US

Coal miners' health care bailouts riddled with dubious expenses, audit says

Please see bottom of story for an update

Between 2011 and 2015, the Obama administration paid nearly $1 billion into health care funds of the United Mine Workers of America, including tens of millions of dollars to unverified and sometimes dubious beneficiaries and undocumented union administrative expenses, according to a U.S. government audit.

The former administration also paid expenses that should have been covered by coal mine operators, the audit concludes.

At times, when the government bureaucrats who made the payments asked for information about questionable costs, they were refused by union officials who told them the data “was not within [their] purview,” the document asserts.

Overall, the audit, published late last month by the Inspector General’s office of the U.S. Department of the Interior, recommends that the government agency involved in passing on the money “resolve” issues surrounding some $58.8 million, including $22 million apparently still sitting in union coffers. But it also points to many millions more in murky transactions and inaction that it deemed beyond its capacity to question.

The report also charges that the federal agency’s “minimal oversight” has been “ineffective” and has not ensured that UMWA’s Health and Retirement Funds (UMWAF) “managed the federally supported health benefit plans in accordance with regulations and statutes”—that is, in legally acceptable fashion.

For their part, both the government agency—Interior’s Office of Surface Mining Reclamation and Enforcement (OSMRE) and the coal miners union have pushed back strongly against the auditors in the official response to the  report, arguing that the overseers have misconstrued the issues and miscalculated the financial numbers.

Among other things, OSMRE says that “the UMWAF has voluntarily provided us with a large amount of information about its enrollment and assignment practices, and said that  the auditors’ “statistics and examples”  were “incorrect or potentially misleading.”

OSMRE has also argued that Congressional legislation  only intended the agency to have a “narrow role” in the process.

Nonetheless, a spokesperson for the auditors told Fox News, “We stand behind our numbers.”

The densely worded audit report is a hand grenade tossed into one of Washington’s  touchier political discussions:  continuing federal bailouts for unionized coal miner health care benefits, which have gone on for years , especially in areas of the country, such as West Virginia, where King Coal was formerly the dominant industry.

The issue of coal miner protection became even more acute during the Obama Administration’s notorious anti-carbon “war on coal,” which deliberately sought to shrink faltering coal production even further, leading to more coal miner bankruptcies that further complicated worker protection finances.

The health care benefits for some 22,600 retired coal miners and their families currently targeted for support  are especially sensitive right now.  Federal bail-out provisions for them are set to expire by the end of April, although a short extension has been proposed in Congress to keep money flowing while broader funding struggles to prevent a government shutdown are resolved.

Renewed help for coal miners is expected to form part of the overall funding deal. The question is, how much: on April 26, West Virginia Senators Joe Manchin, a Democrat, and Shelley Capitol, a Republican, staged a press conference with United Mine Workers  officials on Capitol Hill to demand a “permanent fix” to the health insurance issue, meaning permanent federal support. Senate Majority Leader Mitch McConnell, from neighboring Kentucky, is also on board with the health care “fix.”

The question raised by the Department of Interior audit, however, is less about the pros and cons of the bailout and more about the lack of provision by Congress for government oversight of where the money has been going, and how the payouts are calculated, among other things.

According to the auditors, much of that has been left to the union itself and to coal mining operators, while OSMRE, which signs the checks, has done little itself  “to address what it considers inadequate legislative authority [for oversight], nor has it taken proactive steps to address many of the issues in this report that have been identified for years.”

Among those issues:

  • Satisfactorily verifying who is eligible for benefits under a patchwork of 16 union health care and pension plans, of which only three get government subsidies;
  • Checking actuarial data that goes into determining contribution rates;
  • Ensuring that coal mine operators are paying their share of benefit contributions and are being penalized if they don’t; 
  • Making sure that federal bailout funds are used to pay only for the administration of the three subsidized health plans and not all 16 of the health and pension plans—nine of which, fully funded,  are for union officials and trustees.

The problem is, that while Congress has been eager to bail out coal miners, it did not, the audit says,  “explicitly provide a mechanism for oversight” in the laws and regulations it passed to help out the retirees in the past, notably laws passed in 1977 and 1992 that generate the subsidies. 

There was no provision, for example, for a federal representative on the boards of trustees that administer the subsidized health plans—even though, in 2015, the auditors estimate that more than half (53 per cent) of the money keeping the plans afloat came from the government.

The task of providing payouts, meanwhile,  fell to OSMRE, largely because the source of much of the bailout money was interest accumulated by the Abandoned Mine Land Reclamation Program, a multi-billion-dollar effort paid for by all coal producers—not merely those with United Mine Worker  employees—along with dollops from the Federal Treasury.  But the payment task was not accompanied with authorizations that OSMRE provide oversight.

(As it happens, a Inspector General’s evaluation report, published just one day after the UMWAF payout audit, finds “OSMRE has also been ineffective in ensuring funds are spent on reclamation work.”)

Doubtless as a result, OSMRE is impressively understaffed for any  oversight role. It has, the auditors note,  “a single grants financial specialist” reviewing all money transfer requests from the UMWAF funds as well as all the supporting documentation. And that oversight work is “only a fraction” of overseer’s other responsibilities.

OSMRE has been acutely aware of its inadequacy for years. As far back as 2006, the auditors noted, without mentioning names, then Interior Secretary Gale Norton tried to get help from then Labor Secretary Elaine Chao—who is currently the Trump Administration’s Transportation Secretary and married to Sen. McConnell—to get a “unified system for financial reporting and accountability” for money spent by UMWAF,  which would give information “to an entity with expertise and an overarching interest in this area.”

The proposed collaboration “never came to fruition,” as the report puts it.

The upshot: Rather than verifying that funds were being spent properly, the auditors found, OSMRE was largely “certifying” figures that it got from the coal miners union and simply paying out requested money without “obtaining and validating the necessary information and supporting documentation from UMWAF.”

Moreover, OSMRE attempts to get such figures were often rebuffed—with the most frequently cited reason being that the agency  did not have legal authority to ask in the first place.

When the auditors looked into things, however, they found a lot to question, starting with the rosters of who was getting paid.

Among the UMWAF beneficiaries on one of the plans, their report says, were nearly 4,500 who did not appear on Social Security Administration lists that are ostensibly the basis for enrollment, nor on the UMWAF’s  beneficiary lists for the previous year. Their  payouts totaled nearly $40 million. 

(As the audit notes, the SSA data goes  directly to the UMWAF, so that it can calculate health insurance premiums “without Federal Government involvement.”) 

Another 4,400 appeared on UMWAF lists, but not on the Social Security lists; their payouts were worth $41 million.

The report says that the UMWAF asserted the “beneficiaries in question related to a larger group that were previously added to the plan by coal mine operators through a process  known as voluntary acceptance.”

The audits also found that the UMWAF kept adding beneficiaries—1,693 of them-- to the same plan after the cut-off date of July 20, 1992. The beneficiaries were referred to as “after-acquired,” and payouts to them between 2009 and 2013, the report notes, added up to $36.8 million, a sum the auditors found questionable.

In the case of another plan, where the federal government puts up the entire cost of providing benefits to miners eligible by  a cut-off date of Dec. 20, 2006, the  report notes that more than 1,000 of beneficiaries were apparently  added without informing the government through back-dated letters after the specified legal cut-off due to   “special agreements” between UMWAF and specific coal mine operators.

The coal mine operators would otherwise have been responsible for paying the benefits for anyone who became eligible after Dec. 31, 2006.

“UMWAF officials explained,” the report says, “that these eligibility agreements commonly occur when new collective bargaining agreements are negotiated.” Consequently, the auditors did not question the arrangement.

The auditors also discovered that  beneficiary data used to support actuarial projections for the fund payouts included 1,800 people born in the 19th Century “who did not have associated termination dates”—meaning they appeared as if still working. Among them were 764 “who would have been 120 years of age or older in 2013.”

When it came to employer contributions to the same plan,  the auditors did the arithmetic and discovered that the coal mine operators paid in “substantially less” than seemed to be required. In other cases, they simply quit paying. 

Under the 1992 Coal Act, the report says, the IRS is supposed to penalize employers who don’t make their required health benefit payments, but the same act “does not require these delinquencies to be reported to the IRS.” So the UMWAF apparently didn’t, and charged the missed payments to the federal government  as a shortfall in plan finances—which OSMRE paid instead.

The report says that UMWAF officials told the auditors that they had not said anything to the IRS as “it was not in their interest to report the delinquent coal operators because ‘it would not result in any additional income to the [health benefit plan] as the penalties would be paid to the U.S. Treasury and not UNWAF.’ ”

“As of September 2013,” the auditors reported,  one fund “had at least $48.1 million in delinquencies without a single operator being reported to the IRS to levy penalties.”

Lack of detailed  UMWAF reporting created another mystery for the auditors: whether, and to what extent, federal government money might have been used to cover the administrative expenses of UMWAF benefit plans that are not included in the three subsidized arrangements.

All 16 of the UMWAF plans, including the nine for union officials and trustees, are centrally administered, and only a fraction of that total should be assigned for federal support. But UMWAF, the auditors said,  “used a single, aggregated accounting system  for all plans.”  UMWAF allocated a percentage of the administrative expenses to the federally supported plans, but “without providing details to OSMRE.” (Indeed, the UMWAF response to agency queries was that it was not something the agency was mandated to ask.)

According to the report, the three subsidized plans paid “approximately $40 million of the $82.5 million in employee (non-trustee) salaries, or 48 per cent” of that part of the administrative expenses, over the five-year review period.

The auditors also noted that OSMRE had never required the union funds officials to submit an “indirect cost rate proposal” for the administrative costs, as required by the White House Office of Management and Budget for negotiation and approval.

In this, as in many other areas, the federal agency neither agreed nor disagreed with the auditors’ recommendation to make that requirement. Instead, it said it would ask for an opinion from the Interior Department’s legal office first.

In the auditors’ opinion, the biggest need was for the Daddy Warbucks agency to get more congressional authority to see where its money was going—or, as the report put it, “seek express authority to provide  meaningful oversight through legislation.”

OSMRE wasn’t sure it would do that either. Instead, it  responded that it would  “evaluate the feasibility and appropriateness” of doing so,  which would involve “many factors”—and strongly implied a lengthy process of chewing things over.

In all, the auditors provided 21 recommendations for fixing the situation, and OSMRE rejected five, didn’t say whether it concurred or not in relation to six, and concurred with ten—one of which was to “negotiate with UMWAF to ensure it has access to the full range of information necessary to ensure compliance with applicable laws and regulations.”

Many of the suggestions were punted over to another section of the Interior Department for “resolution.”

Queried by Fox News about the audit and the agency’s response to its recommendations , a spokesman for Interior Secretary Ryan Zinke’s office said only that “our general policy is that we can’t weigh in when it is still in the resolution process.”

 Emailed questions from Fox News to both OSMRE and United Mine Workers officials about the audit were not answered before this article was published.

All of that,  however, may be moot, depending on the backroom dealing involved in preventing  the entire federal government from shutting down, and whether a “permanent” fix to the coal miners’ health benefits—with our without oversight—is part of the package.

Depending on what it says, however, that “permanent” fix could open the door to new problems.

“The least they can do is tie any permanent fix to accountability,” says Rachel Greszler, a research fellow and senior policy analyst at the conservative Heritage Foundation. She pointed to the ugly precedent of a federal agreement to continue ladling out money without getting the kind of vital information that the auditors deem necessary—and the possibility that the precedent could spill over into even bigger union pension problems.

Greszler  has warned that overall  insolvency issues with the United Mine Workers of America pension fund—an estimated $5.6 billion more in promises than it can pay-- could tempt legislators into a large-scale bailout far beyond the health care issue.

That, in turn, could open the door to taxpayer support for  any of more than 1,300 private union pension funds across the U.S. that, she has written, are nearly all severely underfunded. LINK HERE TO http://www.heritage.org/jobs-and-labor/commentary/will-uncle-sam-be-the-mine-unions-sugar-daddy

So far, Senate Majority Leader McConnell has only said that he is interested in federal fixes for the UMWAF health care mess. But asks Greszler, “what is to prevent them from pushing all of those liabilities onto it? It would be huge dollars”—more than $600 billion, she estimates.

UPDATE:

After this story was published, Gail Wilensky, a trustee of one of the UMWA funds critiqued in the audit, sent a statement to Fox News describing the audit report as "inaccuracies combined with incompetence. Wilensky, who worked as Deputy Assistant for Policy Administration in the George H.W. Bush White House at the time that the 1992 Coal Act was passed by Congress, enabling at least one of the funds, charged that the intent of the report's authors was to see its operations and oversight functions "turned over to the government," and said the report is "a waste of taxpayer dollars and should be ignored."

George Russell is Editor-at-Large of Fox News. He is reachable on Twitter at @GeorgeRussell and on Facebook at Facebook.com/George.Russell

George Russell is editor-at-large of Fox News and can be found on Twitter: @GeorgeRussell or on Facebook.com/GeorgeRussell