Workers' comp

Words: Denise Steffanus       Workers' compensation, like death and taxes, is a fact of life horsemen must accept. Owners and trainers are required to have workers' comp insurance to care for their injured employees. Even freelancers, such as some exercise riders and hotwalkers, need the security of knowing they will be taken care of if they are hurt on the job.       With medical and drug costs skyrocketing, premiums have soared to a level that makes it difficult for some trainers to stay in business. Geography also comes into play. Areas of the country where medical costs are the highest, such as New York, have the highest workers' comp premiums, while Kentucky is among the lowest. New York has the second-highest cost of living in the nation, and Kentucky has the second lowest.       Everyone seems to have skin in the game: underwriters, insurance brokers, state insurance departments, racetrack management, claims managers, owners, trainers, and injured horsemen. The issue is so complex that whoever you call to discuss workers' comp is likely to refer you to someone else for answers. At the end of the day, after several phone calls, you probably will be more confused than when you started.       The nuts and bolts of workers' comp    The most simplistic explanation of insurance is that the total amount of premiums collected by a plan must be adequate to pay all the claims filed against it. All employers in a workers' comp plan share the risks. The goal is for the plan to have an overall safety record so the fewest possible claims are paid out.       For a workers' comp plan to be fair and effective, trainers must report their employee rosters accurately and honestly, and all stables in the plan must operate in the safest manner possible to reduce claims. Insurance is a form of socialism, where everyone contributes to the premium pool but only a few reap those benefits when an adverse event happens. The more individuals who do NOT file a claim, the greater the safety rating for the plan, which results in a reduced risk and eventually lower premiums.       Before a company can offer insurance, it must have enough start-up assets (in money or collateral) to support anticipated claims until enough premiums come in to create a pool to pay claims. The insurance company invests a portion of those premiums to increase the plan's assets, and it may purchase insurance from a third party to protect itself against large, catastrophic claims.       Every occupation falls into a workers' compensation class code. Codes are rated based on risk, the number and severity of on-the-job injuries the class experiences. That rate determines the premium needed to insure that employee, based on demonstrated risk. Among racetrack occupations, exercise rider is the most dangerous, even more dangerous than jockey.        Trainer Rick Violette Jr., who served as the president of the New York Thoroughbred Horsemen's Association from 2008-2017, has been working on the workers' comp situation in New York since the 1990s. Violette explained that although jockeys take significant risks while performing a perilous job, statistics show that they are less likely than exercise riders to have accidents because they work in a more controlled environment—policed by outriders, followed by an ambulance, and all the horses travel in the same direction around the track. For an exercise rider, the environment can be chaotic.       "In the morning, there might be 100-150 horses on the racetrack," Violette said, "all with different experience, all going different speeds, going counterclockwise and clockwise on the racetrack, horses coming out of the gate. So when you look at that, it's pretty black-and-white how the morning exercise time is much more dangerous and fraught with injury than the afternoon."       Another problem for workers' comp coverage is that many exercise riders aren't employees of a particular stable, but rather get on horses for several trainers who pay them by the head, often in cash when they get off the horse. The extent of the trainer's knowledge about the rider might be only his (or her) first name and how well he handles a horse. If that exercise rider is injured, complications can arise when he seeks to file a claim and none of his trainers have him listed on their workers' comp policy.       New York    New York has solved this problem by including exercise riders in the New York Jockey Injury Compensation Fund. The fund is supported by owners and trainers of horses racing in New York. An owner is assessed a $1,500 initial payment that Violette calls "kind of an entry fee" to race in New York. Trainers are assessed $1.60/day per allocated stall, and an additional two percent comes off the top of purses.        For horses shipping in to race from outside the state, the initial $1,500 is divided into $300 payments to cover the first five races, and no per diem stall charge is levied.       The New York State Insurance Fund, which is the insurer of last resort for those who can't secure a commercial insurer, managed the jockey injury fund for more than 20 years. Legislation in 2016 gave the plan permission to seek alternate means of supporting the fund through shared risk, including self-insurance.       "The last five years, the New York State Insurance Fund turned into a nightmare," Violette said. "Their management of claims, their closing of claims, their handling of the loss-run is schizophrenic and irresponsible at best. Because of their mismanagement, it made us totally unappealing to the commercial market."       The jockey injury fund hired JLT Specialty Insurance and CRS Risk Management to convince a commercial carrier to take a chance on New York racing. Zurich Insurance Group stepped up to the plate. Through its partnership, premiums dropped $250,000 the first year and an additional $750,000 in 2017.       Meanwhile to further reduce premiums, the jockey injury fund began a campaign for enhanced safety measures and instituted better claims management.       "So just by promoting significant safety initiatives, that is always attractive to underwriters, insurance companies," Violette said. "Through more aggressive claims management without being punitive or obstructionist to the injured exercise riders, we've been able to reduce the cost, looking at 15 percent. And when you're talking $8 million or $9 million, 15 percent is pretty cool. And we're hoping even to improve on that this year, and we're also looking at a possible large-deductible program going forward that could save more money."       With insurance giant Zurich willing to enter the horseracing market, Violette is confident that more commercial insurers will follow, and competition will further reduce premiums.       While jockeys, apprentices, and exercise riders are covered by the jockey injury fund, each trainer also must carry a separate workers' comp plan for grooms, hotwalkers, and other stable personnel.       In addition to rising health care costs driving up premiums, the weekly benefit for an employee on workers' comp leave in New York has more than doubled in the past five years, from a cap of $400 to the present $870.       "We have to do more, because while there are some savings, it hasn't made it so that we're a wonderful state to do business yet. It's still very, very costly," Violette said.       According to the New York Compensation Insurance Rating Board, the current premium rate for employees in code 8280 for "Racing Stable and Driver" is $21.33 for every $100 in wages paid. In comparison, stunt pilots and parachute jumpers are assessed at $6.53.        California    Workers' comp for California racing is operated by a self-insured group formed and operated by the people it serves—horsemen. The original plan, Finish Line Self-Insurance Group, was the 2005 brainchild of the late Brad McKinzie, whose namesake, the Grade 1-winning colt McKinzie, was a potential contender for this year's Triple Crown until sidelined by a minor injury. McKinzie's partner, Michael Lyon, and his team now administer a spinoff of the original plan established solely for Thoroughbred racing, Post Time Self-Insurance Group.       "The reason it's been successful is because the program is operated in a business and professional fashion," Lyon said. "The people who run the plan are racetrack people. They know what it takes and what the risks are and what the problems are. Therefore, they are able to administer the plan effectively."       Two things must be in place to form a self-insurance group. First, legislation must be on the books that allows horsemen to self-insure; second, the group must have the startup collateral to support potential claims until the plan establishes a firm financial foothold.        California racing found itself in a bind when workers' comp premiums soared astronomically in the mid-2000s. The best way out was to establish a self-insurance plan, which eliminates the cut taken by commercial insurers. But that meant horsemen had to find a backer to put up the collateral. Fortunately, Dr. Edward Allred, owner of Los Alamitos Race Course, came to the rescue.       The next step was to figure out a way to keep trainers from under-reporting their payroll.        "The under-reporting of payroll is what got California in trouble," Lyon said. "We started Finish Line in 2005. Prior to that, trainers that accurately reported their payroll were getting charged approximately $60 per $100 of payroll. The industry was about ready to collapse because of workers' compensation. That's why we went into the self-insurance model, and we took the ability to under-report out of the equation."       Instead of paying premiums based on the number of employees and the amount of wages paid, trainers are assessed $3 per day per horse to pay for coverage for stable help, and each claim submitted carries a $500 initiation fee. Owners pay $100 per start to cover workers' comp for jockeys. Takeout from exotic wagers also helps pay for workers' comp. The cost of operating the California program is $12.6 million annually. Takeout from wagers amounts to $6.5 million, leaving $6.1 million to be paid by horsemen.       Lyon said another plus of a self-insured program is that it creates watchdogs on the backstretch who speak up.       "If someone is not doing something properly or is doing something unsafe on the backstretch, they'll be inclined to say, 'Hey, you've got to stop doing that. That's not safe. You're jeopardizing the group. You're going to end up having a lot of accidents.' "       California's solution has been successful.       "In my opinion, all the states that are having workers' compensation issues, and I can't think of one that isn't, self-insurance is the way to go, but it requires commitment and a cohesive approach by all in the industry—owners, trainers, racetrack," Lyon said.        "First of all, you have to have an alliance—the tracks and the racing associations and the trainers have to be all aligned because it is for the betterment of the industry. There has to be a consensus that this is the way we want to go.        "Self-insurance is not something that you think, 'Oh, I'll give it a try and see what it's like.' It's a long-term commitment, a minimum of a seven-year commitment, because in workers' compensation, the claims mature very slowly over a long period of time, and you have to be in for the long haul so that the ebbs and flows of the injuries even out over time. You can't jump in and jump out of self-insuring. So there has to be a consensus among those involved in the industry that we want to do self-insured, and we're going to be committed to it, and we're going to support it financially."       Florida    Trainers in Florida complain that workers' comp in that state has reached a critical point. Commercial markets won't touch workers' comp for Florida trainers, so they are forced to obtain coverage from the Florida Workers' Compensation Joint Underwriting Association, the state-operated insurer of last resort.       As posted on the Joint Underwriting Association website, the current rate for workers' comp for stable employees is $12.81 per $100 of wages paid. But there's a catch. The minimum premium is $2,000. So even a one-man operation with no employees, because the trainer does all the work and gallops his own horses, is on the hook for at least $2,000 a year for workers' comp.       John Unick, senior vice president and managing director of equine and self-insured risks for the Insurance Office of America, said trainers who cheat the system are to blame for the situation.        "When you've under-reported payroll so badly as a class code and claims are ridiculously high, it's a very simple actuary or numeric equation that basically says, 'Okay, this is how much premium we took in, and this is how much losses we have based on the premium we took in, and this is what we need to charge in that class code. So the higher the rate gets, the more inclined a trainer is to under-report on payroll, and it becomes a self-fulfilling prophecy."       He sees another reason trainers under-report payroll: the current crackdown on immigration.       "A lot of trainers that are knowingly under-reporting payroll are trying to hide from the government with respect to this issue," he said.        Unick said the way to solve the problem of under-reporting is to do the same as California—take self-reporting of payroll out of the equation and base workers' comp premiums on stall allotment.       "A very complicated subject made as brief as possible: the racetracks and the trainers need to band together to make sure that the good guys don't pay for the bad guys," he said. "At the end of the day, there are too many trainers cheating on payroll, and insurance companies are not interested in playing a game of 3-Card Monte."       A Florida trainer, who asked to remain anonymous, said the tough workers' comp requirements discourage small stables from coming into Florida's horseracing industry. But that is not what concerns her most. She has been approached numerous times to act as a "program trainer" for stables that don't have workers' comp coverage. She declined. A program trainer is the trainer of record listed on the official track program for a horse ghost-trained by someone else. Typically, program trainers are paid under the table to start horses in their own name, but with that payoff comes the risk and all the consequences if the horse tests positive for a banned substance or is involved in other infractions. Further, in most jurisdictions, program trainers are banned because of the potential for ethics violations.       Tampa Bay Downs has a stricter requirement for workers' comp than the State of Florida, which exempts employers (other than construction companies) with fewer than four employees. At Tampa Bay, all trainers must carry workers' comp, even if they claim to have no employees. Despite its strict requirement, Tampa Bay has done nothing to help trainers comply, nor have they met with horsemen to discuss the problem.       "That's the trainer's expense, and we have our expenses," said Peter Berube, vice president and general manager of Tampa Bay Downs. "So, no, we haven't been able to come up with any plan to help them. As you know, we do not have any alternative subsidies like most of the industry does, so we run a pretty tight ship down here … It is a problem area for the industry. Believe me, we know it down here. I'm just not sure what the solution is."       Florida trainers with employees have the option to engage a payroll company, which processes an employer's payroll and carries a blanket workers' comp policy to cover its clients. While this technically meets the requirement, because the code rate for horseracing occupations is so much higher than other industries, insurance professionals are skeptical what would happen if it is challenged in court.       Unick said he has been working on Florida's situation for 15 years. His model calls for a partially self-insured plan, reinsured for catastrophic losses, in which everybody shares in the risk.       Long-term solution    "That's my business philosophy for a long-term solution," Unick said. "I'm not interested in a short-term solution for trainers, I'm only interested in a long-term solution that's going to be fair and is a proper macro-economic model, because I see this as a death-and-taxes issue."       Unick said it takes time and money to set in place an effective plan that is fair to everyone involved. He offered this advice to any jurisdiction that is struggling with the workers' compensation issue:       "This isn't something they can avoid and keep burying their heads in the sand," he said. "They have to collectively get together in order to solve the problem. I fully realize that horseracing is not necessarily great at getting together over anything, but that's the plight of the industry and that's ultimately an industry problem that they have to get their arms around or economically it's going to be harder and harder to survive."

By Denise Steffanus

Workers' compensation, like death and taxes, is a fact of life horsemen must accept. Owners and trainers are required to have workers' comp insurance to care for their injured employees. Even freelancers, such as some exercise riders and hotwalkers, need the security of knowing they will be taken care of if they are hurt on the job.

With medical and drug costs skyrocketing, premiums have soared to a level that makes it difficult for some trainers to stay in business. Geography also comes into play. Areas of the country where medical costs are the highest, such as New York, have the highest workers' comp premiums, while Kentucky is among the lowest. New York has the second-highest cost of living in the nation, and Kentucky has the second lowest.

Everyone seems to have skin in the game: underwriters, insurance brokers, state insurance departments, racetrack management, claims managers, owners, trainers, and injured horsemen. The issue is so complex that whoever you call to discuss workers' comp is likely to refer you to someone else for answers. At the end of the day, after several phone calls, you probably will be more confused than when you started.

The nuts and bolts of workers' comp

The most simplistic explanation of insurance is that the total amount of premiums collected by a plan must be adequate to pay all the claims filed against it. All employers in a workers' comp plan share the risks. The goal is for the plan to have an overall safety record so the fewest possible claims are paid out.

For a workers' comp plan to be fair and effective, trainers must report their employee rosters accurately and honestly, and all stables in the plan must operate in the safest manner possible to reduce claims. Insurance is a form of socialism, where everyone contributes to the premium pool but only a few reap those benefits when an adverse event happens. The more individuals who do NOT file a claim, the greater the safety rating for the plan, which results in a reduced risk and eventually lower premiums.

Before a company can offer insurance, it must have enough start-up assets (in money or collateral) to support anticipated claims until enough premiums come in to create a pool to pay claims. The insurance company invests a portion of those premiums to increase the plan's assets, and it may purchase insurance from a third party to protect itself against large, catastrophic claims.

Every occupation falls into a workers' compensation class code. Codes are rated based on risk, the number and severity of on-the-job injuries the class experiences. That rate determines the premium needed to insure that employee, based on demonstrated risk. Among racetrack occupations, exercise rider is the most dangerous, even more dangerous than jockey.

Rick Violette Jr. has been working on the workers' comp situation in New York since the 1990s

Trainer Rick Violette Jr., who served as the president of the New York Thoroughbred Horsemen's Association from 2008-2017, has been working on the workers' comp situation in New York since the 1990s. Violette explained that although jockeys take significant risks while performing a perilous job, statistics show that they are less likely than exercise riders to have accidents because they work in a more controlled environment—policed by outriders, followed by an ambulance, and all the horses travel in the same direction around the track. For an exercise rider, the environment can be chaotic.

"In the morning, there might be 100-150 horses on the racetrack," Violette said, "all with different experience, all going different speeds, going counterclockwise and clockwise on the racetrack, horses coming out of the gate. So when you look at that, it's pretty black-and-white how the morning exercise time is much more dangerous and fraught with injury than the afternoon."

Another problem for workers' comp coverage is that many exercise riders aren't employees of a particular stable, but rather get on horses for several trainers who pay them by the head, often in cash when they get off the horse. The extent of the trainer's knowledge about the rider might be only his (or her) first name and how well he handles a horse. If that exercise rider is injured, complications can arise when he seeks to file a claim and none of his trainers have him listed on their workers' comp policy.

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Standing in the wings - Assistant Trainers

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