Second Injury Fund looks for help

Missouri’s Second Injury Fund, a program to compensate previously injured people who incur new injuries on the job, didn’t get much attention during last year’s contentious election season.

But that’s likely to change soon.

Missouri Department of Labor Director Todd Smith said the program is expected to run out of cash by May or June.

The immediate problem is that the state Legislature last session approved a budget that caps the fund’s spending this year for benefits at just less than $61.8 million, roughly $14.5 million less than what Smith projects the fund will need to pay its obligations to injured workers.

Smith plans to ask the Legislature for additional money.

Attorney General Chris Koster, whose office oversees the Second Injury Fund’s legal aspects, said fixing the funding problem will be “a high priority” soon after he is sworn in today.

“My office stands ready to assist the Legislature with any information that would make a solution possible,” Koster said.

But state Senate appropriations Chairman Gary Nodler, R- Joplin, said he will block any attempt to provide more money for the fund.

There’s “no chance” that the Legislature will earmark more money or increase the amounts that businesses pay, Nodler said. Legislators have made it clear to the attorney general’s office, he added, that “we expected them to manage the fund within the resources available.”

This year’s confrontation is fueled, in part, by the Legislature’s decision to change how the state budget has earmarked spending for the Second Injury Fund. Earlier budgets referred to the fund’s allocation as an “estimated” figure, which allowed some flexibility by the attorney general’s office and the Department of Labor on the final amount spent. This year’s budget imposes a firm cap that cannot be exceeded.

In any case, all sides agree that the fund faces longer-term money problems beyond this year’s budget. The Department of Labor has cited statistics showing that the fund is expected to be insolvent by next December.

At issue is who, or what, is to blame.

The Second Injury Fund was set up in the 1940s with a two-pronged purpose:

• To encourage employers to hire World War II veterans who had permanent disabilities from their war years.
• To spread the costs that businesses could incur if workers with existing disabilities suffered another injury on the job and became permanently disabled.

 

The Department of Labor administers the fund, but the attorney general’s office handles its legal cases.

The Second Injury Fund figured prominently in the 1992 scandal that ended up with then-Attorney General William L. Webster in prison. Federal investigators probed allegations that Webster, a Republican running for governor in 1992, was hiring private lawyers who also were his political contributors to represent the state in court cases involving the Second Injury Fund.

Although Webster ended up going to jail for unrelated misdeeds, his actions prompted his successor, Democrat Jay Nixon, to increase the size of the attorney general’s legal staff, who now handle all Second Injury cases on behalf of the state.

Missouri businesses finance the fund by paying a fee that equals 3 percent of what they pay for their workers’ compensation insurance premiums. That percentage had fluctuated from 2.5 percent to 4 percent, until the Legislature acted in 2005 to impose the 3 percent cap. As a result, the fund received about $10.8 million less in 2006 than it received in 2005.

Two recent audits – one by state Auditor Susan Montee and the other by the accounting firm of PricewaterhouseCoopers – cite the cap as the chief reason the Second Injury Fund is facing a money crunch.

Nodler is among the legislative critics who disagree. He blames action by the attorney general’s office almost a decade ago to increase the maximum lump-sum settlement payment from the state’s Second Injury Fund to $60,000. Until 2001, the maximum allowed lump-sum settlement was $40,000.

The attorney general’s office has cited a 2001 actuarial study that showed lump-sum payments to re-injured workers was cheaper for the state in the long run than the alternative route of making monthly disability payments for the worker’s life.

Nodler maintains that reducing the allowed size of the lump-sum settlements would save the state money and still be attractive to an injured worker because lump-sum payments generally don’t lead to a reduction in the worker’s Social Security disability payments.

Monthly payments from the Second Injury Fund can force a reduction in a worker’s Social Security payments if the combined total computes to more than 80 percent of the worker’s wage before he or she was injured.

Nodler also contends that lawyers are the ones most concerned about reducing the size of the lump-sum payments because their fees would be reduced.

“The impact on the lawyers’ pocketbook would be huge,” he said.

But several Missouri lawyers who have represented injured workers asserted that Nodler presented a distorted view of what the Second Injury Fund was supposed to accomplish.

“Lawyers don’t cause the injuries,” said Kansas City lawyer John Boyd, whose clients include injured workers and labor unions.

Boyd and St. Louis lawyer Nancy Mogab, who specializes in workers’ compensation cases, said Nodler was oversimplifying the payment issue, and there was no question that the state would pay far more in monthly payments to re-injured workers if the state reduced the size of lump-sum settlements.

If the Missouri Legislature was serious about saving money, Mogab added, it would set up a partial-payment system similar to that in place in Illinois.

Illinois has a vocational rehabilitation program that helps retrain the re-injured workers for other jobs. If the new job pays lower wages, the worker receives payments that cover the difference between the new job and the higher-paying old one, Mogab said.

Boyd also said that it was particularly inappropriate for the Legislature to make it harder for re-injured workers to obtain benefits under the Second Injury Fund because the state was seeing a new generation of injured military veterans as a result of the Iraq War.

Without the Second Injury Fund, many businesses wouldn’t hire those disabled veterans, he said.

Nodler replied that he’s all for helping wounded veterans and would even consider limiting the Second Injury Fund to re-injured veterans.

Nodler also acknowledged that he’d like to do away with the Second Injury Fund, as several other states have done. But he emphasized that he had no plans to propose such legislation this year.

In any case, Nodler said, it would be “incredibly irresponsible” to ask businesses to pay more into the fund, especially during the current economic downtown.