Some might say “second injury funds (SIFs)” are dinosaurs. However, structured effectively SIFs can enrich a state’s efforts to maximize their workforce. They have been a crucial element in states’ workers’ compensation for over a century. As early as 1916 states established programs to encourage employers to hire employees who had permanent disabilities by limiting the employer’s risk to costs related to subsequent injuries compensable under that state’s workers’ compensation statute. Second injury fund is a generic term and used by some states, but state funds also have other names such as Subsequent Injury Fund (TN), Special Fund (AZ), Special Disability Fund (DE), Handicap Reimbursement Fund (OH), and Multiple Injury Trust Fund (OK). In most cases these funds were separate from statutory workers’ compensation in benefits and funding. In other cases, a separate administrative agency administrated the fund.
The number of states with SIFs increased after World War II because leaders were concerned that disabled veterans would return home to a labor market that would not hire them because of potential impact of war injuries on future workers’ compensation costs. The thought of state leaders was that if employers were protected from expenses related to a war injury, they would be more willing to hire veterans with preexisting disabilities. Additional states developed SIFs until the mid-70’s. Montana (1973), Nevada (1973), Louisiana (1974), and Virginia (1975) were the last four states to establish a SIF.1
The attractiveness of SIFs came into question as states began to experience financial problems. The problems came as states incurred large unfunded obligations for future benefits to injured workers. As concern about these financial problems mounted insurance companies, employers, and government officials advocated for the closure of SIFs to solve the problems. An additional point to the argument to close SIFs was the passage of the Americans with Disabilities Act (ADA) in 1990. Their point was that the ADA would eliminate the need for second injury funds because the ADA prohibited discrimination against workers with disabilities and required employers with 15 or more employees to provide individuals with a disability the same employment opportunities and benefits of people without disabilities. This argument for the abolition of SIF funds continued even though there has been no compelling evidence that ADA has increased employment significantly for disabled workers.
Despite these issues more than half of the US states still maintain a SIF, but the future of these funds may be uncertain. Given the questions about whether SIFs are the best use of the funds collected, it is worthwhile to consider the role that second injury funds can play in mitigating the effects of preexisting injuries on employees and employers.
Second injury funds are a classic workers’ compensation program. There is not a standard model; each state is unique. They may have different names, different designs, different funding sources, different benefits, and/or different types of administration. Within these differences there are common features.
- The injured worker must have a qualifying pre-existing disability.
- The employer must have had knowledge of the pre-existing disability when the employer hired the injured worker.
- The worker’s subsequent injury combined with the pre-existing injury resulted in an injury that was greater than the subsequent injury alone.
- The employer (insurance carrier) is liable only for the costs of the subsequent injury and the SIF pays for the remainder of the benefit due to the injured worker.
Differences among states’ programs are more numerous than commonalities and include:2
- A requirement that the pre-existing disability must be related to a work injury OR the pre-existing disability can result from any cause.
- States such as Nevada and Arizona require that the pre-existing impairment rate exceeds a specific impairment level such as 6% (NV) or 10% (AZ) in accordance with the AMA Guides to the Evaluation of Permanent Impairment or.3
- Benefits are available for permanent partial or permanent total disabilities OR are only available for an injury that results in total disability.
- A requirement that the original disability and subsequent injury arose from an injury to a member of the body specified in the law OR an absence of such a requirement.
- Some states require medical evidence that the worker’s subsequent disability is greater than it would have been if there had been no pre-existing disability OR this is not a requirement of other states’ programs.
- Funding comes most frequently from assessments on carriers or self-insured employers based on claims paid OR from premium taxes.4
The plan design of SIFs plays a significant role in the development of a program that provides value to workers and maintains its financial viability. Using the lessons learned from decades of second injury operations, states can design plans to pay benefits within revenues and fund future liabilities similar to a pension plan.
One state that did this was Tennessee which went from large deficits to a fully funded program through changing the eligibility for benefits to permanent, total disability and implementing a Next Step program to provide funding for education for injured workers who could not return to their pre-injury jobs.
The goal of maximizing a state’s workforce by reducing the barriers to hiring employees with permanent disabilities is as important as it has ever been. A SIF offers the hope to workers with disabilities that they can still find meaningful work. It offers employers a way to meet their needs for workers without incurring the cost of workers’ previous injuries. Funding the cost of risk related to workers’ compensation has been through insurance or self-insurance, so it is reasonable to manage the cost risk of employing workers with preexisting disabilities in the same way. The cost of workers’ compensation continues to decrease and funding the exposure of preexisting injuries remains appropriate through workers’ compensation. In addition, there is little evidence that ADA eliminated the need to encourage employers to hire workers with a disability.
Injuries continue to occur and leave workers with disabilities. They continue to need meaningful employment after their recovery. Members of the military continue to be involved in hostilities and get injured serving their country. They too need employment when they leave the service just as much as they needed it after World War II. Employers still need incentives to offer employment to workers with preexisting disabilities. The country needs its citizens to be employed to the greatest extent possible. A SIF continues to be an effective tool to meet all these needs.
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Careful design as SIF programs are reevaluated is the possibility of enhancing return to work with the same employer when a recovered worker is left with a permanent impairment. An example is automatic qualification to SIF when a WC claim results in a documented, covered impairment. Fully engaged employers and insurers, if coordinated, can perhaps more cooperatively offer RTW when there is a financial incentive (limitation of liabilities in the event of a subsequent injurious event).