Black Lung Benefits Program:

Improved Oversight of Coal Mine Operator Insurance Is Needed

GAO-20-21: Published: Feb 21, 2020. Publicly Released: Feb 26, 2020.

Additional Materials:

Contact:

Cindy S. Brown Barnes
(202) 512-7215
brownbarnesc@gao.gov

 

Alicia P. Cackley
(202) 512-8678
cackleya@gao.gov

 

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The federal government’s Black Lung Disability Trust Fund faces financial challenges and has borrowed billions to cover costs. The Trust pays benefits to certain coal miners when no coal mine operator can be held responsible, or when the liable operator does not pay.

Three coal mine operator bankruptcies have further strained Trust finances by transferring $865 million in estimated benefit responsibility to the Trust—and more bankruptcies are expected.

Our 3 recommendations to the Department of Labor call for better oversight of coal mine operator insurance to help limit the federal government’s future financial liability.

Smashed piggy bank, dollars

Smashed piggy bank, dollars

Additional Materials:

Contact:

Cindy S. Brown Barnes
(202) 512-7215
brownbarnesc@gao.gov

 

Alicia P. Cackley
(202) 512-8678
cackleya@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

Coal mine operator bankruptcies have led to the transfer of about $865 million in estimated benefit responsibility to the federal government's Black Lung Disability Trust Fund (Trust Fund), according to DOL estimates. The Trust Fund pays benefits when no responsible operator is identified, or when the liable operator does not pay. GAO previously testified in June 2019 that it had identified three bankrupt, self-insured operators for which benefit responsibility was transferred to the Trust Fund. Since that time, DOL's estimate of the transferred benefit responsibility has grown—from a prior range of $313 million to $325 million to the more recent $865 million estimate provided to GAO in January 2020. According to DOL, this escalation was due, in part, to recent increases in black lung benefit award rates and higher medical treatment costs, and to an underestimate of Patriot Coal's future benefit claims.

Self-Insured Coal Mine Operator Bankruptcies Affecting the Black Lung Disability Trust Fund, Filed from 2014 through 2016

 

 

Coal operator

 

Amount of
collateral at time
of bankruptcy

 

Estimated transfer
of benefit responsibility to
the Trust Fund

Estimated number
of beneficiaries for
whom liability has
been transferred
to the Trust Fund

Alpha Natural Resources

$12 million

$494 million

1,839

James River Coal

$0.4 million

$141 million

490

Patriot Coal

$15 million

$230 million

993

Total

$27.4 million

$865 million

3,322

Source: Department of Labor (DOL). | GAO-20-21

DOL's limited oversight of coal mine operator insurance has exposed the Trust Fund to financial risk, though recent changes, if implemented effectively, can help address these risks. In overseeing self-insurance in the past, DOL did not estimate future benefit liability when setting the amount of collateral required to self-insure; regularly review operators to assess whether the required amount of collateral should change; or always take action to protect the Trust Fund by revoking an operator's ability to self-insure as appropriate. In July 2019, DOL began implementing a new self-insurance process that could help address past deficiencies in estimating collateral and regularly reviewing self-insured operators. However, DOL's new process still lacks procedures for its planned annual renewal of self-insured operators and for resolving coal operator appeals should operators dispute DOL collateral requirements. This could hinder DOL from revoking an operator's ability to self-insure should they not comply with DOL requirements. Further, for those operators that do not self-insure, DOL does not monitor them to ensure they maintain adequate and continuous commercial coverage as appropriate. As a result, the Trust Fund may in some instances assume responsibility for paying benefits that otherwise would have been paid by an insurer.

Why GAO Did This Study

In May 2018, GAO reported that the Trust Fund, which pays benefits to certain coal miners, faced financial challenges. The Trust Fund has borrowed from the U.S. Treasury's general fund almost every year since 1979 to make needed expenditures. GAO's June 2019 testimony included preliminary observations that coal operator bankruptcies were further straining Trust Fund finances because, in some cases, benefit responsibility was transferred to the Trust Fund.

This report examines (1) how coal mine operator bankruptcies have affected the Trust Fund, and (2) how DOL managed coal mine operator insurance to limit financial risk to the Trust Fund. GAO identified coal operators that filed for bankruptcy from 2014 through 2016 using Bloomberg data. GAO selected these years, in part, because bankruptcies were more likely to be resolved so that their effects on the Trust Fund could be assessed. GAO analyzed information on commercially-insured and self-insured coal operators, and examined workers' compensation insurance practices in four of the nation's top five coal producing states. GAO also interviewed DOL officials, coal mine operators, and insurance company representatives, among others.

What GAO Recommends

GAO is making three recommendations to DOL to establish procedures for self-insurance renewals and coal operator appeals, and to develop a process to monitor whether commercially-insured operators maintain adequate and continuous coverage. DOL agreed with our recommendations.

For more information, contact Cindy Brown Barnes at (202) 512-7215 or brownbarnesc@gao.gov, or Alicia Puente Cackley at  (202) 512-8678 or cackleya@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: DOL agreed with this recommendation and said it is acting to implement it to achieve further improvements in ensuring the effective oversight of coal mine operator insurance. DOL reported that it would ensure letters granting or renewing self-insurance authority will inform operators that their authorization expires in one year and that they must submit renewal information three months in advance of the expiration date.

    Recommendation: The Director of the Office of Workers' Compensation Programs should develop and implement procedures for coal mine operator self-insurance renewal that clarifies how long an operator is authorized to self-insure; when an operator must submit its renewal application and supporting documentation; and the conditions under which an operator's self-insurance authority would not be renewed. (Recommendation 1)

    Agency Affected: Department of Labor: Office of Workers' Compensation Programs

  2. Status: Open

    Comments: DOL agreed with this recommendation and said it is acting to implement it to achieve further improvements in ensuring the effective oversight of coal mine operator insurance. DOL reported that it will ensure letters denying self-insurance will inform operators that they have a 30-day appeal period (limited to one extension) and that DOL has set a goal of resolving all appeals within 90 days of the denial letter.

    Recommendation: The Director of the Office of Workers' Compensation Programs should develop and implement procedures for self-insured coal mine operator appeals that identify time lines for self-insured operators to submit documentation supporting their appeals and that identify a goal for how much time DOL should take to make appeals decisions. (Recommendation 2)

    Agency Affected: Department of Labor: Office of Workers' Compensation Programs

  3. Status: Open

    Comments: DOL agreed with this recommendation and said it is acting to implement it to achieve further improvements in ensuring the effective oversight of coal mine operator insurance. DOL reported that it will modify existing computer systems to identify lapses or cancellations of commercial insurance coverage, and require operators identified as having lapsed or cancelled coverage to obtain or provide proof of coverage within 30 days.

    Recommendation: The Director of the Office of Workers' Compensation Programs should develop and implement a process to monitor operator compliance with commercial insurance requirements and periodically evaluate the effectiveness of this process. This process should be designed to detect errors and omissions in reporting insurance coverage using complete, accurate, and consistently recorded data. (Recommendation 3)

    Agency Affected: Department of Labor: Office of Workers' Compensation Programs

 

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