November 7, 2003

Honorable J. Dennis Hastert
Speaker of the House
U.S. House of Representatives
Washington, DC 20515

Dear Mr. Speaker:

I am pleased to provide you with the additional information you requested regarding CBO's cost estimate for S. 1125, the Fairness in Asbestos Injury Resolution Act of 2003.

If you wish further details on this estimate, we would be happy to provide them. The CBO staff contact is Lanette J. Walker.

Sincerely,

Douglas Holtz-Eakin
Director
 

Enclosures
 

cc:	Honorable Orrin G. Hatch Chairman Senate Committee on the Judiciary
	Honorable Patrick J. Leahy Ranking Democratic Member
	Honorable F. James Sensenbrenner Jr. Chairman House Committee on the Judiciary
	Honorable John Conyers Jr. Ranking Member

 
 

1. Please provide CBO's claims forecasts for pending and future malignant and non-malignant claims, by the act's disease levels and by year, that underlie the summary results in Table 2.

CBO's estimate for pending and future claims by disease levels per year can be found in the attached Table 1.
 

2. Please provide CBO's award value estimates (and their derivations) for pending and future malignant and nonmalignant claims, by the act's disease levels and by year, that underlie the summary results in Table 2. To what extent do the claim values for pending claims reflect offsets for collateral source compensation?

Section 131 specifies the award values under the bill for disease categories II through X. For level I, medical monitoring, we estimate that the net cost to the government would average $1,000 per individual. The award values CBO used for the estimate are summarized below.

Some award values are specified in S. 1125 as a range. For example, the award value for a level IX (lung cancer with asbestosis) nonsmoking claimant would be between $800,000 and $1 million. CBO expects that the average of awards for such claimants would be near the middle of the range.

Section 131 of S. 1125 also would authorize the administrator of the fund to increase award values each year by the change in the Consumer Price Index (CPI). For this cost estimate, CBO increased the award values each year by our estimate of the annual change in the CPI--2.5 percent a year.

CBO's estimate for pending claims is based on research conducted by Navigant Consulting, which reflects the availability of collateral source compensation. CBO estimates that the equivalent of about 300,000 pending claims--full claims without any prior award--would qualify for compensation under the bill. That figure represents more than 300,000 individuals making partial claims and receiving some compensation from other sources. For example, two claimants that have each received 50 percent of what they would be eligible to receive under the bill are considered as one pending claim in our estimate.
 

3. CBO explains that the claims projections in the cost estimate rely on a comparison of the medical criteria in S. 1125 with that of the Manville Trust and other compensation trusts. To what extent does the CBO cost estimate take into account the diagnostic criteria required under S. 1125? How does the cost estimate adjust the estimate to reflect these criteria?

To the extent possible and based on available data, CBO's estimate reflects the diagnostic criteria required under S. 1125. Because the Manville Trust is the oldest and largest private trust fund for asbestos claims and compensates claimants based on medical criteria similar to those specified in S. 1125, CBO studied the history of claims paid by that trust and its estimate of how claims received under its 1995 trust distribution process would have been compensated under its revised 2002 distribution process, which has medical criteria that are similar to those in S. 1125.

CBO's estimate of claims that would be compensated by the Asbestos Trust under S. 1125 does not rely exclusively on data from the Manville Trust. CBO also reviewed a number of projections of asbestos injury claims that were prepared for different purposes by several private groups and individuals, including those presented to the Senate Committee on the Judiciary during its consideration of S. 1125 by the Asbestos Study Group, Navigant Consulting, and Legal Analysis Systems. Those estimates were prepared with an understanding of the medical criteria in S. 1125 as approved by the Senate Judiciary Committee. For our estimate, we also considered the inaccuracy of projections of future asbestos injury claims that have been made in the past and the significant discretion that the Special Asbestos Masters would have to determine eligibility and awards under the bill.
 

4. To what extent does the CBO cost estimate take into account the exposure criteria required under S. 1125? Does the cost estimate adjust the projections of eligible claims to reflect these criteria?

CBO's estimate of the cost of claims is based on projections for S. 1125 prepared by a number of experts, who considered the exposure criteria specified in the bill. The impact of those criteria is difficult to predict, however, because the ultimate costs of the bill would depend on exactly how those criteria were interpreted and implemented. All awards for disease level VII as well as appeals of the compensation offered for other disease levels would be decided by the Medical Advisory Committee. Without any prior experience regarding the operations of the Medical Advisory Committee, we cannot be certain how the exposure criteria would be enforced under the legislation, how often the committee would grant exceptions, and on what basis exceptions might be granted.
 

5. CBO also states that payments by insurers into the Fund would be roughly equal to their liabilities under the existing tort system. How did CBO reach this conclusion? To what extent did CBO evaluate the adequacy of insurance carriers' current asbestos reserves?

CBO's cost estimate for S. 1125 noted that "it is impossible to say with any confidence whether the amounts that would be paid out by defendant firms and insurers under this legislation would be higher or lower than what they would expend in its absence through the tort system." On that basis, we concluded that the best assumption we could make was that the bill would have no significant effect on corporate taxable income. (See page 14 of the CBO cost estimate.)

CBO considered the level of reserves reported by insurance carriers when estimating how much their firms could pay to the fund. We estimate that, under S. 1125, direct insurers would pay $22 billion over the first three years after enactment, a sum that exceeds the direct insurers' current asbestos reserves by $3 billion. We expect that insurers could obtain the additional funds from other sources. CBO did not have information concerning the reserves and financial condition of reinsurers with asbestos liability.