CAS Spring Meeting
June 17, 2008
Second Injury Funds:
From the Beginning to the End?
Keith Bateman, Vice President, Workers Compensation
Property Casualty Insurers Association of America (PCI)
© 2008 Property Casualty Insurers Association of America
Will Cover
 Philosophical Tension Underlying Second
Injury Funds
 History of Second Injury Funds
 Variation in SIFs
 Pros and Cons
 Recent Developments
 Future Influences?
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Philosophical Tension
Balancing Interests of
Employer and Employee
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Employee Interest
 Socializing (Spreading) Cost of Industrial
Injury
 Non-Fault
 (Limited) Income Protection
 Taking Worker As He Walked Through Plant
Gate
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Employer Concerns
 Compensate Only Industrial Injury
 Don’t Penalize Employer Good Citizenship
 Maintain the Limited Income Protection
Concept
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History
 Rationale for Creation
 Growth

Number

Scope and Size
 Changing Nature
 Movement to Repeal
 Impact of Changing External Environment
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Rationale
 Encourage Employment of the Handicapped
 Provide Economic Relief to Employer
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Growth
 Number

A Rose by Any Other Name

First New York 1916

By Start of World War II, 12-14

By End, 34

By Early 1950’s, 41 States
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SIF High Water Mark
D.C.
Wyoming was the only state not having Second Injury Fund
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Growth
 Scope and Size
 Changes in Pre-existing Conditions Covered
 Elimination of Knowledge Requirement
 Move Away from Permanent Total
 Soft Tissue/Cumulative Injury Rather than
Traumatic
 Weakening of Impact on Employment
Requirements
 1970’s Expansion of Workers Compensation
 Changes in Life Expectancy
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Movement to Repeal – The Drivers
 Assessment Growth
 Unfunded Liabilities
 ADA and State Anti-Discrimination Laws
 Contraction of System
 Accounting Standards
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Movement to Repeal – How Far To Go
Repeal/Close v. Tightening Entry
 Example of Tightening

Restore Knowledge Requirement Massachusetts
1991, South Carolina 2003

Increase Employer Retention
New York 1996
 Also, some funds closed because little used – tough
entry requirements or inadequately funded
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Repeals/Closures
VT
MN
NY
SD
CT
NE
UT
WV
CO
KS
OK
NM
RI
D.C.
KY
AR
SC
AL GA
FL
Closures
No Fund
1990-94
2006-Present
1995-2000
2001-2005
Closed in 2000, but reopened
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Impact of Changing External
Environment
In addition to those mentioned earlier, the following have
been suggested as factors influencing SIF:
Factors Leading to Fund Expansion
 Expansion of Compensability
 Expansion of Benefits
 Lifetime or Long Duration (Indemnity and Medical)
 Medical Treatment Improvements and Technology
 Indexing Benefits
 Limits on Settlement
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Factors Leading to Fund Contraction
 Contraction in Compensability
 Limits on Duration
 Cut Backs in Indexing
 Moving PPD to Impairment Basis
 Apportionment
Unfortunately, don’t know of any credible studies
that have tested these
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Variations in SIFs
Differences
 Treatment of Pre-existing Conditions
 How Combined Effects are Treated
 Knowledge Requirement
 Conditions Covered
 Impact of Employability
 Degree Disability/Impairment Increase
 Thresholds
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Differences (continued)
 Relief Provided to Employer
 Financing/Administration
 Single Purpose v. Multi-Purpose
 Multi-Purpose
 Concurrent Employment
 Uninsured Employer
 Cost of Living/Supplemental Benefits
 Occupational Diseases or Special
Disease/Injury Provisions
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Pros and Cons
Arguments For
 Need Hasn’t Changed
 Provides Employer Incentive to Hire
 Protects Income Maintenance While Removing
Employer Perception of Unfairness
 ADA and Anti-Discrimination Acts Have Had Limited
Impact
 Funding Problems may not be due to Second Injuries
 Closing Funds and Running Off Likely to Increase
Employer Short Run Costs
 Encourages Anti-Worker Legislation
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Arguments Against
 No Evidence Hiring of Handicapped Encouraged
 ADA and Anti-Discrimination Laws make SIF
Obsolete
 Undermines Internalization of Cost/Safety Incentive
 Because Pay-As-You-Go, Unfunded Liabilities Build
Up
 Apportionment Eliminates Need
 Financial Impact Of Combined Effect Overstated
 Negative Impact of Loss-Based Assessments on
Insurers
 Increase Transaction Costs
 Funds Subject to Legislative Raids
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Recent Developments
 Repeal Verses Reform
 Differences Among Employers and Among the
Industry
 Alternatives to Second Injury Funds
 The Oregon Approaches
 State Activity
 Limited Activity in 2008
 Fewer Enactments
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The Future
Is the Second Injury Fund Era Ending?
Can’t answer, but here are some questions to think about.
 Have been several decades of greater concern about
employer costs than about benefits. What if:
 Political climate moves to the left?
 Will it matter if economy doesn’t grow rapidly?
 Has the move to a world economy changed the
political environment?
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The Future (continued)





What impact will an aging workforce and population
have on both politics and the views about pre-existing
conditions?
Will science allow us to better separate out
occupational and nonoccupational factors in
impairment, disability, and causation or will it
complicate determinations?
Which produces more transaction costs –
apportionment or second injury funds?
Will the return of our citizen soldiers from the MiddleEast produce the same pressures as World War II?
How will the movement from national to international
accounting standards impact how liabilities must be
recorded?
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