Can Second Injury Funds Help Reduce Your Comp Costs?

More than half of all injured workers have a pre-existing condition, according to one expert. Who pays if the recent injury aggravates the previous injury? When you have an employee with a permanent impairment who suffers a second injury, in some states you may only be responsible for compensating the most recent injury — if the injury occurs in a state that has second injury fund.

History
Following World War II many employers felt disadvantaged when hiring veterans with war injuries, since the cost and likelihood of paying workers' compensation for severe injuries was much greater for these individuals. To remove the stigma, many states created second injury funds.

Today more than 20 states have “second injury funds” or “subsequent injury funds” that pay benefits to workers when an injury aggravates a pre-existing permanent health condition. According to Rupp’s Insurance and Risk Management Glossary, Second Edition, second injury funds have the goals of fairly apportioning “liability for compensation benefits and to overcome reluctance to hire handicapped or disabled workers.” Insurance carriers and self-insured employers fund second injury funds by paying an assessment, which is usually based on the percentage of workers’ compensation premium written in the state (for insurance carriers) or total benefits paid.

Some states have dropped their second injury funds, reasoning that other state and federal programs exist to help disabled individuals, such as the Americans with Disabilities Act (which makes such discrimination in hiring illegal), and that any additional costs resulting from second injuries should be borne by all employers.

When Do Second Injury Funds Apply?
Second injury funds will reimburse an employer or insurer when a worker with a pre-existing condition suffers a second injury that aggravates the pre-existing one. However, reimbursement is not automatic:

• The prior injury must have been already documented.
• The insurer or self-insured employer must apply to the second injury fund for the coverage.
• The second injury must be more severe than it would have been if the individual did not have a pre-existing condition. And claims must meet a threshold, such as 104 weeks of indemnity payments, before the fund applies.

Generally, if you have a fully insured plan, your insurer will take responsibility for applying to the second injury fund for any eligible claims. The fund will either reimburse the carrier or self-insured employer for lost-time and medical benefits paid to a claimant, or take over payments to the claimant once he or she is deemed eligible for second-injury fund payments. The state laws creating the fund will determine which method the second injury fund uses.

Second injury funds may also cover claims where the pre-existing disability was not work-related. In other words, if you have an employee with a permanent partial disability, such as hearing loss, that was congenital rather than work-related, and a second injury worsened that condition, the state’s second injury fund might cover the second injury.

What Do Second Injury Funds Mean for Employers?
At time of hire, your human resources and risk management departments should identify every new hire with pre-existing conditions. There has been concern that asking employees about pre-existing conditions could violate the Americans with Disabilities Act (ADA). However, the ADA does not prohibit employers from obtaining information about a pre-existing injury, as long as the employer requires a medical examination or makes medical inquiries only after making a conditional offer of employment. The ADA also does not bar employers from sharing information on an employee’s pre-existing condition with a second injury fund or state workers’ compensation authorities.

When a worker with a pre-existing injury or condition files a claim, the employer should make the claims adjuster aware of the pre-existing injury or condition. The adjuster will calculate the settlement value of the claim, and/or file the claim with the second injury fund.

Submitting a claim to a second injury fund can help employers with experience-rated workers’ compensation policies avoid a big premium increase. It can also make it more appealing to hire former military service persons, many of whom have service-related disabilities.

For more information on second injury funds, or more information on handling permanent partial disabilities in the workplace, please contact the Insurance professionals of EPIC’s CRA ProRental™ Insurance Program. Call us at: 800.234.6363.