State's Second Injury Fund on brink of insolvency

A fund intended to help injured Missouri workers is nearly dried up, and it’s going to take more than a Band-Aid to fix the problem.

The Second Injury Fund, part of the state’s workers’ compensation system, is designed to pay out settlements for employees who re-injure a previous work-related injury while the initial injury is covered by workers’ compensation.

The Second Injury Fund is intended to cover medical bills, lost wages, physical rehabilitation and – if the second injury resulted in death – benefits to the worker’s family.

But in late 2009, Missouri Attorney General Chris Koster stopped paying out settlements on new Second Injury Fund claims, because the fund is rapidly approaching insolvency.

Amy Susan, spokeswoman for the Missouri Department of Labor and Industrial Relations, said there was only $3.7 million in the Second Injury Fund’s coffers at the end of January.

It’s not likely, however, that the fund’s demise caught state legislators by surprise.

Studies conducted by Pricewaterhouse-Coopers initially showed the Missouri fund would reach insolvency in 2008, while a later study showed that it could limp along until 2009.
Legislators haven’t yet been able to come up with a viable solution, leaving affected individuals without the financial help they need.

Less money, more claims
Established in 1943, the Second Injury Fund collects money through an employer’s Second Injury Fund surcharge, which has been capped at 3 percent of the employer’s workers’ comp premium since 2005.

“There has been a decrease in injuries, which has caused premiums to decrease, which has decreased the surcharge amount,” Susan said.

A decrease in the surcharge collected is only part of the issue, said state Rep. Barney Fisher, who represents Vernon County and the western portion of Bates County to the Kansas state line.

Fisher said the Second Injury Fund only paid out a total of $24 million between 1943 and 1985, and that some settlements that were paid later weren’t tied directly to workplace injuries. “We’ve had some claims settled on Type II diabetes,” he said. “You don’t get Type II diabetes from sitting and piecing things together; it’s a metabolic disorder.”

By comparison, Fisher said there are now 28,000 claims pending for the Second Injury fund, which paid out $58 million in 2009 but only collected $53 million.

Fisher said the combination of smaller surcharge collections and the expanded definition of workplace injuries have negatively affected the fund.

The Workforce Development and Workplace Safety Committee, of which Fisher is a member, has been working to address the issue for several years.

“I’ve been on it for six sessions and we’ve worked on it every year,” Fisher said. “We just haven’t been able to pass anything to stave off the insolvency.”

Jon Galloway, director of communications and policy for the Missouri state treasurer’s office, which distributes Second Injury Fund payments once the attorney general’s office adjudicates the settlements, said awards that were adjudicated before Koster’s Oct. 1 decision to stop accepting new claims are still being paid.

Turnaround or eulogy?
Fisher chaired a Jan. 25 informational hearing, which laid out the problems and issues of the Second Injury Fund and sought turnaround solutions.

“Everyone now understands that the Second Injury Fund is in a coma and near death,” Fisher said. “No one seems to want to answer what is the outcome.”

One possible outcome is to allow the Second Injury Fund to die, as other states have done. “Getting rid of it is not necessarily a bad idea,” Fisher said. “But that would shift 100 percent of the burden of the truly injured worker to workers’ comp.”

That would reverse the progress made in lowering workers’ comp premiums, which have been dropping since 2005, he added. Extensive bills to correct the Second Injury Fund’s woes failed to gain momentum, said Trey Davis, vice president of government affairs for the Missouri Chamber of Commerce and Industry. The chamber supported Fisher’s last bill introduced in 2009, which addressed a multitude of problems, including limiting attorney fees and payouts.

Fisher said he is working on a bill that will permanently cap the settlements at $40,000 a year, down from $60,000. The attorney general’s office lowered the settlement cap last year, but Fisher said the bill would make sure the cap is law. The bill also would shift permanent partial disability claims from the Second Injury Fund to workers’ compensation. That should bring some savings, as a 2007 PricewaterhouseCoopers report showed that lump-sum payments, primarily in permanent partial disability cases, grew 206 percent between 1993 and 2006.

Finally, the bill would require all settlements paid to be medically documented as the direct result of workplace injury.

“I think what we’ve tried to do in the past is eat the elephant in one meal,” Fisher said. “This year, we’ll just try taking a bite.”

Fisher said he plans to introduce it later this month.

Fisher said this bill could raise workers’ comp premiums between 3 percent and 9 percent, but he noted that they have fallen between 10 percent and 20 percent since 2005.

The Second Injury Fund surcharge cap, however, would remain at 3 percent.
Davis said he won’t comment on any piece of legislation without first reading it, but he said the chamber is willing to look at other ideas, so long as the Second Injury Fund surcharge isn’t increased.

“We will hold firm that the cap remain at 3 percent,” he said. “Our business members are battling hard enough in this economy right now.”[[In-content Ad]]