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February 2, 2025 - The Black Lung Benefits Act (BLBA), as part of the Federal Coal Mine Health and Safety Act, was established to provide financial support to coal miners suffering from pneumoconiosis (black lung disease) and their eligible survivors. Under the BLBA, coal mine operators are required to secure insurance or qualify as self-insurers to cover these benefits. Historically, self-insured operators were not obligated to fully secure their projected liabilities, leading to significant shortfalls when companies became insolvent. Currently, self-insured operators hold over $600 million in black lung liabilities but have secured only 19%. These financial gaps placed substantial pressure on the Black Lung Disability Trust Fund, designed as a safety net for unpaid claims. The problem has also been worsened by mergers and acquisitions in the coal industry, where liabilities are frequently transferred to undercapitalized subsidiaries that later declare bankruptcy, leaving the Black Lung Disability Trust Fund to absorb nearly $1 billion in liabilities since 2014. These shortcomings in the system have culminated in the current regulatory overhaul. Recent changesThe revised rule, issued by the U.S. Department of Labor on December 12, 2024, and effective January 13, 2025, has profound implications for coal mine operators, particularly those who self-insure. The updated regulations determine the process for coal mine operators to apply for authorization to self-insure, the requirements operators must meet to qualify to self-insure, the amount of security self-insured operators must provide, and the process for operators to appeal determinations made by the Office of Workers’ Compensation Programs (OWCP). Previously, regulations provided that, to qualify as a self-insurer, an operator must meet certain minimum requirements, including the posting of security in a form and amount approved by OWCP. Under the new standard, self-insured coal mine operators will be required to post adequate security for their Black Lung benefit liabilities. It also will protect the Black Lung Disability Trust Fund against assuming the liabilities of bankrupt coal mine operators. The final December 2024 rule also includes the following changes:
The new regulations identify four forms of security that OWCP may allow an operator to provide:
Surety marketplaceIndemnity bonds, often referred to as self-insured workers compensation bonds, are an off-balance sheet alternative to meeting self-insured financial assurance requirements. These bonds are written by regulated insurance companies and underwritten similarly to a letter of credit. Support for bonding is highly contingent on operator credit quality, with capacity reserved for high credit quality operators. Obtaining bond capacity can be onerous and costly for many operators. While bonding is intended to be an unsecured offering, surety carriers will often require collateral (in the form of letter of credit or cash) to support black lung bonding. The self-insured worker’s compensation bonds are viewed by the surety industry as high-risk obligations with long tenors. That said, there is capacity in the market for the product and each operator should consider the advantages of using surety bonds. WTW has experience is syndicating and managing material amounts of black lung bond capacity on behalf of our clients, creating an alternative mechanism to meeting this financial burden. QuantificationWTW strives to deliver useful information beyond the numbers and to deliver innovative solutions, while working to provide the level of transparency desired by our clients. This approach differentiates WTW from our competitors. Our current and proposed approach would be based on a collaborative effort. WTW follows actuarially accepted principles, and we are committed to continue to improve and refine our approach and methodology over the course of time to accommodate your needs. A description of the proposed approach and methodology for conducting the actuarial review is as follows: The review process begins with the submission of the loss runs and exposure data to WTW. We will review the data for reasonability and summarize the data for the review. Generally, we will employ multiple actuarial methods to develop a range of ultimate losses by year and will apply these methods to both paid and reported loss data. We will prepare both closed count versus paid loss development and rely on industry benchmark data for development patterns to the extent the data is not credible. Specifically for black lung, we will also consider the historical annual incremental payments for indemnity and/or medical versus legislated tabular benefits. We will compare these and select a go-forward benefit rate. Based on the results of the various methods, we will select an estimated ultimate loss for each year reviewed. To forecast the losses for the upcoming year, we generally review the relationship between the historical ultimate loss estimates by year and a measure of exposure (number of anticipated claimants) by year. Specifically for black lung analyses, forecasted losses will be determined based anticipated claims and closure rates and payments. We will apply the apply these factors to estimate cash flows for the projection year. We will provide you with a report that summarizes the results of our review. The report will include a written description of our analysis and will include all supporting exhibits and schedules underlying our analysis. The report would initially be provided on a draft basis for your review. The report will be finalized after incorporating any warranted changes. The graphic below gives a summary of a typical work process. The graphic gives a summary of a typical work process.
SourceUnited States of America, Department of Labor, Advocates Respond to New Rule Cracking Down on Coal Industry’s Abandonment of Black Lung Liabilities. |
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