By the
2008 AASCIF Law Standing Committee
 As
has happened in other states, and will surely happen in more, the
Second Injury Fund (SIF) in Missouri is facing bankruptcy. While
workers’ compensation practitioners in other states are not
directly affected by Missouri’s plight, consideration of
how the Missouri SIF got into trouble—and what it will have
to do get out—may be instructive.
Missouri’s SIF was created in 1943 as a tool to enhance
he employability of workers (particularly WWII veterans) with significant
disabilities. Employers were hesitant to hire workers with significant
pre-existing disabilities in part because of the concern that a
relatively minor work injury could combine with the prior condition
to cause catastrophic disability. The SIF was designed to provide
total disability benefits in such a situation so that that employer
would bear only the risk for the injury cause by their employment.
Missouri’s SIF proved successful—perhaps too successful,
as over the years various legislation added to benefits provided
by the SIF. Originally conceived to provide only permanent total
disability benefits, the SIF’s role was gradually expanded
to provide various other benefits, including physical rehabilitation,
permanent partial disability, payments to workers with uninsured
employers, and second job wage loss. Because Missouri’s SIF
is a “takeover” fund (meaning that the SIF itself administers
all benefits) rather than a “reimbursement” fund (which
repays insurers or other claimants upon proof of qualifying expenditures)
the SIF’s administration costs increased with each added
benefit.
As the SIF’s payouts grew over the years, however, the mechanism
to fund the SIF remained the same: a surcharge on all employers’ workers’ compensation
premiums. For many years the surcharge was variable according the
SIF’s expected obligation, but among sweeping changes to
the Missouri’s Workers’ Compensation Law instituted
in 2005, the surcharge was capped at 3%.
As the SIF hemorrhaged money in recent years, political wrangling
ensued as each party sought to deny that a problem existed, blame
the other party for the problem, or both. By 2007 multiple audits
had confirmed that the SIF’s obligations would soon outstrip
its resources. However, various political exigencies prevented
any solution being adopted by the 2007 or 2008 state legislatures.
The SIF remains a looming disaster that the 2009 legislature will
have to tackle. The problem is clear—too much money going
out, too little money coming in. Fixing the problem will be less
simple.
One solution would be to simply abolish the SIF, as a few other
states have done. There are several inherent advantages to this
approach. Because the ADA and other federal laws overarch the employment
landscape, a second injury fund mechanism may be less necessary
than it was a generation ago. Though the state’s insurers
would have to absorb the risk that the SIF currently covers, the
insurance industry should be better able to price for and adjust
that risk than a state agency. The down side would be that policyholders
would likely experience a “double whammy” for the foreseeable
future: not only would premiums increase as insurers take on more
current risk, but the SIF surcharge on that premium would presumably
carry on for years as the SIF’s current obligations are paid
off.
Another approach is to maintain the SIF in its current state,
but adjust the SIF’s income (by increasing the surcharge
on premium) or the SIF’s obligations (by eliminating benefits
ancillary to permanent total disability). Many observers find this
more palatable than abolishing the SIF, although increasing the
surcharge will raise the ire of the business lobby while cutting
benefits will anger the labor lobby. Some combination of both might
be necessary to assuage both constituencies.
Some savings might also be realized by changing Missouri’s
SIF from the “takeover” model, which requires it to
actually administer the benefits it provides, to the “reimbursement” model.
In that way, the SIF could dispense with the overhead required
to adjust claims and make indemnity payments. Those activities
would have to be carried out by the insurers, of course, but presumably
the insurance industry has the infrastructure to perform them more
efficiently than a governmental agency.
Missouri legislators will have a rare chance in 2009 to remake
our state’s Second Injury Fund. What will they make of it?
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