Castaways seeks to change health plan

By Liz Benston

Wednesday, Aug. 6, 2003 | 10:29 a.m.

The Castaways hotel-casino expects to convert its self-insured health insurance plan for employees to a fully insured plan in an effort to cut costs, a property executive told lenders during a U.S. Bankruptcy Court hearing last month.

The change comes amid claims that the Fremont Street casino isn't paying health claims for nonunion workers that became due before it declared Chapter 11 bankruptcy last month.

The casino has defaulted on $952,616 in payments to its self-insured health plan from February to June 2003, according to an updated claim schedule filed today with the bankruptcy court. Union employees aren't paid through the plan and typically receive benefit payments from union-sponsored funds.

The property also owes $452,066 in accrued wages to employees and $484,934 in vacation benefits, the filing said. Wages and benefits are part of a total $6.3 million in unsecured "priority" claims.

Secured claims, which are backed by legal and financial obligations and are the first to be paid, total $22.3 million. Unsecured, "non-priority claims total $27.3 million. Bankruptcy law allows no guarantee that any types of unsecured claims will be repaid.

The company reported $67.5 million in total assets against $55.9 million in total liabilities.

The mortgage deed lender is extending an additional $2 million to the Castaways on top of a $20 million loan it arranged for the property in March 2002. Vestin Mortgage, Las Vegas, is owed about $7.5 million of that package, with the balance owed to another mortgage investment company.

Castaways owners say the property -- bought for $23.5 million -- was appraised at $60 million last year and could be worth more than $100 million once it completes a planned conversion to a Holiday Inn franchise. Vestin believes the property could be worth closer to $20 million.

Separately, the Castaways owes about $760,100 to a union-sponsored health and welfare fund for Culinary Union employees and about $54,400 to a separate pension fund for union workers, Culinary Union attorney Richard McCracken said last month.

The Culinary Union fund is still paying health claims on behalf of union workers though the Castaways is behind in payments to the fund, McCracken said.

The Castaways "can't do that forever," he said. "We intend to push (the casino) to be paid," he said.

The property also has defaulted on payments of roughly $65,000 to a Teamsters Union health and welfare fund that pays medical benefits for workers represented by Teamsters Local 995.

"We cannot continue to provide health insurance covered to employees of the (Castaways) without payment," according to a motion filed by the union in bankruptcy court this month.

In a self-insured plan, the company is responsible for paying medical claims. In fully-insured plans, an insurance company pays claims on the company's behalf.

The self-insured plan is too expensive for the company to maintain, Shaw said.

The Castaways inherited a base of older employees from Harrah's Entertainment Inc. who have received treatment for heart attacks, cancer and other such expensive medical claims, he said.

Castaways owner VSS Enterprises bought the property, then known as the Showboat, from Harrah's in March 2000.

The fully insured plan is expected to save the property at least $2 million, Shaw said.

Several employees contacted by the Sun refused to talk about their health benefits, citing company memos threatening termination if they speak to the media.

Dennis Fairchild, a former chef at the Castaways, said he was fired last year after a decade at the property and has pressed the company to pay claims still owed from April and October of last year.

"I first heard about (the claims) in December when the billing office called me," Fairchild said. Castaways managers said the claims would be paid in about a month, he said.

"A collections agency called me about two weeks ago and said the claims had never been paid," he added.

Fairchild said he has had seven operations in the last five years for heart disease. He claims he was terminated for complaining about harassment he received from management and for racking up medical bills. The fact that he was a union employee -- who must be paid a negotiated wage plus full health benefits -- also was a factor, he said.

"They set out to get rid of union employees and replace them with nonunion workers -- a violation of labor rules," Fairchild said.

The company also has defaulted on medical claims for management as well as hourly employees, according to an employee for the Castaways' medical plan administrator, who declined to be named.

Calls to executives at Mediversal Inc., the plan administrator, were referred to a medical services broker who did not return calls.

The company is continuing to pay medical claims for some managers, Fairchild said.

A call to the Castaways' human resources office was referred to the executive office of VSS Enterprises, which did not return calls by press time.

More than 250 employees have left or been terminated from the property, Fairchild said.

An undetermined number of workers have been laid off, though companies ultimately have the authority to determine specific staffing levels, the Culinary's McCracken said.

McCracken declined to comment on claims that union workers have been harassed or terminated because of their union membership, saying he wasn't immediately aware of specific claims.

The union represents roughly 400 of the Castaways' 830 or so workers.

Two of the five labor practice charges that have been filed against the company since March 2000 were filed by the Culinary Union, according to the National Labor Relations Board.

The first complaint, filed in July 2001, alleged the company violated a collective bargaining agreement by bypassing the union and dealing with employees directly. The claim was withdrawn the same month.

The second, filed July 2001, claimed the property maintained an "overly broad" no solicitation rule at the property, preventing general solicitations as well as union-organizing activity. That issue was settled later that year.