate As noted above, potential increases in approval rates may result from several of the proposed regulatory amendments. For the most part, however, the potential for increased approval rates is small. Moreover, several of these “increases” are not attributable to the regulations, since they have been mandated by case law. Unfortunately, data are not available to support specific estimates of the impact on approvals of each specific provision, or even the impact of all provisions taken together. Several commentors suggested that increases in approval rates would be large, but numerical estimates are explicitly posited as assumptions. 22 Fortunately, an empirical value -- at least an upper bound -- for the post-regulation approval rate is available. The proposed regulations represent the Department’s current and past practice in Trust Fund cases. Thus the approval rate with the proposed regulations should not exceed the Trust Fund approval rate. In fact, several factors make the Trust Fund approval rate substantially higher than the responsible operator approval rate. For one thing, Trust Fund claimants are substantially older than responsible operator claimants. They are also considerably more disabled, both because they are older and because most of their coal mine employment predated MSHA dust regulations so that their exposures were higher. Because of such factors it appears reasonable to estimate that the proposed regulations would raise the approval rate by no more (and probably a bit less) than half the gap between the existing responsible operator
approval rate and the existing Trust Fund approval rate. As noted above, the Trust Fund approval rate since 1982 has been 12.18 percent, which is 66 percent higher than the responsible operator approval rate of 7.33 percent. Our estimate is that the approval rate after the proposed regulations are adopted will rise by 30 percent to 9.5 percent. For sensitivity analysis, we will also use a “high” increase of 45 percent (to an approval rate of 10.6 percent) and a “low” increase of 15 percent (to an approval rate of 8.4 percent). Although it might be argued that a 30 percent increase from 7.33 percent to 9.5 percent in approval rates is not small, when compared to the 47 percent approval rate applicable to claims filed from July 1973 through February 1978 it is small.
Analysis of the provisions of the proposal indicated that some increases in claims would result from miners’ expectations of higher award rates. The analysis also indicated that, since any increase in awards would be small and confined to specific procedural outcomes or conditions of miners, that these expectations would largely be disappointed. Thus the surge of increased claims would largely subside. Before costs of the proposed amendments can be estimated, the size and duration of this surge of additional claims must be estimated. a. Baseline Level of Claims Exhibit M shows the history of black lung claims since 1988, and Exhibit K showed initial claims over a similar period. 23 Data from both exhibits show the following characteristics: • • Initial claims and total claims received have shown a downward trend since 1988. All initial claims, initial claims against responsible operators, and total claims received rose sharply in 1994 and decreased again to relatively low levels by 1996.
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 ____________________________________________________________________________ Total Claims Received Number 9,320 8,546 8,643 8,193 8,318 10,530 8,394 6,791 7,416 6,115 New Filings Number 4,124 3,762 4,097 3,954 3,975 5,433 4,088 3,157 3,338 2,798 Percent of Total 44.2% 44.0% 47.4% 48.3% 47.8% 51.6% 48.7% 46.5% 45.0% 45.7% CM-1089s Number 2,617 2,464 2,237 2,084 2,084 2,060 1,815 1,748 1,674 1,532 Percent of Total 28.1% 28.8% 25.9% 25.4% 25.1% 19.6% 21.6% 25.7% 22.6% 25.1% Refilings Number 2,579 2,320 2,309 2,155 2,259 3,037 2,491 1,886 2,404 1,785 Percent of Total 27.7% 27.2% 26.7% 26.3% 27.1% 28.8% 29.7% 27.8% 32.4% 29.2% ____________________________________________________________________________
The spike of claims in 1994 coincides with, and appears to be attributable to, the passage in the House of Representatives of H.R. 2108. This bill would have given claimants a 3-to-1 advantage in medical examinations, restored unrelated death benefits, and authorized do novo review of certain denied claims. H.R. 2108 and the debate surrounding it raised widespread expectations that adjudication of claims would be more liberal, with the result that approvals would rise sharply. The increase of slightly more than a third in both new filings and refilings can be attributed to these expectations. The Senate did not pass H.R. 2108, however, and so the bill was not enacted into law. By 1996 claims had fallen to new lows, and claims in 1998 were at still lower levels. b. Projected Increase in Claims The claims history of 1994 and 1995 is an excellent example of an expectation-driven upsurge in claims that subsided when the expectations were not realized. The terms of H.R. 2108 were substantially more favorable to claimants than the currently proposed regulations, so that expectations would have been correspondingly higher. On the other hand, since the bill did not become law, the expecations were quickly and surely disappointed -- more quickly and surely than would result from an accumulation of experience with the proposed regulations. On balance, it is a plausible assumption to use the 1994-1995 upsurge in claims as a proxy for the temporary increase in claims that would result from the proposed regulations. The reasonableness of this assumption is enhanced by the 1996 level of claims, which suggests that not all of the 1994-1995 spike was a net increase in claims. Claims, particularly refilings, fell so sharply in 1996 as to suggest that some of the increase in 1994 and 1995 claims may have been an earlier filing of claims that would otherwise have been filed in 1996. If this was actually the case, it would mean that the increase in 1994 and 1995 claims overstates the size of the upsurge
in claims that was driven by expectations. The size of the upsurge in claims in 1994 and 1995 was estimated using a simple linear regression equation with claims as the dependent variable and a dummy variable to capture the increased expectations in 1994 and 1995. 24 The coefficient of the expectations dummy variable was interpreted as the increase in claims in each of the surge years that was due to expectations. Of the several data sets that were tried, data for initial claims on responsible operators yielded the largest estimate of an upsurge in responsible operator: 1,720 25 claims each year or 3,440 total claims in the two-year period. A similar regression analysis was used to estimate the upsurge of claims that was appealed to the administrative law judge level. As with claims themselves, administrative law judge appeals dropped off sharply in 1996 to below the 1993 level. Thus, despite the time lag in reaching the administrative law judge level, the surge appears to be confined to 1994 and 1995 (although, unlike claims themselves, these appeals peaked in 1995 rather than 1994). Thus the expectations dummy variable was applied only to these two years. The data that allowed the most direct comparison were data on all claims. These data produced a coefficient for the expectations dummy variable in the administrative law judge appeals equation that was 0.163 times the coefficient for the expectations dummy variable in the claims equation. This relationship was interpreted to mean that 16.3 percent of the surge in claims was appealed to the administrative law judge level. This procedure was also used to estimate additional expectations-driven claims that reached the Benefits Review Board. In this regression, however, the coefficient for the expectations dummy variable was negative (and non-significant), which reflects a drop in referrals to the Benefits Review Board that can be observed directly by inspecting the data. This result was interepreted to mean that no additional cases went beyond the administrative law judge level. Given that the upsurge in claims was a result of inaccurate expectations, it is highly plausible that claimants realized that vigorous pursuit of their claims would not be productive. c. Cost of Increase in Claims The cost estimation procedure developed in Section III.B.1, above covered the costs of all increases of awards attributable to the proposed regulations. What is left to estimate is the cost of defending against additional claims that do not result in award. The cost of defending claims was the subject of a survey of the coal industry and related data collection and analysis, which was reported by Briscoe. The findings include the following: •
“Under current law, approximately 70 percent of notices of claim received do not ever
result in an active defense.” The reason for this is that, “under current law, many R/Os do not have the claimant examined if the initial DOL decision is a denial and if the claimant never appeals that denial. While there is some administrative cost associated with these claims, it does not have any significant financial cost under current law.” • When claims are actively defended, the defense costs depend on the adjudication level eventually reached. The average cost of actively defending a claim is: ∗ $3,002 for claims that go no higher than the District Director, ∗ $7,144 for claims that go no higher than an Administrative Law Judge, and ∗ $10,750 for claims that go still higher. 26
The total estimated cost of additional claims that have no merit (as opposed to additional claims that have merit and are approved, which were included in the estimates above) is approximately $3.8 million27 over the first two years. This is a non-recurring cost. Whether it will be passed through by insurance companies to coal mine operators is an open question. It is not clear that there was any premium increase as a result of the upsurge of claims in 1994 and 1995. If there is a premium increase, however, it will be temporary, since the surge in claims will subside.
The conclusion that the surge in claim filings will be transitory and not exceed two years in length before returning to prior levels is based on several factors: (1) the long term effects of Federal dust control measures in place since 1970; (2) the continuing decline in employment in the industry, especially in underground mining, documented in Exhibit H; and (3) the experience documented in Exhibit K and discussed under B.2.a. above which shows a stable pattern of responsible operator claims filings despite a rising approval rate. However it is also possible that a permanent change in the approval rate due to new regulations may lead to an increased filing of claims. Comment is specifically solicited on whether claims will increase.
Analysis of the provisions of the proposal indicated that some increases in medical benefit payouts to eligible miners would result from amendment of the coverage of medical benefits. The key issue is the size of the increase in medical benefits, both absolutely and relative to other costs of compliance with the proposed regulation. The current average level of medical benefits paid is estimated to be $250 per year, and an estimated average of current indemnity benefits is $7,745.09. 28 This brings the sum of average annual indemnity benefits and average medical benefits to about $8,000. Medical benefits make up 3.125 percent of these total annual benefits. To estimate the increase in average cost of medical benefits, we will use a procedure similar to that used for the increase in approval rate. The Trust Fund experience has been that the average medical benefit is $1,736. 29 This benefit payment is a mega-upper bound for the possible level of medical benefits resulting from the proposed regulation. A substantial proportion of the Trust Fund population is near enough to the end of life that their medical costs are very much higher than medical costs of someone who is younger and medically stable, albeit disabled. Thus the assumption that the impact of the regulation will be to raise average medical benefits by half of the difference between Trust Fund medical benefits and Responsible Operator medical benefits is probably itself a considerable overstatement. This assumption produces an estimated increase in medical benefits of $743, or 297 percent of the current medical benefits. For purposes of analysis, it is useful to combine all impacts into the same comparable measure. Since medical benefits (like indemnity benefits) will be paid by insurance companies and passed along to mine operators in the form of increased premiums, insurance premiums are the reasonable numeraire for impacts. The estimated increase in medical benefit costs of $743 is 9.3 percent of total indemnity and medical benefits. We will therefore assume that the impact of the medical benefits provision is a 9.3 percent increase in black lung insurance premiums, with high and low sensitivity analysis estimates of a 13.9 percent and a 4.6 percent increase.
The total increase in costs to mine operators resulting from the proposed regulation can be summarized in terms of the impact on insurance premiums. This cost has three components: • • • Increased awards are projected to cause an increase in insurance premiums of 30 percent, with a sensitivity analysis range of 15 percent to 45 percent. Increased medical costs are projected to cause an increase in insurance premiums of an additional 9.3 percent, with a sensitivity analysis range of 4.6 percent to 13.9 percent. Increased non-meritorious claims are projected to impose costs of $1.9 million per year for two years. This is 2.4 percent of the $79.9 million in direct payments made by responsible operators in 1995. 30 We will assume, therefore, that the result is a temporary increase in insurance premium rates of 2.4 percent.
The analysis presented above estimated compliance cost as a percent of insurance premiums. Total annual cost to the coal mining industry can be estimated as follows: First, compute compliance costs as a percent of revenue for each of the three 4-digit SIC industries
(underground bituminous, surface bituminous, and anthracite). Second, estimate a weighted average of these three percentages, and multiply this times total industry revenue. Compliance Costs as Percentages of Revenue. Compliance costs per dollar of insurance premiums can be converted into compliance costs per dollar of revenues using the following formula: Compliance Cost = Compliance Cost x Insurance Premium x Covered Payroll Revenue Insurance Premium $100 Payroll Revenue Substituting values for each 4-digit industry31 into this formula produces compliance cost estimates of: • • • 0.468 percent of revenue for underground bituminous coal; 0.217 percent of revenue for surface bituminous coal; and 0.684 percent of revenue for anthracite coal.
Annual Compliance Costs. Using shares of total production as weights, 32 the weighted average of compliance costs as a percent of revenue is 0.315. For the 1995 revenues of $19.389 billion, this results in an estimate of $61.07 million. A similar calculation using the value of 0.393 instead of 0.417 indicates that, after the transitory impacts have subsided, the annual cost to the industry will be $57.56 million. Using the ranges discussed above, the annual costs during the initial period would be between $32.22 million and $88.32 million. If the upsurge in claims is transitory, the range of annual costs would be $28.71 million to $86.26 million.
A regulatory flexibility analysis should not just look at size; it should also consider other factors that affect the impacts on a business. These factors include: • The insurance premium rate, which varies depending on: ∗ The specific industry (anthracite or bituminous), ∗ The type of mining (underground or surface), ∗ The state, and ∗ The type of insurance (assigned risk pool or commercial market); The labor intensity of the mining operation; and The financial condition of the business (well below average, average, or above average).
Of these factors, differences in insurance premium can be addressed by using different representative scenarios. Below-average financial conditions are reflected in first quartile (rather than median) financial data. Data on labor intensity within one industry are not available. The following analysis of impacts of the proposed regulations on small coal mines is
based on representative establishments with the following characteristics: • Both bituminous and anthracite mines are included:
Underground bituminous mines are included, rather than surface bituminous mines. 33 • Bituminous coal mining insurance premium rates used include: ∗ Voluntary market premiums in Alabama, Illinois, Tennessee, and West Virginia, and ∗ Assigned risk premiums in Alabama, Illinois, and Tennessee. “Small” mines includes mines with under 20, 20 to 49, and 50 to 99 miners.
Baseline measures for assessing the degree of disproportionality of impacts on small mining companies will include mines with over 500 employees and average mines (i.e., mines with mean or median characteristics) using the voluntary market premiums in each of the above four states. 34 Exhibit N summarizes the key characteristics -- size, productivity, and insurance premium rates -- of these representative mines.
The potential increase in price can be estimated by computing compliance costs as a percent of revenue for each representative mine. The result of this computation is the percent by which the price of coal must be increased to cover the costs of compliance of the regulation, which take the form of an increase in insurance premiums. The value required is the increase in insurance premiums per $100 of revenue. The computation is simplest for the average underground bituminous coal mine, which can serve as a useful illustration: (Increase in Premium) = (Increase in Premium) x ( Premium ) x ( $100 of Payroll ) ($100 of Revenue) (Dollar of Premium) ($100 of Payroll) ($100 of Revenue)
EXHIBIT N FACTORS AFFECTING COST IMPACTS ON
DIFFERENT SIZE CLASSES OF MINES
____________________________________________________________________________ 1 - 19 20 - 49 50 - 99 Over 500 Industry Employees Employees Employees Employees Average ____________________________________________________________________________ BITUMINOUS COAL Alabama Productivityb 371 Premium Rate Market $3.19 Assigned Risk $5.37 Illinois Productivityb Premium Rate Market Assigned Risk 371 $3.95 $4.74
Tennessee Productivityb 371 Premium Rate Market/Assigned $4.31 West Virginia Productivityb Premium Rate Market 371 $3.00
ANTHRACITE COAL Productivityb 2,675 669 2,513 N.A. 2,078 Premium Rate c $6.31 $6.31 $6.31 $6.31 $6.31 ____________________________________________________________________________
The values on the right side of the equation were developed previously and are as follows: The point estimate of increase in premium per dollar of premium was a 41.7 cents per dollar or 41.7 percent (with 22.0 percent and 60.2 percent as low and high estimates). 35 The premium per dollar of payroll varies with the state and type of insurance, 36 but (for simplicity of illustrating the computation) we will assume the West Virginia value of $3.00 per $100. Payroll upon which the black lung rider should be based was estimated to be 30.8 percent of revenue 37 • for the underground bituminous coal mining industry, or $30.80 per $100 of revenue. (Increase in Premium) = $0.417 x $3.00 x $30.80 ($100 of Revenue) = $1.00 $100 $100 = $ 1.251 x $30.80 $100 $100 = $ 0.385 $100 = 0.385 % For specific size classes, the computation is slightly more complicated. Because of the nature of insurance, different size classes face the same insurance premium (unless they have to resort to a different market -- which is covered in the representative mines) and thus similar percentage increase in rates. Where size classes differ is in productivity -- the ratio of payroll to revenue. An adjustment must therefore be made to obtain a payroll/revenue ratio specific to each size class. This adjustment can be made by multiplying the above formula by the ratio of revenue per employee for the average mine to revenue per employee for a mine in each size class. Assuming that the price of coal is the same for different size classes, that ratio is the same as the ratio of average productivity to size-class productivity.
For a large mine (over 500 employees), this ratio is 1.391, resulting in payroll-to-revenue ratio of 0.428 and (assuming the West Virginia premium rate) an estimate that costs are 0.536 percent of revenue. 38 Similarly for a mine with 50 to 99 employees, the adjustment factor is 0.918 and estimated costs are 0.354 percent of revenue; and for a mine with 20 to 49 employees estimated costs are 0.430 percent of revenue. For the smallest size class of mine, however, the procedure breaks down. Here the adjustment would produce a payroll-to-revenue ratio of 7.06, which is clearly impossible. Something is amiss with either the working assumptions or the data. 39 If a mine is to remain in business, the baseline payroll-to-revenue ratio cannot exceed 1.00. We will therefore assume that this is the ratio for these small mines. This is not altogether an unattractive assumption. It represents a worst-case scenario that will produce an upper-bound estimate of impacts (at least with respect to this variable). Moreover, most of the costs of small contract mine operators may actually be payroll, in which case the assumption is not too far off. For the West Virginia premium, the assumption of a payroll-to-revenue ratio equal to 1.00 produces an estimate that compliance costs are 1.25 percent of revenue. Exhibit O shows the full results for impacts on the different representative mines under the different cost scenarios. Relative to revenue, costs for the smallest size class of bituminous coal mines (fewer than 20 employees) are more than three times as high as the industry average. By contrast, the next smallest size class (20 to 49 employees) has costs as a percent of revenues only about 10 percent higher than the industry average. In absolute terms, the smallest mine operators would have to increase their price by between 1.25 percent and 2.25 percent to recoup their increases in insurance premiums. Anthracite coal mine operators would have to increase prices by an estimated 3.3 percent to recoup their increases in insurance premiums. This relatively large increase results from the relatively high labor intensiveness and the relatively high black lung insurance premiums for Anthracite coal mining. Anthracite mines are all small, 40 however, so that they are not at a competitive disadvantage relative to large Anthracite mines.
____________________________________________________________________________ Under 20 20 to 49 50 to 100 Over 500 Industry Employees Employees Employees Employees Average ____________________________________________________________________________ BITUMINOUS COAL Alabama Premiums Market Assigned Risk Illinois Premiums Market Assigned Risk Tennessee Premiums Market/Assigned Risk West Virginia Premium Market
1.33%b 2.24%c 1.65%d 1.98%e 1.80%f 1.25%g
ANTHRACITE COAL h h h Premium 3.31%h,i ____________________________________________________________________________
1995 COAL MINING (SIC 12) Establishment Dataa All Mines First Quartile Median $1,000,000 - $5,000,000 Assets b First Quartile Median $5,000,000 - $25,000,000 Assets c First Quartile Median Over $50,000,000 Assets First Quartile Median
1.7% 3.9% 0.6% 2.6% 5.4% 9.2% 2.7% 4.3%
0.2% 4.9% (1.5%) 4.3% 2.8% 11.7% (1.5%) 2.2%
UNDERGROUND COAL MINING (SIC 1222) Establishment Dataa All Mines First Quartile 2.6% (1.0%) 0.8% Median 4.3% 2.9% 4.0% d Firm Data All Mines First Quartile 0.0% 2.5% 0.0% Median 3.0% 4.7% 1.3%
Dun & Bradstreet provides the most comprehensive industry financial data, and Exhibit P shows the most detailed data available. Unfortunately, disaggregation by size is not available for SIC 1222; disaggregation by employment is unavailable; and data are unavailable for the smallest mine operators (under about 13 employees), who are central to a regulatory flexibility analysis. The data show quite a lot of variability, which is not necessarily systematic. The smallest mine operators are the least profitable, for example, but the largest are also less profitable than the mid-sized operators (a result that is consistent with the productivity reported in Exhibit N). Some of the profit rates for SIC 1222 are higher than corresponding profit rates for SIC 12;
others are lower. The same is true of firm profit rates relative to establishment profit rates in SIC 1222. Since these data are based on subsets of mines, for which Dun & Bradstreet has financial data, the sampling of reporting mines probably plays a substantial role in the variability. Because the nature of the exercise is to assess impacts on the more vulnerable businesses, the first quartile profit rates are of greatest interest. These are almost always less than half of the corresponding median profit rate, and they vary all the way down to losses. Third quartile data are not of interest and are not included in Exhibit P. There are several possibilities to use for the profit of small underground mine operators. The most size-specific data are SIC 12 data for $1,000,000 to $5,000,000 in assets. The industry-specific (SIC 1222) data are not disaggregated by size. Since other data used above are for 1995, this is a preferable year. Because 1995 was the most profitable of the three most recent years in most of the first-quartile data, using 1995 data may bias the profitability upwards. On the other hand, a multi-year average of first quartile data may bias profitability downward, since many mines will probably not have been in the first quartile all three years. A zero or negative profit rate is not of particular interest, since long-term losses (even without regulatory impacts) will eventually force the firm out of business anyway. Thus zero or negative profit rates only highlight the volatility of profits and raise further questions about relying on any one profit rate. In view of these issues, a range of profit rates appears to be the most fruitful approach. Exhibit Q and the following analysis will draw on the following profit rates: • For size-class measures of profit, first quartile profits will be used, and the range will be defined by six combinations of: ∗ Two time frames: § 1995 data on profit rates, and § A 3-year unweighted average of 1995 to 1997 data on profit rates; and ∗ Three versions of industry data: § SIC 12 profit rates for the most nearly appropriate size class, § SIC 1222 profit rates based on D&B establishment data, and § SIC 1222 profit rates based on D&B firm data. For the benchmark industry average, median profits will be used, and the range will be defined by four combinations of: ∗ Two time frames: § 1995 data on profit rates, and § A 3-year unweighted average of 1995 to 1997 data on profit rates; and ∗ Two versions of industry data: § SIC 1222 profit rates based on D&B establishment data, and § SIC 1222 profit rates based on D&B firm data.
Baseline Profit Rate BITUMINOUS COAL 1 - 19 Employees 20 - 49 Employees 0.6%a 2.6%b 0.6%a 0.8%c 2.6%b 0.8%d 5.4%e 0.8%d 1.7%f 2.7%g 3.0%h 4.3%i 0.6%a 1.7%j
If a marginal firm is not in a position to pass a new cost through to customers and is not making sufficient profit to absorb the costs, and if this situation persists, the firm will be forced to leave that line of business. This market dynamic frames the issue for this (or any other) proposed regulation: Are the costs of the proposed regulation too high for some mine operators to absorb or pass on? The previous analysis indicates that one group of mine operators is at real risk of closures. These are very small underground bituminous coal mine operators (i.e., fewer than 20 employees) that are only marginally profitable. Larger underground bituminous coal mine operators and/or those that use mechanized, capital-intensive mining methods appear able to deal with compliance costs either by passing them through to customers or by absorbing them through reduced profits, and they can be expected to find a satisfactory combination of these two approaches. Surface bituminous coal mine operators have only a fraction of the costs incurred by underground mine operators, so that impacts of the proposed regulation should pose no threat to them. Contract miners occupy a peculiar position. Their extreme labor- intensiveness makes them subject to relatively large impacts from a regulation that affects black lung insurance premiums. Yet contract mine operators do not face competition from substantially less labor intensive contract mine operators, because high labor- intensiveness is the nature of contract mining as an institution. The institution of contract mining derives its existence from mine owner’s preferences, and this demand is unlikely to be weakened by an increase in insurance premiums. The real issue is who will absorb these costs -- whether they will be passed forward to the mine owners or backward to the miners in the form of lower wages. Although individual contract mine operators may close down, there is no clear reason to expect a substantial net decrease in this type of operation. Anthracite coal mine operators (who are generally small) will probably be able to pass costs through to customers because of product differentiation that keeps bituminous coal from being a good substitute, even if they are not profitable enough to cover the costs themselves. It is the very small, high-cost, marginally profitable, underground bituminous coal mine operators that face a significant likelihood of closure.
The baseline cond ition for the mining industry is one of rapid exit of mine operators from the industry and reduction in the number of mine operators. This is occurring for a variety of reasons, including rapid expansion of low-cost, mechanized mining methods, substitution of surface mining for underground mining, turnover of mine operators, and (in some localities) exhaustion of seams economically mined. Quite small, marginal, high-cost, labor-intensive mining operations may not be able to absorb or pass through the costs of the proposed regulation, and they may close down. The mining operations that are marginal enough to be significantly impacted by this regulation, however, have the same characteristics that make them highly vulnerable to far stronger competitive pressures and industry trends. In all likelihood, a mine operator who would be forced out of business by the costs of the proposed regulation would not survive more than a very few years under existing baseline conditions. Under these circumstances, it is not valid to conclude that the proposed regulation itself has widespread impacts.
This regulatory flexibility analysis has focused on the mines with characteristics that lead to the greatest impacts -- small size, underground mining, high labor- intensiveness, low productivity and profitability, and high insurance premiums. These are also the characteristics of mine operators that are closing in large numbers, as well as the characteristics of mines that potentially could have significant impacts from the proposed regulations. Several conclusions can be drawn from this analysis: • • The potential for significant impacts is not widespread; it is limited to mining operations with this set of characteristics. Given the vulnerability of such mining operations to the prevalent baseline competitive pressures and changes in the coal mining industry, the proposed regulation will not have significant impacts above and beyond the baseline, although it may act as a “straw that broke the camel’s back.” An attempt to prevent the inevitable closure of small, marginal mines by significantly weakening the proposed regulation would be unavailing. Reasonable and feasible regulatory flexibility alternatives that are consistent with the purposes of the regulation, on the other hand, are certainly in order if they can be devised. For regulatory flexibility purposes, 20 employees is the appropriate size cutoff for the definition of “small” mine operators; it is most appropriate to target regulatory flexibility alternatives on “small” mines with fewer than 20 employees.
Deferral of the effective date of proposed regulatory provisions for small mine operators
is another possible approach. Deferral of the effective date is typically used when capital costs are large enough to pose financing problems if they were all incurred at once, or to allow expensive equipment to be replaced in its natural life cycle rather than requiring it to be retrofitted. Deferral of the effective date is an interesting approach, since the upsurge in filings of claims (and related costs) is expected to be transitory. Cost impacts on small mine operators would be significantly reduced if they could be excused from compliance until after this upsurge had subsided.
Targeting of regulatory relief to small mine operators may be affected by several institutional factors. These factors have to do both with the nature of insurance and with the identification of a responsible operator. a. Regulatory Costs and Insurance Premiums Analysis of compliance costs of the proposed amendments indicated that any costs of the proposed regulations will take the form of costs of defending against increased filings, costs of paying benefits to additional miners, and costs of paying additional medical benefits to miners who would qualify anyway. The latter two forms of cost will be borne by insurance carriers, except for (generally large) mine operators that self-insure, and an insurance carrier will almost certainly bear the costs of defending against a claim on a small mine operator. Thus the impact of regulatory costs on small mine operators will come through increases in black lung insurance premiums. The consequence of these factors is that any measure intended to reduce regulatory costs to small mine operators would, in the first instance, benefit insurance carriers. Black lung insurance premiums vary with a number of factors. They differ by type of coal (bituminous or anthracite), by type of mine (surface or underground), and by state. For mine operators that purchase insurance, however, there is generally 41 no difference in the black lung insurance premium per $100 charged to large and small mine operators.
b. Designation of the Responsible Operator Several criteria might be used to designate the responsible operator, including last
employer, length of employment, and condition of mine at the time of employment. In practice, the last employer is designated, with length of employment as a threshold. This designation is inherently somewhat arbitrary in the sense that, in any given claim, one could argue the appropriateness of the designation. In the aggregate, however, it has the reasonably fair effect of spreading the claims among mine operators roughly in proportion to employment, payroll, and insurance premiums. As with insurance itself, designation of responsible operators has a randomizing and spreading effect on regulatory relief. In any given application of a regulatory flexibility alternative, the mine operator that would benefit -- the mine operator the miner last worked for, large or small -- is virtually random. Again, much of the relief intended for small mine operators would be shared by all mine operators that purchase commercial black lung insurance.
Coal Mining Tugas Bing
Ferli Aditya Sirait
EM152_Paper1
Emely Barte