[Senate Hearing 109-276]
[From the U.S. Government Publishing Office]



                                                        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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