© 2008 Property Casualty Insurers Association of America CAS Spring Meeting June 17, 2008 Second...

© 2008 Property Casualty Insurers Association of America

CAS Spring MeetingJune 17, 2008

Second Injury Funds:From the Beginning to the End?

Keith Bateman, Vice President, Workers Compensation

Property Casualty Insurers Association of America (PCI)


Will Cover

Philosophical Tension Underlying Second

Injury Funds

History of Second Injury Funds

Variation in SIFs

Pros and Cons

Recent Developments

Future Influences?


Philosophical Tension

Balancing Interests ofEmployer and Employee


Employee Interest

Socializing (Spreading) Cost of Industrial

Injury

Non-Fault

(Limited) Income Protection

Taking Worker As He Walked Through Plant

Gate


Employer Concerns

Compensate Only Industrial Injury

Don’t Penalize Employer Good Citizenship

Maintain the Limited Income Protection

Concept


History

Rationale for Creation

Growth

Number

Scope and Size

Changing Nature

Movement to Repeal

Impact of Changing External Environment


Rationale

Encourage Employment of the Handicapped

Provide Economic Relief to Employer


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


D.C.

SIF High Water Mark

Wyoming was the only state not having Second Injury Fund


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


Movement to Repeal – The Drivers

Assessment Growth

Unfunded Liabilities

ADA and State Anti-Discrimination Laws

Contraction of System

Accounting Standards


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


D.C.

Closures 1990-94 1995-2000 2001-2005

2006-Present

No Fund

Closed in 2000, but reopened

Repeals/Closures

UTCO

NM

SD

NE

KS

OK

MN

AR

KY

AL GA

FL

SC

WV

NY

VT

CT

RI


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


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


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


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


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


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


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


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?


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 Middle-East produce the same pressures as World War II?

How will the movement from national to international accounting standards impact how liabilities must be recorded?

© 2008 Property Casualty Insurers Association of America CAS Spring Meeting June 17, 2008 Second...

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