<DOC>
[109 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:25947.wais]
S. Hrg. 109-276
RECENT DEVELOPMENTS IN ASSESSING FUTURE ASBESTOS CLAIMS UNDER THE FAIR
ACT
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
NOVEMBER 17, 2005
__________
Serial No. J-109-54
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
Michael O'Neill, Chief Counsel and Staff Director
Bruce A. Cohen, Democratic Chief Counsel and Staff Director
C O N T E N T S
----------
STATEMENTS OF COMMITTEE MEMBERS
Page
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 1
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1
prepared statement........................................... 188
WITNESSES
Bates, Charles E., President and Senior Partner, Bates White,
LLC, Washington, D.C........................................... 13
Holtz-Eakin, Douglas, Director, Congressional Budget Office,
Washington, D.C................................................ 2
Lederer, Mark, Chief Financial Officer, Manville Personal Injury
Settlement Trust, Katonah, New York............................ 17
Martin, Denise Neumann, Senior Vice President, National Economic
Research Associates, New York, New York........................ 21
Peterson, Mark A., President, Legal Analysis Systems, Thousand
Oaks, California............................................... 19
Welch, Laura, M.D., Medical Director, Center to Protect Workers
Rights, Washington, D.C........................................ 15
QUESTIONS AND ANSWERS
Responses of Charles E. Bates to questions submitted by Senators
Leahy, Cornyn, Specter, Biden and Graham....................... 35
Responses of Mark Lederer to questions submitted by Senators
Durbin, Cornyn and Biden....................................... 55
Responses of Donald B. Marron to questions submitted by Senators
Cornyn, Biden, and Durbin...................................... 73
Responses of Denise Neumann Martin to questions submitted by
Senators Biden and Cornyn...................................... 84
Responses of Mark Peterson to questions submitted by Senators
Specter, Biden, Cornyn and Durbin.............................. 91
Responses of Laura Welch to questions submitted by Senators
Cornyn and Biden............................................... 113
SUBMISSIONS FOR THE RECORD
Bates, Charles E., President and Senior Partner, Bates White,
LLC, Washington, D.C., statement and response to commentary.... 117
Holtz-Eakin, Douglas, Director, Congressional Budget Office,
Washington, D.C., prepared statement........................... 155
Lederer, Mark, Chief Financial Officer, Manville Personal Injury
Settlement Trust, Katonah, New York, prepared statement........ 190
Martin, Denise Neumann, Senior Vice President, National Economic
Research Associates, New York, New York, prepared statement.... 206
Navigant Consulting, Inc., Washington, D.C., review of analysis.. 222
Peterson, Mark A., President, Legal Analysis Systems, Thousand
Oaks, California, prepared statements.......................... 232
Rabinovitz, Francine, Executive Vice President, Hamilton,
Rabinovitz & Alscholer, Inc., New York, New York, prepared
statement...................................................... 246
STATS, George Mason Univerity, Washington, D.C., review.......... 261
Towers Perrin, Jennifer L. Biggs, St. Louis, Missouri, statement. 265
Welch, Laura, M.D., Medical Director, Center to Protect Workers
Rights, Washington, D.C., prepared statement................... 276
RECENT DEVELOPMENTS IN ASSESSING FUTURE ASBESTOS CLAIMS UNDER THE FAIR
ACT
----------
THURSDAY, NOVEMBER 17, 2005
United States Senate,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 2:02 p.m., in
room SD-226, Dirksen Senate Office Building, Hon. Arlen
Specter, Chairman of the Committee, presiding.
Present: Senators Specter, Kyl, Cornyn, Coburn, Leahy,
Feinstein, and Durbin.
OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM
THE STATE OF PENNSYLVANIA
Chairman Specter. Good afternoon, ladies and gentlemen. The
Judiciary Committee will now proceed with a hearing on Senate
bill 852, asbestos reform. This is a major piece of legislation
designed to reform asbestos litigation with the provision of a
trust fund of $140 billion.
With some 80 companies having gone into bankruptcy and
thousands of people having suffered from mesothelioma, a deadly
disease, there has been a controversy as to the adequacy of the
$140 billion and our hearing today is designed to address that
issue head-on.
I have been informed that we have four stacked votes at
3:30, and we have a great deal of testimony to hear before that
time. It is hard to reconvene the Senate after a series of
votes, especially late in the afternoon, so I am going to limit
my opening statement to about a minute and yield now to my
distinguished ranking member, Senator Leahy.
STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE
STATE OF VERMONT
Senator Leahy. Well, Mr. Chairman, thank you for having
this hearing. We have worked so hard on this bipartisan bill.
We have had all kinds of projections. There is no absolute
certainty on anything, except for one thing. In my
consideration, the bill the Chairman has worked on and Judge
Becker has done so much work on, and others, is a lot better
than the situation we have today.
After hearing all kinds of claims of where we are on funds,
I am glad that CBO is here and I am glad to hear their
projections. I will put my full statement in the record, but I
think having Dr. Holtz-Eakin here gives us a chance to get a
little bit away from the rhetoric and get more to the reality,
and I appreciate that. And I appreciate what the Chairman has
done. He has worked harder than any member of the U.S. Senate
on this issue.
[The prepared statement of Senator Leahy appears as a
submission for the record.]
Chairman Specter. A special note of appreciation to Judge
Becker, who is with us today. We convened the so-called
stakeholders in August of 2003 and worked about 2 years to
hammer out many areas of agreement, with those meetings
sometimes lasting several hours and consisting of 40, 50, 60
people. Judge Becker presided and did an extraordinary job in
bringing the legislation to the point where it is today.
Our first witness is the distinguished Director of the
Congressional Budget Office. He twice served on the President's
Council of Economic Advisers. He has been on the faculties of
Columbia and Princeton Universities. He has an extraordinary
academic and professional background that he brings to this
very important position.
That, too, is a very brief statement of your background,
Dr. Holtz-Eakin. We appreciate what CBO has done and we look
forward to your testimony.
STATEMENT OF DOUGLAS HOLTZ-EAKIN, DIRECTOR, CONGRESSIONAL
BUDGET OFFICE, WASHINGTON, D.C.
Mr. Holtz-Eakin. Well, thank you, Mr. Chairman, Senator
Leahy and members of the Committee. CBO is pleased to have the
opportunity to appear this afternoon on this important issue.
We have a statement for the record of written testimony which
we have submitted. Let me in the five minutes focus in on just
a few areas.
CBO provided its estimate of S. 852 with two goals in mind.
The first was to provide the necessary point estimates of the
receipts and outlays that would appear in the Federal budget
over the 10-year budget window, and then, because it really is
the central issue, to indicate the rough performance of the
asbestos fund over the next five decades.
Over that period, we project that there will be roughly
$140 billion in revenues for the fund and the resolution fund
would be presented with claims totaling somewhere between $120
billion and $150 billion. In addition, there would also be some
financing and administrative costs. As the bill is written, it
would terminate payment of new claims if the fund's resources
did prove to be inadequate.
Now, a representative moderate cost scenario places the
value of the claims at about $130 billion over the 50 years,
near the middle of our projected range of 120 to 150. That
representative cost scenario consists of about 100,000 pending
and future claims for individuals with malignant conditions and
almost 1.5 million claims for nonmalignant conditions.
It is important to stress that the estimate is subject to
great uncertainty in the economic environment, in the behavior
of claimants, in the sources of funding and in the
administration of the fund itself. And for that reason, it is
not possible to say with perfect precision whether it works or
it doesn't work. Instead, it was only our goal to provide rough
guidance regarding whether the outlays and funding were in the
same ball park.
Now, subsequent to our estimate, the Bates White consulting
firm released its analysis of S. 852. It is a comprehensive,
bottoms-up professional analysis of the underlying epidemiology
and the financial performance of the fund. The results do,
however, contain some striking differences from CBO's estimate
and some others in the area.
In particular, as shown in the chart, the Bates White
analysis shows far greater claims for those with malignancies
and far fewer claims for those with non-malignancies. For
example, if we look at the second chart, the claims for Level
VIII, lung cancer with asbestosis, are about three times
higher, which would add about $40 billion to the claims, as we
estimated it.
The Level VII claims, lung cancer with pleural
abnormalities, are about seven times higher. Level VI claims,
other cancers, are about 12 times higher. These together would
add about $140 billion to CBO's estimate of the claims. It is
also true that with fewer non-malignancies, claims would be
lower, but here the magnitudes are smaller. The lower claims
reduce the cost by about $30 billion.
Now, by definition, these differences must derive from
differences in exposure to asbestos, incidence of disease,
eligibility for compensation, filing of claims for compensation
and acceptance of those claims. We have had one meeting with
the authors of the study and we have a limited understanding of
the sources of the differences, and only with more
understanding can we determine how it would affect the
projected level of claims and the range of uncertainty.
In closing, I guess I would just like to stress that CBO's
estimate and Bates White's estimate come from different
approaches. Our estimate of the fund is based on analyses by a
number of experts, who in turn relied on a combination of
epidemiological data, historical performance of the tort system
and bankruptcy trusts and projections of the incidence of
disease. As a result, it is built on the large amount of
evidence we have from the current system and current legal
environment. The Bates White estimate looks to be a de novo
projection of performance in an entirely new environment.
In principle, it would be desirable to reconcile these two
and to be able to identify all the sources of differences. Both
have their merits. An approach built on the existing system
provides great guidance to the costs of compensating the same
claimants in a new form. The other approach has the advantage
of showing the incentives for different kinds of behavior in a
new kind of system.
Both have their disadvantages. The approach taken by CBO,
the tops-down assessment of the current system, doesn't perhaps
fully capture all the incentives that one might imagine. But
the alternative approach suffers from the disadvantage of
having no evidence on which to base any empirical estimates.
They are all based on the current environment.
We look forward to your questions and are happy to have the
chance to be here today.
Chairman Specter. Dr. Holtz-Eakin, the projections by the
so-called Bates study have Level VI and other cancers, which
includes malignancies which are not caused by asbestos
exposure. Can you approximate the dollar figure that that
category covers, which is not asbestos-related so it would not
be covered by this bill?
Mr. Holtz-Eakin. In our estimates, that is a number that is
under $10 billion. It is in a range of $5 billion. The cost
under Bates White would be tens of billions of dollars,
something in the vicinity of 50.
Chairman Specter. The Bates study also includes the Level
VII, lung cancer with pleural plaques, and these two disease
levels compensate malignant conditions accompanied by pleural
thickening of the lungs. Are those appropriate for
categorization of exposure in the bill, as you understand the
situation?
Mr. Holtz-Eakin. Again, if I understand the question
correctly, we have tried to understand the degree to which the
underlying diseases would satisfy the weighted exposure
criteria in the bill. Obviously, that requires to some extent
how that would be administered and there are obvious questions
about how the legislation would be administered, and then what
assumptions were made in the Bates White study. I am just not
sure at this point about how to cross-walk those two.
Chairman Specter. Well, the Bates study estimates that
these category of claims--VI, other cancers such as colo-
rectal, et cetera, and VII, lung cancer with pleural plaques--
range in the $157 billion to as much as $235 billion level. Are
those estimates, in your judgment, realistic?
Mr. Holtz-Eakin. We thought the VIs and VIIs together would
add about $140 billion to our estimate of the cost, and so we
have those costing about $15 billion or so. That would move the
estimate up to $150, $160 billion if you took those numbers at
face value.
Chairman Specter. The Bates study includes in the eligible
population architects, bus drivers, taxi drivers, manicurists,
barbers, cooks as all being sufficiently exposed to satisfy the
bill's exposure requirements. But those categories are really
not covered by the bill at all, which covers only substantial
occupational exposure.
Do you have a view as to the propriety of including those
categories, where the bill is explicit on covering only
occupational exposure?
Mr. Holtz-Eakin. I don't have a view on propriety, but I do
know that when we tried to find our estimate of what the bill
intended to cover, our estimate was our best estimate of the
actual legislation as written and it did not appear to cover
those claims to that degree.
Chairman Specter. Well, by propriety I simply mean are they
covered by the bill.
Mr. Holtz-Eakin. Yes. We took our best estimate of what the
bill intended to cover.
Chairman Specter. Well, are taxi drivers and manicurists
subject to substantial occupational exposure, which is the
requirement of the bill?
Mr. Holtz-Eakin. As I have stressed, we have two different
kinds of estimates here. We counted on the experts in the area
and we did not build a bottoms-up, occupation-by-occupation,
industry-by-industry estimate of coverage. We relied on the
experts in the area and sort of took an assessment of the
consensus in there, and that consensus didn't cover nearly the
claims that Bates White came up with.
Chairman Specter. Directly, how do you account for the
chart which shows the studies of ASG and Peterson low and
Peterson high and CBO being at such great variance with the
rising columns exhibited by the chart now being disclosed? That
is my last question, Mr. Holtz-Eakin, because we are going to
adhere very closely to the time, since we will have those three
votes at 3:30.
Mr. Holtz-Eakin. I would love to be able to give you a
precise answer to that. Obviously, we are very interested in
that. To the extent that we understand it so far, there seem to
be two different things going on. The first is a greater number
of people estimated to be eligible for payments from the fund,
and also out of those eligible a much greater claim rate and
incentives to show up and file claims with the fund.
We are trying to sort that out, but it is clearly very
different than what we had anticipated.
Chairman Specter. Senator Leahy.
Senator Leahy. Thank you, Mr. Chairman.
These numbers, of course, are important because, as you can
imagine, when we get into the debate beyond changing from a
tort system or trial by jury system, the biggest part of the
debate, of course, is going to be on numbers. For those who are
supporting the legislation that the Chairman and I have
written, their biggest concern--I mean, a lot of them are
saying, OK, we will support it, but are we going to be able to
stay within the numbers?
The projections that relate to claims expected to be filed
for cancer from asbestos exposure have the highest awards and,
of course, the most impact. The table you gave me recently
breaks out the claims you expect to be filed. I notice that you
expect fewer overall claims for the malignant disease
categories. What I am thinking about is in 2003 you estimated
about 141,000 cancer filings. Now, you expect just under
100,000, 99,000. Why that difference in that period of time in
the projection?
Mr. Holtz-Eakin. Our estimates have changed from the
previous pieces of legislation basically for two reasons. The
first is changes in the legislation itself, with changes in the
awards classifications both in the amounts and who is eligible,
and the passage of time which has affected the number of
pending claims outstanding, which are an important aspect of
the financial impacts.
About half of the claims arise in the first 10 years and
that is largely due to the overhang of pending claims. So with
the passage of time, we have updated both the filing of new
claims in the tort system, and also the resolution of some
claims. The numbers will differ as a result.
Senator Leahy. Do you consider Dr. Bates's projection for
cancer victims to be out of the mainstream?
Mr. Holtz-Eakin. We were certainly surprised by the
magnitudes, but I think it would be unfair to be dismissive
just because of the numbers. I think I would like to understand
the degree to which we can learn something from this study and
use it in the same way that we have used the other experts'
studies to provide guidance to the Committee and the Congress
on the overall performance of the fund, taking advantage of
everything we know about the area. These are new. They
certainly strike me as worth understanding, but we don't
understand them well enough yet to really judge them.
Senator Leahy. Does that mean CBO will be doing a
reevaluation, or are these numbers we can go to the floor with?
Mr. Holtz-Eakin. I can say that we always are careful to
make sure that if there is new evidence that would cause us to
change our estimate, we would do that. If we have made some
mistake or provided poor guidance to Congress, we, of course,
would change our estimate. I don't know that we are in that
position yet. We don't understand these numbers and at the
moment I don't have a plan of that sort.
Senator Leahy. The reason I mention this, Doctor, is if--
and the one thing you should never try to predict are Senate
schedules.
Mr. Holtz-Eakin. There are lots of things I don't want to
predict.
Senator Leahy. I would like to be able to predict the
lottery numbers. But after 31 years here, I have given up
trying to predict it. The one prediction I was able to safely
make is when it was announced with great fanfare this year that
the House and Senate would recess in early October, I knew that
would never happen. Now, I am thinking that there is an outside
chance we will get out of here by Christmas Eve, but I am
doubting it.
But assuming they keep to their projections, sometime after
the Alito debate we will have this bill on the floor. That
certainly is what Senator Specter and I hope. If there is going
to be a reevaluation, I would urge that you get it done between
now and then because we will rely on CBO numbers.
Mr. Holtz-Eakin. Well, we will certainly continue to work
with the Committee and provide you what you need.
Senator Leahy. That is basically what I mean--
Mr. Holtz-Eakin. Sure.
Senator Leahy [continuing]. Just as long as the door
doesn't close as of today.
Mr. Holtz-Eakin. The door is not closed, sir.
Senator Leahy. Great. Thank you, Doctor. Thank you, Mr.
Chairman.
Chairman Specter. Thank you very much, Senator Leahy.
Under the early bird rule, Senator Coburn.
Senator Coburn. I wonder if you all read the additional
views of the other Senators on the Committee before you
attempted to define the costs of this trust fund.
Mr. Holtz-Eakin. We have attended many of the meetings at
which--
Senator Coburn. That isn't what I asked you. I said did you
read the additional views that were submitted by myself and
Senators Grassley, Kyl and Cornyn.
Mr. Holtz-Eakin. Yes, as we were doing the estimates.
Senator Coburn. Then you will be familiar with the concerns
that were in there in terms of the anecdotal and case control,
but lack of cohort studies associated with Level VIs and Level
VIIs. Are you familiar with that?
Mr. Holtz-Eakin. I am not intimately familiar, but the
staff has studied this.
Senator Coburn. Is the assumption that you all made on
Level VIs and Level VIIs the same as the assumptions that are
made in the bill, disregarding what the other additional views
were in terms of the medical criteria associated with Level VI
and Level VII?
Mr. Holtz-Eakin. I am not sure what the question is.
Senator Coburn. Well, the question is are the assumptions
that you made on Level VI and Level VII based on the medical
criteria in the bill, based on you see a certain number of
people achieving that.
Mr. Holtz-Eakin. Yes.
Senator Coburn. And you did not take into consideration any
of the concerns that were raised by the other additional views
of the Senators on this Committee with regard to the looseness
of the medical criteria associated with that?
Mr. Holtz-Eakin. Well, I don't think that is exactly how we
put together the estimate. We certainly knew the concerns and
they are one piece of the evidence that went into putting
together our estimate, but we also went to the other studies in
the area. We have met with the experts--
Senator Coburn. Well, they did the same thing. They looked
at only the medical criteria and the testimony, rather than the
additional views. The concern I have is the accuracy of the
CBO. And Senator Leahy put it right; you have got a tough job.
Nobody knows whether you are going to be right or wrong, but
the real problem is going to be if you are real wrong, if you
are very wrong. What will happen is the very people we are
going to want to help are not going to get help because the
money will be gone in three or 4 years.
Having read your study, I believe you ignored significantly
the reality of the legal climate in this country that will
connect other cancers and other diseases in both Level VI and
Level VII. And without looking at the medical criteria and that
incentive, I think you have underestimated by far, and so does
Dr. Crapo and other experts who testified before the Committee,
as to the motivation for securing the funding.
So my question to you is did you look only at the criteria
in the bill and what was said in the bill and the assumptions
that are made in the bill on Level VI and Level VII as you
looked at the number of claimants that you projected would be
claiming under these cases, because that is the real
difference. I mean, there is not a big difference, other than
Level VI and Level VII, between the two studies. So where is
the difference? The difference has to be there.
Mr. Holtz-Eakin. Certainly, that is a key difference, and I
think the best way to answer the question is that when we do
the estimates, we look at the new environment, as categorized
by the legislation, in the economy and look at the incentives
for people to file and the incentives for the administrator to
accept or reject claims. I mean, that is all part of doing the
estimate.
Now, obviously, we came down in a different place than did
some other people, and that happens. I think we also tried to
be very clear that there are places that we can't be sure about
how things will play out simply given the legislation. You
know, will the Institute of Medicine conclude that there is no
relation? We don't know.
Senator Coburn. For example, there is much more doubt on
Level VI and Level VII than there is anywhere else in this
bill. Would you agree with that?
Mr. Holtz-Eakin. We tried to flag down certainties, as
well. We tried to be honest about the fact that for 10 years we
have to give numbers. Obviously, a 10-year estimate of this
particular piece of legislation is not the answer to anyone's
question. So we tried to give some guidance to roughly how the
fund would play out.
But we tried, I thought, to be very, very clear about the
uncertainties associated with doing it. And there is a list of
those uncertainties and they are also in the estimate as we
released it.
Senator Coburn. So you can explain the difference between
you and the Bates study because you can--
Mr. Holtz-Eakin. Not yet, not entirely, but we will.
Senator Coburn. Well, you came down with a completely
different set of numbers than what they did on Level VI and
Level VII, correct?
Mr. Holtz-Eakin. We know that there are big differences in
these claims. There is no doubt about that. What is the
underlying source of the difference? Is it exposure, is it
differences in estimates of eligibility, is it differences in
filing rates, is it differences in acceptance of filed claims?
I can't break it apart that well and that is something that
would be desirable.
Senator Coburn. I think we are going to get to hear that
today, aren't we, Mr. Chairman?
Chairman Specter. We are going to have a representative of
the Bates study here, yes.
Senator Coburn. Thank you very much.
Chairman Specter. Thank you, Senator Coburn.
Senator Feinstein.
Senator Feinstein. Thank you, Mr. Chairman. As one who has
wanted to see a bill, I am really concerned by what has
happened. And I feel kind of sorry for you because you are
really in the hot seat. Obviously, because you are neutral, we
go to you for an opinion.
I am looking at a chart and I am looking at this Level VI,
where Bates's base estimate is 212,000 and the upper-bound
estimate is 526,000. You are at 17,500. Now, that is an
astronomical difference.
Then I am also looking at the additional occupations that
the Bates study brings into this, and I think somehow we are
going to have to come to some agreement to either clarify the
various classifications here or clarify the occupations,
because the swing--and I have got them all here--the swing
between the different studies is just far too great. So I don't
know how you are going to reconcile, and more importantly at
this stage I don't know how we are going to reconcile it.
Do you have any thoughts on that?
Mr. Holtz-Eakin. Well, certainly, I think a little more
time with Mr. Bates and the folks who put together the study is
the first order of business for us, at least. It is often the
case that we have estimates that differ from other experts in
the area. This one is particularly dramatic, particularly in
the Level VIs, but usually with the time to sit--people go at
these things differently and so you have to first line up the
methods and then piece by piece find out within those methods
where the assumptions differ. That process, I think, is an
important one and one that we are just not done with.
Senator Feinstein. Are you doing that now?
Mr. Holtz-Eakin. We have had one meeting.
Senator Feinstein. Right.
Mr. Holtz-Eakin. The studies came out recently. We have had
one meeting.
Senator Feinstein. How long do you think it will take?
Mr. Holtz-Eakin. Some people hate to project schedules. I
know the timetable in the Senate, though.
Senator Feinstein. The reason I am asking is because the
present schedule has this being the first bill up in the new
year.
I think, Mr. Chairman, if this isn't known before the new
year so that we have an ample opportunity to understand and go
over it, I don't know how we can consider this bill on the
floor in January. I mean, the differences are stark between
Navigant, between Manville, between others that have done the
studies. I think Senator Coburn has sort of hinted to this all
along that there was a problem. We have to know where there is
or is not with some definition before we vote on the floor. At
least that is my very strong view.
Chairman Specter. Well, Senator Feinstein, that is
precisely what we are going to find out. You have very, very
broad variances here to respond to your inquiry. CBO projects
between 8,000 and 27,000 under Level VI and 10,000 to 32,000
under Level VII. Bates White projects over 350,000 claimants,
212,000 for cancers and 198,000 for lung cancers with pleural
plaques.
That is what Dr. Holtz-Eakin is going to study further to
show that his estimates are more reliable. We are working on
that currently and I think we have time between now and the end
of January when we come back into session. We have the better
part of 2 months to get that job done.
Senator Feinstein. I hope so. Thank you.
Chairman Specter. Thank you, Senator Feinstein.
Senator Cornyn.
Senator Cornyn. Thank you, Mr. Chairman.
Dr. Holtz-Eakin, thank you for being here and for your
service to the Congress and to this Committee in a very
difficult job. I just want to make clear as much as I can that
your estimate depends on the validity of certain assumptions in
terms of how many claims would be made and what the mixture of
those claims will be. Is that correct, sir?
Mr. Holtz-Eakin. Absolutely.
Senator Cornyn. And you project, as you said, between $120
and $150 billion over 50 years, and I want to talk to you about
the limitations that you have stated in the report because I
think it is important for us to understand. As I understand it,
the Bates and White study has, using different assumptions,
said that the trust fund would have to pay out anywhere between
$300 billion and $695 billion. So that dramatically
demonstrates how important the validity of those assumptions
are.
Just in fairness to you and so it is accurately portrayed
here, your report says these estimates, the CBO estimates, must
be viewed with considerable caution. The reports says there
might be a significant risk of under-estimating the number of
future asbestos claims. That is, I think, what causes all of us
heartburn in trying to figure out exactly what we are doing
here.
Let me just read one other paragraph. Your report says, ``A
more precise forecast of the fund's performance over the next
five decades is not possible because there is little basis for
predicting the volume of claims, the number that would be
approved, or the pace of such approvals. Epidemiological
studies of the incidence of future asbestos-related disease and
the claims approval experience of private trust funds set up by
bankrupt firms can be used to indicate the range of experience
of the Federal asbestos trust fund, but those sources cannot
reliably indicate the financial status of the fund over such a
long period of time.''
Did I accurately state the limitations that you have
included in your CBO estimate?
Mr. Holtz-Eakin. Certainly. We have tried to caution all
along the difficulty of both translating what we know into a
five-decade future and where it is not just the length, but the
timing within that matters a great deal. The revenues come in
fairly steadily. It is our anticipation that claims will come
in much more front-loaded.
The administrator will have to use the authority to borrow
to pay those claims, and as a result the debt service costs are
an important part of the financial performance of the fund. So
it is not just the levels; it is when they show up that
matters, and that is difficult.
It is also the case that this is a different environment
than the existing tort system and private trusts. It is meant
to be. That is the purpose of the legislation, but it does mean
we have no experience in that new environment; no one does. So
any conjecture about behavior in that environment is just that,
conjecture, and we have to be able to identity the important
pieces of that.
Senator Cornyn. Thank you for that. It is important for
everyone to understand. It seems to me that there are three
different methodologies for predicting future claims which, as
you said, is conjecture. One is claims already filed in court
in the past, obviously; No. 2, past claims experience with
existing trusts; and, three, epidemiological estimates of
people who will experience asbestos-related disease.
It seems to me apparent that the CBO relied on some
combination of the first two; that is, claims already filed in
court in the past and past claims experience of existing
trusts, while Bates and White relied on the third; that is,
epidemiological estimates of people who experience asbestos-
related disease.
Can you comment on the merits of one methodology over the
other?
Mr. Holtz-Eakin. We are not epidemiologists and won't
pretend to be, but there is a far cry between a projection of
cancers and payments out of the fund, as laid out in the
legislation. You would have to provide a link between the
cancer and exposure to asbestos, and satisfying the weighted
exposure requirements. Incidence of disease does not
automatically match up with a claim. There has to be the
decision to file a claim. The administration of the fund has to
approve the claim, and the pace at which that is done is also,
as I mentioned, important.
So it is not obvious that the finest epidemiology, even
given the uncertainties there, translates into the best
financial forecast. There are a lot of steps in between and I
would say knowledge on all three fronts is preferable.
Senator Cornyn. Mr. Chairman, I would ask unanimous consent
to include in the record a letter from the Statistical
Assessment Service, an affiliate of George Mason University,
which, as you know, has also reviewed the Bates and White
study, as well as a copy of their report for the record.
Chairman Specter. Without objection, they will be made part
of the record.
Senator Cornyn. Thank you.
Chairman Specter. Senator Kyl.
Senator Kyl. Thank you, Mr. Chairman.
Obviously, we are trying to move forward here with a
solution, but as you pointed out, Mr. Holtz-Eakin, the
estimates are critical to putting together a bill and yet they
are very difficult to make, and variations depend significantly
upon the assumptions that are made.
Is it also the case that the assumptions change based upon
the point in time at which they are made? For example, when the
bill was first put together a couple of years ago, the
assumptions would be necessarily different than they would be
today and those assumptions would be necessarily different
than, say, 6 months ago on things such as what has transpired
in the meantime, such as the number of claims. I have been
told, for example, that roughly $11 billion has been paid out
since the beginning of this process.
Could you speak to that phenomenon, as well, since you have
already spoken to the other part of the assumption phenomenon,
but just the passage of time and how that necessarily changes
our assumptions as well?
Mr. Holtz-Eakin. The passage of time does matter. It
matters for the economic environment. I don't think that is
central to our estimates, but interest rates are a part of this
calculation and those projections will matter, especially over
the first 10 years. The overhang of pending claims is certainly
an important part of the financial performance of the fund.
The magnitude will change with time as new claims are filed
and are resolved in the tort system in one way or another. Our
estimate assumes that things march on the timetable laid out in
the legislation; that those individuals who have been severely
harmed will be paid quickly, as the bill intends. The degree to
which all of that transpires exactly on schedule affects the
performance greatly and those are all important considerations.
Senator Kyl. I am sure you haven't done this, but, for
example, it would be interesting to try to determine whether,
had this been in effect when the bill was first passed out of
the Judiciary Committee, the result would be the same as it is
today, and then try to project from that something out to,
let's say, six or 8 months from now, or whether, in fact, we
would have been surprised by some of the developments.
Do you have any sense at all--have you looked at it in that
refined a way yet?
Mr. Holtz-Eakin. No, we haven't.
Senator Kyl. Obviously, we are going to be relying a great
deal on you. The variations that Senator Feinstein pointed out
are simply so great here that we have got to come to grips with
this. Since the whole concept of the trust fund is a rough
justice kind of concept where you are making a lot of guesses
and you know that going in, those guesses have got to be as
accurate as possible. And so we will have to rely upon the
expertise of groups like yours to help us understand all of the
different elements that go into these estimates and whether or
not they remain true over time.
I know what I am concerned about is that even a study done
two or 3 months ago discussed today may well not apply to the
circumstances we face next March or April or May, and I don't
know for sure how we build that into what we are talking about
either. Any comment, or you, too?
Mr. Holtz-Eakin. I think the heart of it, as has been
mentioned, is the Level VIs, and I can say that certainly when
the study was released and we became aware of it, it caught our
attention. We have worked with this Committee, in particular,
for many years and tried to produce high-quality estimates of
previous pieces of legislation. So, obviously, it caught our
attention.
It is important to answer questions we don't know the
answer to right now. Are the differences due to a different
estimate of the number of bodies who are eligible, not just
exposed, but eligible under the criteria in the bill for
compensation, or are there differences in the same number of
bodies being eligible but very different behavior on the part
of claimants to file claims and/or the administrator to accept
claims, or is it a combination? I think those are the central
things to resolve.
Senator Kyl. I appreciate it very much. Thank you. Thank
you, Mr. Chairman. This is an important hearing.
Chairman Specter. Thank you very much, Senator Kyl.
Dr. Holtz-Eakin, we would appreciate it if you would stay
with us while we hear the next panel because there may well be
some issues raised which we will want your comments upon.
In light of the questions raised, I think it fair to make a
couple of comments before we turn to the second panel, and that
is that recognizing the difficulties of any estimate, we have
provided for that contingency in the bill by reverting to the
tort system, by going back to court. Where the insurers and the
manufacturers have agreed to put up $140 billion, they realize
that may not be their total exposure. Some have estimated the
exposure as high as $500 billion, $1 trillion, if we do not
find a way for asbestos reform. There are also sunset
provisions which have a detailing on how we change medical
criteria and how we change a variety of standards.
So you are not indispensable here, Dr. Holtz-Eakin. I just
want you to know that if you are wrong--and anybody can be
wrong and this is a best-estimate proposition, but you have
great credibility in CBO. But we have fail-sale provisions.
I would like to turn now to panel two.
Senator Feinstein. Can I ask one quick question?
Chairman Specter. Are you sure it is quick, Senator
Feinstein?
Senator Feinstein. It is.
Chairman Specter. OK.
Senator Feinstein. Part of the bill says ``employment in an
industry, in an occupation, where for a substantial portion of
a normal work year for that occupation the claimant,'' and then
there are a list of criteria, ``must have handled raw asbestos
fibers, must have fabricated asbestos-containing products, so
that the claimant in the fabrication process was exposed to raw
asbestos fibers; must have altered, repaired or otherwise
worked with an asbestos-containing product,'' et cetera, et
cetera.
So you apply all of these, do you, when you are going to
look at what this other evaluation has brought in to see if
they apply these things?
Mr. Holtz-Eakin. One of the things we are interested in
learning more about is how those criteria are applied in the
other estimates.
Senator Feinstein. But you have applied them in your
estimates?
Mr. Holtz-Eakin. We have done our very best to price the
bill as it stands.
Senator Feinstein. Thank you. Thank you, Mr. Chairman.
Chairman Specter. Thank you, Senator Feinstein.
Thank you, Dr. Holtz-Eakin.
[The prepared statement of Mr. Holtz-Eakin appears as a
submission for the record.]
Chairman Specter. We now turn to Dr. Bates, Dr. Welch, Dr.
Peterson, Mr. Lederer and Dr. Martin.
Our first witness is Dr. Charles Bates, President and
Senior Partner at Bates White, a national consulting firm
dealing with economic analysis. Dr. Bates had served as Vice
President of A.T. Kearney. He began his career on the faculty
of Johns Hopkins University in the Economics Department. He
holds a bachelor's degree in economics from the University of
California and a master's and doctorate from the University of
Rochester.
Welcome, Dr. Bates. We look forward to your testimony.
STATEMENT OF CHARLES E. BATES, PRESIDENT AND SENIOR PARTNER,
BATES WHITE, LLC, WASHINGTON, D.C.
Mr. Bates. Good afternoon, Mr. Chairman and members of the
Committee. Given the time constraints, I am going to abbreviate
my planned oral comments, cut them approximately in half, but
will submit the entire written portion for the record.
Chairman Specter. Your full statement will be made a part
of the record, as will all statements.
Mr. Bates. We conclude that the proposed trust fund is
underfunded. The reason is that the FAIR Act establishes an
entitlement for compensation to large numbers of lung and other
cancer patients who currently do not have valid tort claims.
Whereas lung claimants face the prospect of jury trials where
they need to establish asbestos as the likely cause of their
cancer, the FAIR Act replaces this with a contributing factor
standard of proof. The tort requirement is much harder to
establish because although asbestos contributes to the risk of
lung cancer, it is rarely the principal cause.
The FAIR Act proposes to compensate pending and future
claimants who fall into one of the specified disease
categories. There is relatively little controversy about the
number of claims for mesothelioma, lung cancer with asbestos,
and impaired non-malignant disease. This is because most of
these claimants already have incentives to file in the tort
environment, and hence extrapolating from the historical filing
behavior as CBO has done is fairly accurate.
However, our estimate differs from the CBO estimate for the
two remaining disease categories--Level VII, lung cancers with
pleural markers, and Level VI, other cancers. These two disease
categories pose the greatest threat to the fund's financial
viability.
Historically, claims corresponding to Level VII, lung
cancer, and Level VI, other cancer categories, are rarely
compensated in the tort environment. The tort environment
requires claimants to show that asbestos was the cause of their
disease. These cases are hard to win, since lung and other
cancers lack the strong link to asbestos that mesothelioma has.
If someone has mesothelioma, it was most likely caused by
asbestos exposure. In contrast, if someone has lung cancer, it
was most likely caused by smoking.
The FAIR Act weakens the tort criteria. It only requires
claimants to show that asbestos was a significant contributing
factor. Many researchers, including Dr. Nicholson, state that
asbestos exposure increases the incidence of lung and other
cancers. We believe that doctors will interpret this finding to
mean that asbestos was a significant contributing factor for
lung and other cancers.
Our research indicates that 20 million people alive today
have worked in occupations that will qualify under the FAIR
Act. Millions of these individuals will develop lung and other
cancers mostly from causes other than asbestos. Hundreds of
thousands of them will also have pleural changes.
It is not possible to reliably know how many of these
qualifying lung and other cancer claimants will file with the
fund. However, the FAIR Act greatly increases the incentive for
these individuals to file for compensation. Depending on their
smoking history, these claims would receive between $200,000
and $800,000 from the fund.
This morning, I had the opportunity to review the written
testimony of several members on the panel today who are
critical of our study. I would like to thank these members for
bringing to light several of the issues that clarify our
analysis. Their criticisms are essentially three points.
First, they argue that we do not account for differences in
exposure level within the population studied. This is
incorrect. All of our models explicitly account for each
individual's amount of exposure. Of the 27 million people in
our study population alive in the year 2000, 18 million have
low exposure levels and account for only a small fraction of
the qualifying claimants.
Second, our critics assert that we overstate the number of
individuals from low-exposure occupations who will qualify for
compensation under the FAIR Act. This group is not the source
of the shortfall. These 18 million individuals account for only
$30 billion of our $300 billion entitlement estimate. In
contrast, the 9 million individuals with medium- to high-level
exposure account for $270 billion, 90 percent of our low-end
estimate. Even entirely excluding the low-exposure group, the
trust fund remains insolvent.
Third, our critics assert that we assume a hundred percent
of qualifying claimants would file with the fund. Actually,
this grossly mischaracterizes our report. We explicitly address
the difference between the entitlement created and the realized
claiming rate. If all levels other than Level VI and Level VII
file at their historical tort rates, then the trust has only
sufficient funds to compensate at most 13 percent of qualified
other cancer and non-asbestotic lung cancers. Given the
financial incentive created by the FAIR Act for these cancers,
I believe it is very unlikely that such a large fraction of
these qualifying individuals would not file for their
entitlement.
Thank you again for the invitation to appear today. I hope
this summary has been useful. I would be happy to address any
questions and I welcome the opportunity to work with Dr. Holtz-
Eakin to reconcile our estimates.
[The prepared statement of Mr. Bates appears as a
submission for the record.]
Chairman Specter. Thank you, Dr. Bates.
Our next witness is Dr. Laura Welch, Adjunct Professor of
the Department of Environmental and Occupational Health at
George Washington University, a department she previously
chaired. She has held positions on the faculties of Yale
University and the Albert Einstein College of Medicine. She has
a very distinguished background in occupational care in health
clinics.
We welcome you here, Dr. Welch, and the next 5 minutes are
yours.
STATEMENT OF LAURA WELCH, M.D., MEDICAL DIRECTOR, CENTER TO
PROTECT WORKERS RIGHTS, WASHINGTON, D.C.
Dr. Welch. Thank you, Chairman Specter and members of the
Committee. Thank you for having me here. As you know, I am here
to give you some of my thoughts about the report that Dr. Bates
was just discussing, which, as we have already said, estimates
projected claims and costs of the proposed fund and comes up
with numbers and dollars that are much higher than other
estimates.
I want to focus some more on the medical criteria and some
of the epidemiology. I am not going to come up with numbers and
I would defer to other people on the panel in terms of the
specific estimates. But I want to restate the rationale for the
trust fund and some of the key points of the medical criteria
which I think are important as we are talking about these
different levels, the Level VIs, the Level VIIs.
Everybody agrees that the fund's goal is to compensate
people who are sick from asbestos-related disease, and the
agreement was people who had asbestos-related disease but no
impairment are not compensated under this fund. I would like to
point out that people who have asbestos-related cancer are
sick. I think everyone would agree with that.
Individuals who have lung cancer with pleural plaque and
substantial occupational exposure to asbestos have an asbestos-
related cancer and must be compensated under this trust fund.
Eliminating this group of workers from compensation under the
fund would undermine the principles on which the trust is
founded.
Then the medical criteria that were originally agreed upon
by the Judiciary Committee in 2003 in conjunction with S. 1125
at that time were developed carefully in a bipartisan manner
and based on sound science. In my view, those criteria were
conservative. They don't include everybody that experts would
say have an asbestos-related cancer. It is a conservative
criteria.
But this year during the markup on the current bill, the
criteria were made even more restrictive by eliminating the
category of lung cancers with significant asbestos exposure but
no x-ray changes. In my opinion, that change is contrary to the
scientific evidence and it excludes asbestos-related cancers.
That is kind of the background in which we are approaching some
of these estimates.
Having read both the Bates and White report and then the
additional PowerPoint presentations, my understanding of the
estimates were that the report over-estimates the population
eligible by including occupations such as Senator Feinstein was
mentioning, occupations that maybe have a potential exposure to
asbestos, but a low likelihood.
The bill is going to compensate not populations, but
individual people. Individual people have to come forward and
demonstrate that an individual person has exposure that meets
the criteria under the bill. So putting in a population where
there is the potential for exposure, not very many of those
people in those low-exposure populations will be able to
demonstrate what is required under the bill.
In addition, in my written comments I describe how I think
that the estimate of pleural disease in the population at risk
is much too high, as well. So you take the population at risk
in pleural disease and the proportion of cancer in that
population and you get a large number, but I don't think that
that method is appropriate to basically multiply those things
times each other. The proportion of pleural disease, I think,
is too high.
One important point I want to make is that--and Senator
Feinstein already pointed this out--the bill requires
substantial occupational exposure, as she had read the
definition, and also weighted years, so that for Levels VI, VII
and VIII you have to have jobs that have substantial
occupational exposure and then between 8 and 15 years in those
jobs, using a weighted formula.
I can't imagine it is possible for someone who was a
barber, a manicurist, a forester or any of those occupations to
demonstrate that. It is possible. If someone can make the case,
they can be compensated, but the subset of people exposed to
asbestos who are eligible under the weighted formula is a very
small number of the potential people who have had exposure in
the past.
So let me say I think there is certainly uncertainty about
the number of claims that can be filed and the funding that is
needed. The AFL and the Building and Construction Trades are
also concerned that the level of funding could be insufficient,
particularly in the early years when the number of claims will
be the greatest.
The original legislation had provided for contingency
funding and we would support having that in there. But at a
minimum, the return to the tort system must be maintained so
that the individuals who are sick from asbestos-related disease
don't bear the burden of the uncertainty; that they are not
left high and dry, as we might say, because of the uncertainty.
I think, Mr. Chairman, you pointed out the importance of
keeping that failsafe in there.
So let me stop there and take any questions.
[The prepared statement of Dr. Welch appears as a
submission for the record.]
Chairman Specter. Thank you very much, Dr. Welch.
Our next witness is Mr. Mark Lederer, who is the Chief
Financial Officer of the Manville Personal Injury Settlement
Trust, giving him very extensive experience in the issues which
we are looking at today. He has a bachelor's and master's from
Johns Hopkins University and an MBA from Columbia.
Thank you for coming in today, Mr. Lederer, and we look
forward to your testimony.
STATEMENT OF MARK LEDERER, CHIEF FINANCIAL OFFICER, MANVILLE
PERSONAL INJURY SETTLEMENT TRUST, KATONAH, NEW YORK
Mr. Lederer. Mr. Chairman and members of the Committee, my
name is Mark Lederer and I am the Chief Financial Officer of
the Manville Personal Injury Settlement Trust, which I will
refer to today as the Manville Trust or simply the Trust. I may
also refer to the Claims Resolution Management Corporation, or
CRMC, the trust operating company that processes trust claims
and maintains its data, which is located in Falls Church,
Virginia. In the past, you have heard testimony from David
Austern, the President of CRMC as well as the general counsel
of the trust.
I will make only some brief summary comments here. I start
by noting that the testimony I am giving reflects my personal
opinions and not necessarily the position of the Manville Trust
or of CRMC. You may recall that trustees have written to you
stating their opposition to the FAIR Act, specifically the
provisions that would confiscate the assets of the existing
asbestos trusts.
From an initial funding of only $2.2 billion, the Manville
Trust has paid out approximately $3.4 billion in claims, with
approximately $1.7 billion in remaining assets, approximately
equal to the estimated proceeds available to unsecured
creditors if the Manville Corporation had been liquidated
rather than reorganized. The Manville Trust has more experience
with asbestos claims and projections than any other trust.
Johns Manville was by far the dominant producer of asbestos and
asbestos-containing products.
While asbestos claimants today seek compensation from
scores or hundreds of different sources, most and eventually
all file a claim with the Manville Trust, which has an
efficient administrative procedure much like the one envisioned
in the FAIR Act. Approximately 765,000 claims have been
received, but of that number 73,000 have been withdrawn, many
of them being duplicative and incomplete. And over 650,000 have
been resolved. It is because the Manville Trust has data
relating to such a large share of the universe of asbestos
claimants that people with different perspectives on the FAIR
Act have relied on the Manville Trust data over the past 3
years.
I am not testifying today as an expert in projecting
claims, but as one of the most experienced consumers of such
projections. Reflecting this background, I did not come to
criticize anyone's methodology. Rather, I came here to report
on the Manville Trust experience with claims and claims
projections which may shed some light on predictions that have
been made regarding future claiming behavior.
The Manville Trust has commissioned seven claims
projections over the last dozen years and has taken a lead in
working with the experts who have performed the projections.
The total number of claims the Manville Trust has received
since its inception in 1988 has greatly exceeded projections.
Every forecast has been exceeded by the ensuing forecast until
the last forecast made this year.
As a result, the Manville Trust is able to pay only a
fraction of the full value of claims. Our limited fund status
and our goal to treat all claimants equally makes it imperative
that our payments are based on reliable claim forecasts.
Not all types of claims have been equally unpredictable.
The huge numbers of claims exceeding projections overwhelmingly
have been non-cancer claims. To date, the underlying
epidemiology makes projecting cancer claims more reliable than
non-cancer claims, where socio-economic and legal
considerations play a larger role. The number of cancer claims
has been relatively stable, but with an upward trend, and it
has been my experience that significant changes in criteria,
process and financial incentives have and can dramatically
change filing levels.
The value of compensation the Manville Trust currently pays
is far less than the amount the contemplated fund would pay
under the FAIR Act. However, in the current system expert
plaintiffs' attorneys typically file claims against dozens of
defendant trusts on behalf of each cancer claimant. The total
value of settlements that the average cancer claimant currently
collects from all sources has not been disclosed. Given that so
much is uncertain regarding the forecasts, every effort should
be made to learn as much as possible about current conditions.
Whatever the total value of settlements is in the current
system, it is clearly a multiple of the value of unimpaired
non-cancer claims. And it is our experience that the asbestos
plaintiffs bar has been highly effective in identifying
individuals with those lower-value claims.
A huge increase in lung cancer claimants with significant
occupational exposure and underlying disease seems out of place
in the context of over 20 years of claim experience. For that
reason, and subject to learning more, the Manville Trust does
not currently anticipate any large increase in the rate of
cancer claims over its current projections.
The FAIR Act would create a different compensation
environment than the current system, and the Manville Trust
forecasts were not designed to predict behavior in that changed
environment. How useful the Manville Trust's years of
experience are in predicting claim filings under the Act
depends in large part on the degree of difference between the
systems for compensating claimants historically, including but
not limited to the Manville Trust, and what is being proposed.
I leave it to the Committee to decide the weight it chooses to
place on the Manville Trust experience. If members of the
Committee have further questions regarding that experience, I
will try to answer them to the best of my ability.
Thank you.
[The prepared statement of Mr. Lederer appears as a
submission for the record.]
Chairman Specter. Thank you, Mr. Lederer.
We now turn to Dr. Mark Peterson. For the past 14 years, he
has been special adviser to the courts regarding the Manville
Trust. He has extensive experience with the Federal courts and
is an expert on how asbestos claims are valued. He has a law
degree from Harvard and a doctorate from UCLA.
Thank you for coming in today, Dr. Peterson, and we look
forward to your testimony.
STATEMENT OF MARK A. PETERSON, PRESIDENT, LEGAL ANALYSIS
SYSTEMS, THOUSAND OAKS, CALIFORNIA
Mr. Peterson. Thank you, Mr. Chairman and members of the
Committee. Both CBO and Bates White have recently warned of
risks of S. 852. My written testimony comments on both, but I
will talk primarily today about the CBO forecasts and warnings.
CBO has stated a series of warnings about the risks of 852.
They say the resources may be insufficient and would lead to
the fund's sunset. They say that the value of claims may exceed
$140 billion. They said that in addition to that, there will be
significant interest costs.
Both of these estimates of liabilities and interest costs
may be too low. CBO acknowledges that its forecasts are
uncertain and says that they could be under-estimates, and that
is the historic experience, as Mr. Lederer just described. CBO
warns that the receipt of the $140 billion is, as they say,
highly uncertain and forecasts of that are unreliable. They say
the fund will incur a large debt, that S. 852 could increase
insolvencies that would jeopardize the ability to repay the
debt, and the Government general fund may have to repay the
debt. Those are all warnings in the report.
CBO's report does not flesh out these warnings. How much
interest? How much debt? What are the risks of sunset? To
examine these questions, we used the available data in CBO's
present and prior reports to understand and quantify these
risks. We accepted CBO's estimate of the number of pending
claims, the number of future claims, and used the values in S.
852 to place values on them.
For each year, we calculated the liability that would have
to be paid under the terms of the bill based on the number of
claims from CBO's analysis using the distribution of diseases
among the categories of the legislation as CBO says they are
and applied those values. We then ran a year-by-year cash-flow
analysis calculating for each year the total liability that
would be payable that year and the revenue that would be
available to pay it, assuming warnings may be untrue, according
to CBO--we assume that the funds will come in as the statute
says.
We look at the borrowing capacity in each year and the
amount of borrowing that would need to be made in that year and
cumulatively. We look at the interest that must be paid that
year. We determine the sunset, if there will be a sunset, when
the fund's obligations exceed its resources, the revenues that
in that year and future borrowings will be greater than its
obligations, what the fund would owe to people whose claims
have already been allowed but the second, third and fourth
years have not been paid, the new claims arising that year, the
interest for that year, and the debt burden that will have to
be repaid, the principle and future interest.
Using this full set of CBO assumptions, we find that indeed
the bill would sunset, and when it sunsets, it would have $35
billion of principle debt that needs to be repaid, and that
overall to repay that debt up to that time it will have $35
billion of interest that will be payable from the fund. It will
be able to pay only $103 billion to claimants.
We looked further, having been warned by CBO that its
forecasts are uncertain, at a number of their assumptions. One
is that only 22,000 pending claims have arisen in the last 3
years, which is a quarter of million less than the number of
claims that have actually arisen in that year, and that
otherwise CBO forecasts are likely to rise now on an annual
basis.
We looked at what is their impossible startup date of
January 2006. It can't happen. We looked at the low
qualification rate that they use, which is rejected, in fact,
by the sources, the Tillinghast work that was done for the
Manville Trust in the forecast that Mr. Lederer referenced.
We corrected their forecast for all of these and when we
re-ran the forecast, we saw that the bill would sunset within
two to 4 years under CBO's assumptions, corrected for what I
believe were inadequate assumptions they had. The debt at the
time of sunset would be between $48 and $64 billion. Claimants
would only get $82 billion.
We also know that the forecasts of the number of claims and
the qualifications within disease categories are uncertain. To
examine this uncertainty, we used Tillinghast's forecasts for
Manville. There are 15 different scenarios that vary with the
number of claims and the distribution of claims. These show
that when you apply those to S. 852, we actually get fewer
numbers of claims than CBO forecasts, but many more
mesothelioma claims--69,000, compared to 49,000. The issue
about the under-counting of cancers is not simply lung cancers,
but also mesotheliomas.
The results of all these 15 analyses show that the fund
will fail quickly, mostly in the first or second year. Only two
of the 15 forecasts say that it would last into the third year.
The debt at sunset would be between $60 and $67 billion. The
amount paid to claimants would be between $73 and $77 billion.
All of these forecasts, all of these variations, including
CBO's original forecast, confirm the risks that CBO warns
about. The liability will exceed the revenues most likely in
the first or second year. Interest paid by the fund will be
between $35 billion and $77 billion. There will be an early
sunset because of the high debt. Because of the high debt
initially and the great risks that CBO identifies, there will
be an early sunset which will leave the debt at the time of
sunset at between $35 and $67 billion.
Chairman Specter. Dr. Peterson, how much more time will you
need?
Mr. Peterson. I have one sentence. The claimants will
likely receive only $75 to $82 billion.
[The prepared statement of Mr. Peterson appears as a
submission for the record.]
Chairman Specter. Thank you very much, Dr. Peterson.
We have one more witness and I am advised that Senator
Coburn has to depart in about 10 minutes. My plan would be to
hear from Dr. Martin and then yield to you first, out of turn,
so that you may question. Is that satisfactory, Senator Coburn?
Senator Coburn. Thank you, Mr. Chairman.
Chairman Specter. Our final witness on the panel is Dr.
Denise Martin, Senior Vice President of National Economic
Research Associates. An expert in tort economics and antitrust
litigation, she authored the text Estimating Future Claims:
Case Studies from Mass Tort and Product Liability. She is a
magna cum laude graduate from Wellesley and has a master's and
doctorate in economics from Harvard.
Thank you for agreeing to testify, Dr. Martin, and we look
forward to your 5 minutes.
STATEMENT OF DENISE NEUMANN MARTIN, SENIOR VICE PRESIDENT,
NATIONAL ECONOMIC RESEARCH ASSOCIATES, NEW YORK, NEW YORK
Ms. Martin. Thank you, Mr. Chairman and members of the
Committee. It is an honor to be here today.
The Congressional Budget Office has estimated that the cost
of compensating asbestos personal injury claimants under the
FAIR Act is between $120 and $150 billion. To prepare that
estimate, the CBO relied on standard, accepted forecasting
methods, the same methods that were used to make the claims
projection when the FAIR Act was initially proposed and the
same methods that have been used to forecast claims in the tort
system by virtually every expert, including by Bates White.
Here, however, Bates White has rejected these standard
methods and relied on a series of flawed assumptions. The
resulting claims projections simply do not stand up to
scrutiny. At every critical step, their revised approach gets
it wrong. Let me highlight some of these fatal flaws.
The Bates White analysis firstly grossly overestimates the
population at risk from asbestos disease, conflicting with
other published and accepted studies. Part of the problem is
the inclusion of many industries and occupations in which
workers had little or no asbestos exposure. We looked at the
underlying data and found, as Senator Feinstein said, that Dr.
Bates counts barbers, beauticians, bus drivers, salesmen and
parking lot attendants in his asbestos-exposed group. It is
highly unlikely that most workers in these groups will qualify
for compensation under the FAIR Act. Using this flawed
assumption, however, Bates White asks us to believe that half
the adult male population in 1980 would have had enough
asbestos exposure to qualify.
Having overestimated the population at risk, Bates White
gets it wrong again. Their analysis underestimates the critical
impact of the FAIR Act's exposure and medical requirements. The
FAIR Act requires 15 years and 12 years of weighted exposure to
asbestos for Levels VI and VII, which covers claims of lung and
other cancers. That requirement will decrease the potentially
eligible population, but it is ignored by the Bates White
analysis. Instead, they appear to count every worker who ever
spent a day in these supposedly exposed industries and
occupations as a potential claimant. But every bus driver and
every beautician is not going to file a valid claim under the
FAIR Act.
Bates White also gets it wrong when adjusting for the FAIR
Act's medical requirements. For a claim to be compensated under
Levels VI and VII of the FAIR Act, the claimant must provide
evidence of bilateral pleural disease. But Bates White relies
on studies of populations that were more heavily exposed to
asbestos than the taxi drivers and salesmen included in their
greatly exaggerated population. That flawed assumption means
that they are over-estimating the prevalence of pleural changes
in these workers, and so are over-estimating the compensable
lung and other cancer claims that could potentially arise from
these populations.
Finally, Bates White gets it wrong because unlike the CBO,
they assume that they claiming rates for cancer would be 100
percent, much higher under the FAIR Act than they are under the
tort system. That outcome just isn't plausible. Plaintiffs'
attorneys already have every incentive to file these claims in
the current system and are doing so today. Given the nearly 40
years of asbestos litigation in this country, it is clear that
claiming rates will not approach 100 percent.
The FAIR Act requirements for payment of lung and other
cancer claims are more stringent than they are under the tort
system. So contrary to the Bates White prediction, there is no
reason to expect a massive surge in lung and other cancer
claims in the trust fund.
The bottom line is that the Bates White $300 billion
estimate, which it erroneously describes as conservative, adds
more than 350,000 lung and other cancer cases that by standard
methodologies, including that used to prepare the CBO, would
not add to the liability of the trust. This goes to the heart
of the problem with the Bates White study.
Let me conclude. We have closely reviewed the Bates White
analysis, methodology and supporting assumptions. The study
does not apply standard, accepted methods for claims
estimation, even though these are the same methods that Bates
White has relied on in the past. In deviating from these
standard methods, they get it wrong at each juncture. Their
analysis over-estimates the at-risk population. It does not
take into account key medical and exposure requirements of the
FAIR Act. It unrealistically assumes a 100-percent claiming
rate. The study is filled with flawed assumptions and errors of
omission. In short, the cost estimates in the Bates White
report just do not add up.
Thank you.
[The prepared statement of Ms. Martin appears as a
submission for the record.]
Chairman Specter. Thank you very much, Dr. Martin.
Senator Coburn, as I said, has other commitments.
Senator Coburn. I will be very brief, if I may.
Chairman Specter. You are welcome to my 5 minutes, Senator
Coburn.
Senator Coburn. First of all, I would make a couple of
notes for the record. In the criteria that this bill makes, we
allow use of CT, which is not standard today. So many, many
more people will qualify for pleural disease because we are
going to use a test that has never been used for that, and you
can show any type of pleural disease even in me or almost
anybody at this table. So we have changed the standard and you
can't move back and forth.
The second thing I would say--and I will say it again and I
said it--there is no cohort study in the medical literature--
that means forward-thinking study--relating cancer of the lung
to asbestos exposure without the evidence of asbestosis. Now,
there are case control studies, but there is no forward-looking
study, which are the ones we depend on to make final judgments.
The fact is that our bill allows those claims.
So what I want to do is just take a minute and allow Mr.
Bates to respond to the claims of Dr. Martin in terms of the
four things that she just said where you got it wrong.
Mr. Bates. Thank you, Mr. Coburn. I believe that I have
primarily addressed the fundamental issues in our opening
comments, because we had a chance to review the written
comments of Dr. Martin this morning. I disagree emphatically
with what she is saying.
We do not use methods which are not standard nor
unaccepted. We simply do not rely on the fact that the claiming
rates that we have seen in the tort environment will
automatically extend over into what the trust fund does. The
incentive that is created by the trust fund is different for
different claiming groups, so that we simply take the methods
that are one step removed prior to where the estimates of the
claims are made and go back to the initial estimates of what
the underlying population and what the amounts of the disease
are.
We have had a number of people here mention that we used
things like barbers, taxi drivers, and so on. Our model will
exclude almost all of the, virtually all of them, because they
simply will not meet the exposure requirements. We simply did
not pre-judge the situation by excluding them from the studies
that we have seen in industrial hygiene which actually have
estimated some levels of exposure for some of these
individuals.
So on the basis of our scientific study, we have included
all of the potential from the industrial hygiene studies and
then let the computer models and let the data exclude who will
and will not qualify, based on the criteria that are specified.
As I indicated before, the issue of the large number of
unexposed people is a red herring in this situation. Eighteen
million of them account for a very small fraction of the
overall disease and the overall qualifying population. They
account for 10 percent, if you will, of the overall estimate we
make at the low end, and we have not talked about the other
risk factors which come into play.
To clarify further, in our analysis where we were doing the
estimates of what the pleural rates would be, we, in fact, came
up with a point estimate looking across the various groups from
approximately 13 percent as being the approximate low-end
prevalence rate. We applied our judgment initially and assumed
half of the low-end even from the numbers that we did have from
the studies would not qualify and immediately just took that
right off the top, basically reducing the level down to 10
percent. So we have effectively already removed half that
population even before we did our initial estimate.
So, in summary, I would say that we applied, I believe, the
very best possible methods, and I believe the only appropriate
methods to use within the context to first estimate the
appropriate population, the number of individuals who would
qualify, apply the actual standards that the trust fund would
be applying, and estimate the number of people who would
qualify, and then present that number. We have also discussed
what the potential claiming rates would have to be in order for
the fund to be viable at that rate.
Thank you, Mr. Coburn.
Senator Coburn. Thank you. Thank you, Mr. Chairman.
Chairman Specter. Thank you, Senator Coburn.
Senator Leahy.
Senator Leahy. Thank you, Mr. Chairman.
Dr. Welch, you sometimes probably feel you live in this
Committee, but thank you for agreeing to testify again. You did
a lot in formulating the Hatch-Leahy medical criteria last
Congress. You were extremely helpful to Senator Specter and
myself in formulating this bill.
Can you give us your opinion on how similar the eligibility
criteria is for compensation under the current bill--how
similar it is to existing bankruptcy trusts, or even the
current tort system? I mean, how is the medical criteria in our
bill going to impact expected filing rates and awards?
Dr. Welch. Well, I think you will remember that when we
started with the process, we started with the Manville criteria
as kind of a model to work with and the final criteria are not
exactly the same. But they are more similar than different, in
my opinion, to the Manville and other bankruptcy trusts. The
bankruptcy trusts are similar to each other for the purpose of
ease of administration, multiple different trusts. They include
compensation for lung cancer with pleural disease. This bill
handles them in a slightly different way and the fund values
are different, but I think it is similar. It is, as I said,
more similar than dissimilar.
Senator Leahy. What about--and I want to make sure I get it
correctly--the eligible population used by Dr. Bates in his
projection of cancer claims to be filed under the fund? Do you
agree with that?
Dr. Welch. Well, what Dr. Bates said here today I could not
discern from reading his report, his PowerPoints, the answers
to the questions from the Committee. So what he is saying here
today--and I think Dr. Martin had the same impression--he is
saying here today something completely different from what we
got out of poring through 100 pages.
I can't run his model. I don't know that anybody has run
his model or has it available to understand how he is saying he
gets rid of these populations that we thought were excess. But
I think whenever you look at it, the numbers are still a lot
larger. If you took the Nicholson estimates and said how many
of those people are still alive today, it would only be 10
million, not 27 million. It is just different and I can't tell
you exactly how, but every way we look at it the population at
risk comes out a lot higher.
Senator Leahy. You mentioned Dr. Martin and I just wondered
if I might followup a little bit on that. We wonder how the
filing rates, of course, are going to be affected by the
creation of the asbestos trust fund. I mean, that is a huge
question because either we get the trust fund right or we are
way off based on the filing rates. Dr. Bates has said they will
skyrocket. What is your opinion?
Ms. Martin. There has been a long history of asbestos
litigation. In my opinion, the filing rates have gone as high
as they are likely to go. There is nothing different about the
FAIR Act. As we were just discussing, its requirements, its
medical and exposure requirements are similar to that under the
Manville Trust. When the Manville Trust implemented the 2002
TDP, claims fell off a lot, showing that you can contain claims
with appropriate exposure and medical criteria. The incentives
exist in the tort system. There is no reason to think new
incentives are going to be created under the FAIR Act.
Senator Leahy. Dr. Bates, we have been talking a lot about
you. I don't want you to be in a position where you can't
speak, but you say in your report that, and I quote it, ``The
size of the population in 2002 that would satisfy the
occupational exposure criteria of this bill ranges from 27
million to 34 million.'' But the disease levels in the bill,
except for mesothelioma, establish exposure criteria that
require an individual had at least a specific number of
weighted years of substantial--not just occupational exposure,
but a substantial occupational exposure to asbestos.
Did you take that into consideration when you said what you
did on page 17 of your report?
Mr. Bates. Yes, Senator Leahy, we did. I believe that that
characterization there, as you can see from the comments today,
includes many people who would have longer periods of exposure
at perhaps quite low levels. And, of course, as I have
indicated, we went ahead and allowed the models to go ahead and
predict what the disease output would be from those
individuals. The consequence of that is that very little
disease comes out of the people even if they have fairly low-
level exposures. So it is really not the issue here.
Senator Leahy. You conclude up to 34 million would meet the
criteria, but the term ``substantial occupational exposure''--
let me read from the bill--means that ``the claimant either
handled raw asbestos fibers; fabricated asbestos-containing
products; altered, repaired or otherwise worked with an
asbestos-containing product; or worked in close proximity to
these kinds of asbestos operations and was exposed on a regular
basis to asbestos fibers.''
I mean, are you saying up to 34 million people could fit
those criteria?
Mr. Bates. I would say that based on the industrial hygiene
studies that there is the potential for that, but we actually
account for the actual levels of exposures that the individuals
do have in calculating the amount of the disease. So that is
simply the initial potential qualifying population which then
has to be calibrated to the amount of disease and the exposure
level for that population.
Senator Leahy. Do you want to add to that, Dr. Welch? Then
I will submit the rest of my questions.
Dr. Welch. Well, I want to just add one observation that
Dr. Bates in his report appeared to make the assumption that
you could take a population exposed to asbestos and assume that
the same amount of asbestos--if you exposed a hundred people or
a million people, the same disease proportion would--you could
attribute the disease in that population.
But it wouldn't apply because those hundred people might
meet the weighted criteria, but if you took that exposure and
spread it among a million people, none of them would meet the
criteria. So you can't take the same exposure amount and spread
it out in a bigger group and assume that those cancers will be
eligible. They would not because it is per-individual, not per-
population. Again, I don't know all the models, but that is one
of the issues that he raised in his report and I don't know if
that is appropriate.
Chairman Specter. Thank you, Senator Leahy.
Mr. Bates, I listened to your answer to Senator Leahy about
the definition of substantial occupational exposure and had a
hard time following it. We have taken the voluminous charts
which you have submitted to us and when we talk about bus
drivers and taxi drivers and manicurists and barbers and cooks,
it is a very small enumeration from the many in this chart
which have been yellow-lined by my staff.
When you make a projection on 27 to 34 million people being
exposed, Dr. Welch has advised that the figure she sees is at
about 10 million. And if you project from $132 billion from CBO
to 27 million or 34 million, you come in my mathematics to $355
billion to $431 billion, which may account for the tremendous
variance.
How can you possibly include the category of taxi drivers
and manicurists in light of the clear-cut definition of
substantial occupational exposure and the 8- to 15-year
exposure rate required by the bill? How can you do that?
Mr. Bates. Well, Senator Specter, as I already indicated,
the issue is really not those individuals in terms of the
viability of the fund. If you look at the individuals who have
moderate to heavy exposure, that is about 9 million individuals
within the study, and that accounts for 90 percent of the
dollars that we estimate.
Virtually all of the problem is associated with those
medium- to heavy-level categories. We simply did not pre-judge
the situation about what categories of individuals based on
some a priori description on our judgment, but rather relied on
the industrial hygiene studies which tell us which are the
individuals that have any exposure level over long periods of
time within their business and allowed the models to then pick
out which ones would or would not qualify.
Chairman Specter. Thank you, Dr. Bates. Let me move on. Dr.
Martin and Dr. Welch have pretty thoroughly decimated your
estimates and your methodology.
Dr. Peterson, in a minute or less, can you tell me if you
agree or disagree with the analysis of Dr. Welch and Dr. Martin
in totally disagreeing with Dr. Bates?
Mr. Peterson. I agree with Dr. Bates that there is a risk
that there will be more lung cancer claims filed.
Chairman Specter. Would you deal with the analysis of Dr.
Welch and Dr. Martin, please?
Mr. Peterson. Well, I disagree with Dr. Martin's
characterization of the claiming rates and propensity to sue in
several regards. She says that they have reached their peak.
That is something I have heard for 25 years of forecasting. All
the forecasts that Mr. Lederer referred to when people have to
revise it later is because people at the time said they reached
their peak. She said they can't approach 100 percent, but the
Manville Trust propensity to sue for mesothelioma is 85
percent. The standard--
Chairman Specter. Let me interrupt you, Dr. Peterson. I
want to go to Mr. Lederer and I want to come back to Dr. Bates
for a minute.
What is your reaction to the testimony of Dr. Martin and
Dr. Welch on Dr. Bates's methodology?
Mr. Lederer. Well, I think that I have great concerns about
things like some of the peripheral occupations and industries
that we are talking about in terms of substantial occupational
exposure. For the Manville Trust, in 2002 when we established
the new TDP which has criteria very similar to the bill, we
established a table of significant occupational exposure. And
in our several years of experience in actually implementing the
trust in that bill, we have not added a single occupation or
industry to it.
We have made a very limited number of exceptions. They have
only been related to basically railroad sites. They have been
site-specific covering not many individuals. So I have great
concerns when we talk about these other occupations and
bringing them in. The Manville Trust would not treat them as
having SOE.
Chairman Specter. Dr. Bates, the staff had asked you for an
itemization as to who your clients are. You have been retained
by the American Legislative Exchange Council, which has been
financed by a number of companies actively opposed to the
bill--ExxonMobil, Liberty Mutual.
Would you provide the Committee with a full list of people
who are involved in the American Legislative Exchange Council?
Mr. Bates. Senator Specter, I will be happy--I do not have
that list, but I will be happy to provide that.
Chairman Specter. You would be happy to provide it. The
second part of the same question: We asked for a contract and
you said you had nothing in writing. Would you submit a
specification of whatever contractual arrangements you have
with the American Legislative Exchange Council?
Mr. Bates. Yes. I will have to talk with my partner who
handled the administrative procedures. I am not aware of the
details of that.
Chairman Specter. And would you also advise the Committee
as to what your total fee was for this report to this group?
Mr. Bates. Certainly.
Chairman Specter. Thank you.
Senator Feinstein.
Senator Feinstein. Thank you very much, Mr. Chairman.
Dr. Welch, may I begin to ask you some questions? Many have
raised concerns that the medical criteria is too loose. Senator
Coburn referred to that somewhat earlier. Let me go through
various concerns one by one and get your response.
One criticism is that the language referring to bilateral
pleural disease should be deleted? Do you agree?
Dr. Welch. What would be substituted, unilateral or--I
don't quite understand what the--
Senator Feinstein. I can't answer that. I don't know.
Dr. Welch. Then I don't know exactly what the implication
would be.
Senator Feinstein. That Level IIs will compensate smokers,
but not those who have asbestos disease.
Dr. Welch. No. I mean, Level II is set to the people who
have asbestosis, but who also have smoking-related disease.
They have both, and the compensation level is very low for
Level II, but it is for people who have asbestosis.
Senator Feinstein. That there is no casual relationship
between asbestos exposure and other forms of cancer--no causal
relationship. Excuse me.
Dr. Welch. I disagree with that. Actually, Senator Coburn,
before he left, said there was no prospective epidemiologic
study. There actually have been two published this year, one
that looks at the relationship between asbestos exposure and
colon cancer, and the other that looks at the relationship
between asbestos exposure and lung cancer, both out of the Yale
University School of Medicine that are very relevant to this
Committee. And the colon cancer one finds a causal
relationship.
Senator Feinstein. Next one: according to Dr. Crapo,
pleural plaques do not predict enhanced risk of lung cancer.
Rather, this enhanced risk is found only with asbestosis.
Therefore, the new Level VII should be eliminated.
Dr. Welch. I completely disagree. It is exposure to
asbestos that causes lung cancer. The people with asbestosis
are, by definition, people who have had very high exposure
because you need high exposure to get asbestosis. So their risk
of lung cancer would be higher than the general population.
Plaque also is an exposure marker. So that group of people have
higher risk of lung cancer.
The Cullen study, which actually looks at people highly
exposed, people highly exposed with plaque and people highly
exposed with asbestosis, finds a risk of exposure in each one
of those groups. So it is again very relevant to this question
and I think it is a very good study.
Senator Feinstein. The last one: CT scans should not be
used. Their use will mean more smokers will qualify for
compensation.
Dr. Welch. The American Thoracic Society recently came out
with a statement on the diagnosis of asbestos-related lung
disease and makes the point that CT scan is the best available
test for diagnosis of asbestosis. It is better than chest x-
ray; it is more specific. I mean, the findings on CT scan can
be more specific, more clearly diagnose asbestosis than a chest
x-ray.
Senator Feinstein. Well, let me ask you, there is so much
imprecision now about the numbers, whether this comes in within
the $140 billion or doesn't. That is a big chance for
legislators to take in voting for a bill. If you had to tighten
this up, what would you recommend?
Dr. Welch. Really, I think the bill is very tight. If you
figure out the amount of exposure that is required by those
weighted years, it is higher than what is used for compensation
across the world. It is higher than what the Helsinki criteria
recommends. It is very high; it is a very high standard to
meet. If there are more people who deserve compensation under
those standards than the $140 billion, then you need more money
than $140 billion.
Senator Feinstein. I want to ask the others that same
question.
Mr. Peterson?
Mr. Peterson. I would agree with Dr. Welch.
Senator Feinstein. So in other words, the levels cannot be
tightened?
Mr. Peterson. I don't believe they can be tightened in any
significant way, but they constitute a risk that there are
going to be considerably more claims than we have been talking
about. Frankly, it is a nicely designed system that just
doesn't have enough money.
Senator Feinstein. Mr. Lederer?
Mr. Lederer. I really would sort of defer that question to
other members of the panel that have more expertise in
medicine.
Senator Feinstein. The same thing for Dr. Martin?
Ms. Martin. Yes, Senator.
Senator Feinstein. Dr. Bates?
Mr. Bates. I haven't studied that, but what I have studied
is the amount of money that would be required to pay the bill
as specified and it is simply not enough money.
Senator Feinstein. All right. Now, essentially, if I look
at what you are saying correctly, you are saying that out of
192 million adults 21 and older in the United States in 2000,
27 to 34 million would satisfy the criteria in the bill. That
means that individuals will show substantial occupational
exposure. Now, that would mean that between 14 and 17 percent
of the entire adult population would qualify.
Mr. Bates. Senator Feinstein, I believe there are people
who have worked in occupations where there has been asbestos
exposure over long periods of time. What the exact list of the
occupations will be that comes out of that is not something
that is specified. There is not a clear-cut definition of what
will qualify based on how the fund will do. We simply used all
of the individuals who have a sufficient amount of time in jobs
where industrial hygienists had specified their--
Senator Feinstein. But it is a substantial amount of time.
I don't mean to interrupt you, but just to discuss it for 50
seconds, it is between 8 and 15 years of weighted exposure.
Mr. Bates. Yes, I understand, Senator Feinstein.
Senator Feinstein. That is a long time.
Mr. Bates. Yes, I agree, but I believe that when you look
at individuals and you look at the turnover in job rates that
individuals have that that is what you will find. That is the
result of the research.
Senator Feinstein, I did not expect to find this result
when I started this. I was very, very skeptical of it. Doing
this work that I have over the time, when my study team first
presented to me the notion that this would be the number of
people who would qualify and this is what we would see for
Level VI and Level VII, I told them they couldn't possibly be
right.
I had them go back to the ground-up and rework the analysis
and explain to me in every detail, and I became convinced over
time that this was the issue. I had no bias about that.
Chairman Specter. Dr. Bates, I am sorry to interrupt you.
We have two more members to inquire and I will turn now to
Senator Cornyn.
Senator Cornyn. Thank you, Mr. Chairman. I guess the task
that we have to undertake is to determine what the best
methodology is to estimate future claims and the mix of those
claims. And as Senator Feinstein has pointed out, that is no
easy task, but I would note that the Statistical Assessment
Service at George Mason University has issued a report which
has been made part of the record which concludes, in part, that
by looking at the overall number of people who suffered
asbestos-related injury, Bates White comes up with the most
accurate measure of how many people will apply to the trust
fund. So that is another view confirming the Bates White study,
and I offer that just for people to take into consideration.
In looking at the various methodologies, we talked about
claims filed in court as one, claims experience with existing
trusts, I guess, like the Manville Trust, and, third, the
epidemiological estimates that Bates and White use.
Mr. Lederer, you indicated that all previous attempts to
forecast the number of claims against the Manville Trust have
been off, and that the actual experience has significantly
exceeded those forecasts. Is that correct?
Mr. Lederer. That is correct, except for the most recent
forecast, which is this year.
Senator Cornyn. Let me also explore a little bit of that
with you. Under this bill, some cancers would receive up to
$200,000 per claim and under the Manville Trust it is my
information that those same types of claims would receive only
about $4,500, on average. Can you confirm that?
Mr. Lederer. If we are talking about the other cancer
claims, our scheduled values are $40,000. We are only able to
pay 5 percent of that now, so it is actually lower than that.
It is only $2,000.
Senator Cornyn. But doesn't it make sense that if a
claimant can receive $200,000, they are much more likely to
make that claim than if they can only receive $2,000?
Mr. Lederer. Well, I think it goes to the issue, though,
that there are multiple defendants out there. People rarely
file claims solely against the Manville Trust. You can't look
at the situation as just what is the amount of the Manville
recovery. You have to look at it from the plaintiffs' lawyers
point of view, which is what is the total recovery on the
claim, and that is going to motivate them whether or not to
file this claim when they look at it net of their costs.
So I think you really need to know what the other
defendants are paying, along with the Manville Trust. I think
if you look at the history there, unfortunately, there isn't a
national data base of claims in one location that one can go to
to figure out what the total recovery is. But if you put the
pieces together, you might find out that the amounts paid
historically are closer to what is in the FAIR Act than maybe
we imagined previously.
You know, to me, this is an area where there has been a lot
of speculation and we are speculating about exposed
populations. I just take it from a more practical point of
view, which is there is information out there that is
relatively certain, which is what has been the claiming rate in
the past, what have people paid, what have been the costs. Yet,
that information which would be very helpful has not come
forward. So, you know, it is unfortunate because I think if you
had the comparison between the older settlement information,
not just the Manville Trust, but all defendants against the
FAIR Act, then you could really judge whether there is a
financial incentive, whether there is a higher incentive,
because that is what we are really talking about here. What is
the change in the incentive?
Senator Cornyn. Well, would you agree with me that people
are much more likely to make a claim for more money than less
money?
Mr. Lederer. Absolutely, but let me just give you an
example. If the FAIR Act--
Senator Cornyn. No, I am sorry. My time is really limited.
Mr. Lederer. I am sorry.
Chairman Specter. Senator, I will give you more time if you
need it.
Senator Cornyn. Will you? OK, thank you. I was just afraid
the time would run out.
Mr. Lederer. You know, if at a particular level the
compensation is, say, $1 million and the historic compensation,
though, in the system is, say, $500,000, yes, the FAIR Act is
considerably more than what has been paid in the past. But it
isn't necessarily the absolute amount. It is whether it is a
sufficient amount to generate the interest on the part of the
claimant and the plaintiff's lawyer that may represent that
claimant in order to file the claim. So I don't think we should
just look at it in absolute terms, but relative terms as to
what their return on capital is. It is a business.
Senator Cornyn. Thank you for that. Would you also agree
with me that if you just look at previous court cases, a non-
adversarial claims process such as that included in the FAIR
Act, like the Manville Trust, would be much more likely to
generate more claims as compared to what you might see in
court-filed lawsuits?
Mr. Lederer. I would, but again I would say we don't have
the historical data--I don't have the historical data to
indicate how many lung cancers in the past have actually had to
go to litigation as opposed to settle. So, clearly, the ones
that had to go to litigation paid more, but it may be that a
fairly large proportion of those lung cancers settled, in which
case their costs would be less.
I mean, the kinds of cases we are talking about here are
very serious lung cancer cases with significant occupational
exposure and underlying markers. These are not the kinds of
cases that the Manville Trust would ignore, nor do I think any
other defendant. I mean, you would want to settle these kinds
of cases.
Senator Cornyn. Well, the concern we have here--and this
will be my last statement--is that we need some oak tree to hug
in this process, something that would give us the confidence
that we are doing the right thing for the most people. And, it
is not acceptable to do something that will end up in a grossly
underfunded trust and revert to the same broken tort system, or
perhaps as the Budget Committee recently opined, ask the
American taxpayer to pick up the tab.
Thank you very much, Mr. Chairman.
Chairman Specter. Thank you, Senator Cornyn.
Senator Durbin.
Senator Durbin. Thank you very much, Mr. Chairman. I know
Senator Kyl and I want to both make this roll call, so I will
try to make it shorter than five minutes. Let me just say that
I think it is fair to conclude--
Senator Kyl. Senator, might I just interrupt you? Why don't
I simply submit some questions for the record and I will go
ahead and that way we won't have to worry about truncating your
time? I thank you very much.
Senator Durbin. Thank you very much.
It is fair to conclude that what we what we have heard
today and what we have read suggests that the estimated cost of
this undertaking, this program--by CBO estimates, we see a
shortfall of up to $10 billion; the Bates White study, a
shortfall of $161 to $421 billion, and Dr. Peterson's testimony
believes a shortfall of up to $50 billion.
If you accept those premises, the FAIR Act, as currently
written, is not financially sound and it forces us to make one
of three choices if we are go to go forward: to reduce victim
compensation, to increase the assessments on businesses to pay
into the fund, or to make the Federal Government the guarantor
of the trust fund and say whatever the cost, we are going to
pay it, and the taxpayers will ultimately be the source of that
money. I don't know what other conclusion we can draw from what
we have heard today.
Is there anyone else who has another thought on this that I
am missing?
[No response.]
Senator Durbin. All right, then I will take that as a yes.
Those are three options as we face them.
I would like to ask you, Dr. Welch, Peg Seminario from the
AFL-CIO has expressed deep concern that the cost estimates done
by the CBO under-estimate the number of mesothelioma claims.
Data from the National Center for Health Statistics show that
the number of deaths actually reported to be from mesothelioma
in the U.S. are running 25 percent higher than the number of
claims that have been projected by the CBO in their cost
estimates.
She also claims the total number of meso deaths in America
has not yet peaked and we should expect to see an increase in
data in the coming years. Additionally, a recent study by the
National Institute of Occupational Safety and Health suggests
an even higher number of mesothelioma deaths, which would
obviously increase the size of the claims relied upon by the
CBO estimate.
Are you familiar with her work and these Government
estimates, and do you reach the same conclusion?
Dr. Welch. Well, actually, Dr. Peterson, I think, addressed
that, the mesothelioma estimates in some detail, didn't you?
Mr. Peterson. Yes.
Dr. Welch. And I think he and Peg--I do agree with their
analysis, although they certainly understand it in more detail
than I do. Mesothelioma is an important kind of pegged disease
because everybody agrees it is asbestos-related.
Senator Durbin. Yes.
Dr. Welch. And the numbers are small, but the values are
very high, so getting that number correct--if we are wrong
about that number, then we are probably wrong about the other
estimates as well.
Senator Durbin. And as I understand it, Dr. Bates, you have
said that some of the--let me just say as a preface some of us
on the Committee have been trying for a long time to figure out
how Goldman Sachs came to these numbers, $140 billion. We have
asked for data, we have asked for information. We have never
seen it. I don't know what they used to reach the $140 billion
figure, and it is frustrating that that is what we are working
off of with no proof.
Dr. Bates, you refer in your analysis to the fact that the
Nicholson study is an old study back in the 1950's, if I am not
mistaken.
Dr. Bates. No. In 1982, it was published.
Senator Durbin. 1982, I am sorry. So your estimates are
updating what the Nicholson study had found. Is that correct?
Mr. Bates. That is correct.
Senator Durbin. So if the used--and I don't know what
Goldman Sachs used. It is a mystery as to what they used. Then
it is understandable that these figures--once we consider that
the black lung estimated claimants turned out to be
dramatically higher than we thought and the Manville Trust
situation resulted in more claims, it leads me to the
conclusion that we tend to low-ball the exposure of these funds
and then learn later that we need more money.
Is that a fair general conclusion?
Mr. Bates. I believe that you need to pay attention to the
economic incentives that are there, and the economic incentives
created under the FAIR Act are ones that will increase the
claimants over the tort environment.
Senator Durbin. Mr. Chairman, the last thing I will ask is
this: You have asked for Dr. Bates to produce his contract and
how much he is paid and his list of clients. Would it be fair
to ask the same thing of the Asbestos Study Group, Navigant and
Goldman Sachs?
Chairman Specter. Certainly. You have asked them.
Senator Durbin. Well, I can ask all I want, but as Chairman
you can get it.
Chairman Specter. Well, I will repeat my answer. Dr. Bates
has come forward with a report which is grossly at variance
with everything else that I know and I have heard, and his
group is actively opposing the bill and I think the questions I
put to him were very light.
Senator Durbin. The last question I might ask is we would
not want to also know if there is any bias in those who are
actively supporting the bill?
Chairman Specter. Senator Durbin, I am not a witness here
and I have answered your question.
Thank you very much, Dr. Bates, Dr. Welch, Dr. Peterson,
Mr. Lederer and Dr. Martin. We appreciate it very much.
[Whereupon, at 3:50 p.m., the Committee was adjourned.]
[Questions and answers and submissions for the record
follow.]
[Additional material is being retained in the Committee
files.]
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