Adding Insult to Injury

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Many people would say that Pinnacol Assurance is a Colorado success story. Benson Von Feldt would disagree.

Von Feldt has spent the last three years fighting Pinnacol, his employer's workers' compensation carrier.

A hardworking man well into his fifties, Von Feldt had been employed at a greenhouse in northern Colorado for many years when he tore his rotator cuff while undoing an oil plug on an engine. His doctors put him into physical therapy. But then he tore the rotator cuff again, so the doctors decided to insert a titanium bolt into his shoulder to help him regain mobility in his arm.

Shortly after the surgery, Von Feldt began noticing puss-filled knots forming on his hands and the glands in his neck swelling. His body was rejecting the bolt.

Doctors suspected the metal piece may have become contaminated, causing the bacterial infection, and wanted to remove it. But the Pinnacol nurse responsible for approving all of Von Feldt's medical care wouldn't sign off on the surgery for twenty months. In the meantime, Von Feldt was unable to work, dependent on painkillers.

"What gives them the right to do this to me?" he asks, sobbing. "Pinnacol ruined my life. My doctor told me they take those bolts out daily because people reject them. But I had to wait and wait until it was too late and it ate me. Now my right hand looks like a big mashed potato."

Von Feldt's wife, Sharon, has watched in frustration as her husband's health has disintegrated. She has watched as the man who once tore semis apart now sits in his chair and cries, doped up on meds to get through the day. "I'm very angry at Pinnacol," she says. "I could take my husband into their office and they wouldn't know who he is, even though for the last three years they've made all the decisions that affect his life. If they don't want to pay for surgery, they don't have to."

The Von Feldts had always thought that they'd be covered for any on-the-job injuries, including medical bills, lost wages and rehabilitation costs, because Colorado requires all employers to carry workers' compensation insurance.

But that doesn't mean the carriers compensate the workers.

Pinnacol is the state's largest workers' compensation insurer, with 56,000 policyholders. Last year, while Benson Von Feldt sat at home with an intravenous feed in his arm to kill the bacteria, Pinnacol was paying $123,371 for a fifty-person junket to the secluded Boulders Resort and Golden Door Spa just outside of Scottsdale, Arizona.

"Imagine awakening in an adobe casita that offers an enchanting Arizona desert view of towering cacti, ancient boulders, coyote, deer and jackrabbits," gushes the resort's Web site. "Sip your morning coffee in pampered comfort and enjoy thoughtful touches such as overstuffed leather chairs, hand-hewn wood beams and aromatic wood-burning fireplaces."

The resort offers tennis, swimming, hiking, horseback riding and golf on two eighteen-hole Jay Morrish-designed courses. In the evening, guests can even go on a desert wildlife tour outfitted with night-vision gear.

Life is good for those who run Pinnacol Assurance, even when they're not partying in the desert. Pinnacol pays its president, Gary Pon, $419,000 per year -- $530,000 once a bonus based on performance kicks in. Eight other executives are expected to make more than $200,000 this year.

Those fancy salaries are matched by equally lavish working conditions for the company's 540 employees. Pinnacol's $29 million state-of-the-art headquarters in Lowry debuted just last year, featuring original artwork on the walls, frosted-glass doors, cushy leather sofas and computers in the lobby.

And once employees leave those hallowed walls, there are plenty of company-sponsored ways to relax. Pinnacol spends $80,000 a year on a skybox at Invesco Field at Mile High where executives and business associates can enjoy Broncos games, plus another $27,520 for Colorado Avalanche and Denver Nuggets tickets and $11,436 for Rockies tickets.

All in all, it's an excellent working environment for a company whose stated mission is "to provide an assured source of workers-compensation protection to Colorado employers and their greatest asset -- their employees."

The company was started by the State of Colorado and still enjoys state-sponsored benefits and breaks given no other insurance company. The only people who don't seem to be getting a break are the injured employees who depend on the company for care.

Pinnacol's roots go back to the beginning of the last century and the very beginning of workers' compensation.

In 1915, the Colorado Legislature mandated that all employers carry insurance to protect their employees in case of on-the-job accidents, and lawmakers established a state agency, known as the State Compensation Insurance Fund, to provide insurance to any Colorado business that couldn't find coverage elsewhere. The fund wrote nearly $50,000 in premiums in its first year.

The system was the culmination of years of battles between organized labor and business. The labor movement had been galvanized by the bitter experiences of workers being debilitated at work and then cast aside; businesses wanted protection from lawsuits by injured employees. The result was a grand compromise that became known as workers' compensation.

Under the workers' comp system, employees gave up their right to sue their employers for negligence if they were injured on the job; in return, employers agreed to pay into an insurance system that would provide medical care to those injured at work and disability payments to those who could no longer work. Businesses would pay the full cost of the program, and all accidents, regardless of cause, would be covered.

For nearly seventy years, the workers' comp system worked well in Colorado. But in the 1980s, medical costs began to skyrocket, pushing workers' compensation insurance rates along with them. By the end of the next decade, nationally companies were paying $56 billion annually on premiums, and insurers were shelling out $1.27 for every dollar they collected from employers, according to the National Council on Compensation Insurance. Small businesses were struggling under the weight of double-digit increases, and employers everywhere were grousing about the effect on their bottom line.

So were state lawmakers. The fund had racked up nearly half a billion dollars in debt, thanks to rising medical costs and claims, and the legislature feared taxpayers would have to bail out the massive program. But as the state's insurer of last resort, the agency still had a responsibility to cover all businesses, even those considered too risky by the 200 other insurance companies approved to offer workers' comp policies in Colorado.

In 1987, the legislature crafted a solution: It spun off the fund into the State Compensation Insurance Authority, a quasi-public agency that would still answer to the governor and his appointed board of directors but would be free of the funding constraints of a public agency. It could function more like a business.

The SCIA would receive no tax dollars and would be free to solicit new business. And to compensate for the burdens of having to insure companies other carriers would reject, it would be exempt from the state's insurance-premium tax, as well as state and federal income tax. Additionally, SCIA's employees would remain in the state's generous pension system, which allows employees with thirty years of service to retire with 75 percent of their annual salary.

For an insurance company, this was the best of both worlds: freedom to operate as a business, with the support and backing of the government. In recognition of the limitless possibilities, SCIA changed its name to Pinnacol Assurance in 1999.

At the same time the state was spinning off its insurance fund, the business community began pressuring legislators to reduce their own insurance costs. Suddenly the media was full of stories about workers supposedly faking injuries to rip off the system ("Still Hurting," March 28, 1996). In 1990, KUSA/Channel 9 ran an eight-part Paula Woodward series on Jorgie Dalegowski, a Lakewood drywaller who had claimed eleven injuries over several years and collected about $250,000. The station videotaped Dalegowski cavorting on his Jet Ski and implied that his injuries were bogus. Soon angry legislators were using Dalegowski as an example of how people were exploiting workers' comp.

The station didn't point out that Dalegowski had already been investigated for fraud and was cleared by his employer's insurance carrier; that his injuries had been certified by doctors; or that a judge had rejected the insurer's claim that using a Jet Ski made him ineligible for benefits.

In the spring of 1991, Colorado's legislators overhauled the workers' comp system, pushing through sweeping changes. The most significant allowed the employers or insurance carriers, rather than patients, to choose the doctor providing care. Under the old system, injured workers who disagreed with the diagnosis of their insurer's doctor had the right to go their own doctor and get a second diagnosis. They could then enter a hearing process to determine which evaluation was correct. But under the new rules, the only option for an injured worker who disagrees with his doctor is to go to the state's independent medical-examination program, which has a third-party doctor review the diagnosis -- and makes it difficult for an injured worker to challenge that doctor's findings.

Besides putting insurers in charge of workers' compensation-related health care, the legislature also made it harder for injured workers to collect disability and reduced the amount paid for permanent injuries. The new law gave employer-designated doctors the authority to terminate medical and disability benefits, even if the injured employee is appealing an evaluation. The law also removed any consideration of loss of earning power from awards for permanent partial disability. Previously, employees who saw a drop in their income because of an accident would receive a financial settlement, but under the new law, injured workers who could still take a job at minimum wage wouldn't be compensated.

"The new law makes it easier for employers to avoid covering lost-wage benefits," says Neil O'Toole, a Denver workers' comp attorney for over two decades. "If you hurt yourself on a $20-an-hour job at Safeway and end up working at 7-Eleven for $8 an hour, tough luck. Your loss of wage-earning capacity is not a consideration."

The new law also capped the amount of money that workers could collect for multiple injuries and made it much more difficult to collect permanent total disability. Under the old law, workers who suffered devastating injuries were often found to be permanently and totally disabled, even if they were able to work a few hours a week at another job. Business and insurance interests, however, convinced the legislature that dozens of workers were collecting total-disability benefits even though they were capable of some form of work.

Some of the most heart-rending cases O'Toole sees involve people with severe injuries, many of whom wind up living with relatives or going on Social Security disability. That means taxpayers are picking up the tab for injuries that are legally an employer's responsibility.

"People not being able to keep their job is probably 10 to 20 percent of our cases," he says. "I don't know how a lot of them survive."

Two years ago, Jack Stroh hurt his back while hoisting a pipe out of an oil well.

"I had a real sharp pain in my lower back," says Stroh, who lives in Wiggins. "By the next day I had horrible pain, and by Saturday I couldn't walk. My boss took me to the hospital."

Over the next few months, the pain spread into Stroh's testicles and down his leg. "The more I do and the more I'm on my feet, the more it hurts," he says. "There's a constant stabbing pain. Imagine taking a hot needle and sticking it in your arm; that's how my testicles feel."

He found himself arguing constantly with his doctor, who was under contract with his company's insurance carrier, Pinnacol Assurance.

"He was rude and would cut me off when I was explaining something," Stroh says. "He told me, 'It's not your back; it's your damn hip, and it's not work-related.' I just wanted to get my back fixed so I could go back to work."

Like Von Feldt, Stroh is convinced that the doctors who have treated him have a financial interest in denying him care. "The insurance company has the ability to put so much pressure on these doctors," Stroh says. "They can lose their jobs. They're looking for a way to save a buck, and they don't care at whose expense."

For Stroh, the consequences of his injury have been devastating. His doctor refused to approve him for disability, saying he was still able to work, so he lost his house and had to stay in a homeless shelter for three weeks. At 51 years of age, he is now back living with his mother. "I've been going through this since April of 2001, and I'm right back where I was, in the same amount of pain," he says. "Right now I have no coverage and no medical help.

"I never realized I'd have this problem with the workers' comp law telling me what doctor I can see," Stroh says. "It's not right. The insurance companies have too much pull."

Benson Von Feldt is convinced that if Pinnacol had agreed to let the doctors remove the contaminated bolt earlier, he would be on the job today. "I could have been back to work two years ago," he says.

"It surprised me that as an injured worker you have no rights, that it's the insurance company that gets to make all the decisions," says his wife. "I was shocked at the way this whole thing was handled; it was amazing to me. The little people have no rights at all -- you just let big industry walk all over them. Injured people are treated like second-class citizens. They're made to feel less than human, like there's something wrong with them for getting sick."

The people who run Pinnacol believe they've done a remarkable job turning a foundering state agency into a healthy business.

When Pon moved over from his post as deputy director of the Colorado Division of Labor in 1986 to lead the insurance fund's transition into SCIA, he took a debt-ridden agency and turned it into a company that, as Pinnacol, now boasts a $216 million surplus, almost meeting the legislature's mandated $250 million reserve. "There was a great deal of dissatisfaction among policyholders," he remembers. "We went through painstaking measures to change everything about the business."

Pinnacol added staff to track claims more closely, improved technology, worked with employers to improve work-site safety and looked for other ways to trim costs.

"We've transformed the old state agency into an impressive insurance company," Pon continues. "Last year we compared ourselves to the industry, and we were about 13 percent below the industry average for losses."

The company has a network of 300 physicians under contract to provide care, and registered nurses supervise all cases in order to keep close track of treatment. (Citing confidentiality, Pinnacol declined to comment on specific cases, including those of Stroh and Von Feldt.)

"The nurse's role is to review what's going on and try to help make sure the person is getting what they need in the way of help," Pon says. "There is a process for requesting authorization for surgery. We can deny surgery if the evidence doesn't support the need for surgery. That doesn't happen very often. Our philosophy is you provide the best medical care you can get, because if you don't, you can end up with a case that might have been resolved that's horrendous, with dissatisfied parties and high costs."

And if there is one thing Pinnacol has been able to do, it's manage costs.

At the same time that benefits were slashed, the number of reported injuries started sliding. Statistics from the Colorado Division of Workers Compensation show that the number of claims for lost time -- meaning an employee missed three or more days of work due to injury -- dropped from 43,394 in 1990 to 33,520 in 2000, even as the state workforce grew. It's not clear whether that drop occurred because employers are emphasizing workplace safety and more people are working in white-collar professions, or because employees are more hesitant to file claims under the new system.

By far, the largest number of reported accidents are in construction, manufacturing and services. Construction workers file more than 13 percent of the lost-time claims in Colorado, and the back was the most commonly injured part of the body, accounting for nearly one-fourth of all claims.

The rates businesses pay for workers' compensation insurance also have fallen dramatically since the law was passed, and this year the National Council on Compensation Insurance, a non-profit agency that creates the baseline for rates across the country, recommended a decrease averaging 10 percent in Colorado premiums.

"Between 1997 and 2001, [the costs for business] pretty much leveled off," says Tim Jackson, state director for the National Federation of Independent Businesses, which played a key role in pushing through the new law in 1991. "There essentially was no increase in premiums on average. Colorado in 1991 was where California is today. California is facing a 38 percent increase in premiums this year. If you don't have a reasonable workers' comp environment, it can drive employers from the state. Colorado should be very proud of what the state legislature has done and what the major insurers -- including Pinnacol -- have done to create a competitive workers' comp system."

Many lawmakers don't share that high opinion of Pinnacol.

This summer, the state auditor's office investigated executive compensation at Pinnacol, and its findings outraged many legislators. The auditor compared Pinnacol's salaries to those of other quasi-public entities, such as the Public Employees Retirement Association and the Colorado Housing and Finance Authority, because they all have a "clear public mission" -- and found that Pinnacol's salaries were out of proportion. While Pinnacol has just $1.2 billion in assets, PERA boasts assets of $25 billion and CHFA has $2.5 billion, but PERA and CHFA executives earn between $79,000 and $258,000, while Pon earns almost double that. (Colorado's governor is paid a paltry $90,000 a year.)

The auditor also found that average CEO compensation for entities similar to Pinnacol in other states was just $268,000.

According to Diedra Garcia, chairwoman of Pinnacol's board of directors and an Owens appointee, in setting executive salaries, the board compared Pinnacol to national insurance companies, such as the St. Paul Companies, the Hartford, CNA Financial Corporation and Farmers Group, rather than similar quasi-public organizations.

"Our CEO makes a fourth of what the highest-paid insurance-company CEO in Colorado is paid," says Garcia. "PERA and CHFA are not similar organizations by any stretch of the imagination. They're not insurance companies, and they don't have to compete for talent with other insurance companies."

Besides the salary issue, the auditor expressed concern over Pinnacol's bonus plan, which is based on the success of its portfolio. That irks Colorado Treasurer Mike Coffman, because Pinnacol executives are reaping huge rewards based on something they don't control. (Pon's pay jumped from $191,000 in 2000 to an estimated $530,000 by the end of last year.) It's Coffman's office that manages all the investments for the state -- and that includes Pinnacol, in its public-private role.

"There's a concerted effort by Pinnacol to become more and more like a private insurance company, and in doing so, the senior management is lining their pockets," Coffman says. "They've gone out of their way to act like a large corporation and replicated everything bad about large corporations in the United States. It's all about perks and pay."

"I'd use the term 'outrageous,'" says Senator Ron Tupa, who chairs the state legislative audit committee. "The compensation is out of line with similar insurance companies. The profits Pinnacol receives and the money they pay their CEO is indirectly tied to the pain and suffering of these workers."

Tupa frequently reminds people that under workers' compensation, each limb is given a value. An employee who loses an arm in a workplace accident is entitled to a one-time payment of approximately $40,000 -- less than one-tenth of Pon's annual earnings -- even if he's lost his livelihood.

Garcia believes the company is being punished for its success. Perks such as resort trips and boxes at Broncos games are standard practice in the insurance industry, she says, ways to reward brokers, who are independent agents, for bringing in millions of dollars in business. "There are other companies that take their top performers to Spain," she adds. "We don't even come close to what other companies do."

The high salaries pulled down by Pon and other executives are justified by the company's strong financial performance, she says, and she doesn't hide her exasperation with Pinnacol's critics: "The legislature wants us to act more like a private company, but when we do, they criticize us for that."

Still, after the state audit was released, Pinnacol's board authorized an independent review of its executive compensation, freezing bonuses until that review is completed. The board also promised to evaluate whether it was appropriate for Pinnacol executives to remain in the state pension program.

Some legislators have promised to take their own look at Pinnacol in the next session.

At the Statehouse, debates over workers' comp tend to fall along party lines, with Republicans such as Coffman emphasizing the need for low insurance rates for employers and Democrats like Tupa more concerned with the experiences of injured workers. Tupa believes it's time for Colorado to re-evaluate its workers' compensation laws, since the system is now skewed toward employers and insurance companies.

"We need to revisit the workers' compensation issue," he says. "We need to have the workers' rights in mind and have them at the table."

Coffman, who supported the reforms of the early '90s as a state senator, doesn't agree that the law needs to be changed. Under the old system, costs were escalating wildly, he points out, and the law has brought them back in line. "I think workers' compensation was out of control and needed massive reforms," he says. "I think you'll always find discontent among workers who go through the process."

What needs to be changed, Coffman suggests, is Pinnacol's spending.

Last year legislators tried to raid Pinnacol's hefty surplus to help balance the budget. This year, they passed a law mandating that Pinnacol reserves can be used only for workers' comp claims.

Some injured workers wonder if they'll ever see any of that money.

Two and a half years ago, while unloading freight at the former Consolidated Freightways company, Robert Eckhoff started having sharp pains in his back and arms. By the next day, he was unable to lift his arm, so he went to see the company's doctors. They did an MRI on Eckhoff and found that his spine was compressed, so they began injecting him with steroids. They also asked if he'd ever been hit on the top of the head.

And in fact, back in 1998, a 400-pound door had fallen on Eckhoff's head while he was at work, knocking him out. Despite the injury, he'd continued working.

Thinking that the doctors had gotten to the root of his problem with his arm, Eckhoff assumed that workers' comp would continue paying for the steroid injections and maybe some rehabilitation so that he could get back to work.

Instead, a doctor under contract to his company's insurance carrier had another idea. He wanted to know if Eckhoff had played football in high school -- more than thirty years earlier -- and if he had hit his head on the field.

"I said I'd played football but had never been hit," Eckhoff recalls. "A 400-pound door had fallen on my head at work and I was off for two or three days, but that didn't seem to be an issue. He was looking for something that wasn't work-related."

To Eckhoff, it looked like the insurance company was trying to find a way to deny responsibility for his injuries.

Eventually, surgeons removed a disk from Eckhoff's back and inserted a donor bone in his neck. Eckhoff tried to go back to work but was blindsided by pain. "I was put on light duty, and I couldn't do that," he says. "By the end of the night I was almost crawling to my truck, I was in so much pain."

Now Eckhoff is fighting over a proposed disability settlement with the insurance company. Like many other injured workers, he has been startled to discover the way the system works.

"It totally shocked me how a person with a legitimate injury could get totally screwed, especially when the company doctor said I couldn't go back to work," he says. "I know there were workers' comp cases that shouldn't have been, but when you have three doctors saying you're really messed up in there, it's clear something is wrong. To me, it's just not right."

Eckhoff sighs at the mention of Jorgie Dalegowski, the injured Jet Ski enthusiast who became a poster boy for those clamoring to change the workers' comp system over a decade ago.

"We used to water-ski. That's something we haven't done since I got injured," he says. "We loved that, but now I can't take the risk."

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