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Making second-injury funds your number two priority.

Making Second-Injury Funds Your Number Two Priority

Second-injury funds were developed to reduce the impact of a singularly large workers' compensation claim in the event a handicapped worker, injured on the job, aggravates an earlier impairment. Though employers are concerned about potential insurance risks in hiring the physically impaired, most fail to take advantage of this significant remedy and cost containment feature of workers' compensation which helps address such problems.

Second-injury funds are intended to encourage hiring of the physically handicapped and to more equitably allocate costs of providing benefits to such employees. Under most workers' compensation laws, employers are held liable only for disability from an injury incurred in their employment and not for preexisting handicaps. Additional compensation due to the combination of two injuries is paid from the second-injury fund. In effect, the second-injury fund acts as a reinsurer.

For example, if an individual is blind in one eye when employed and later loses sight in the other eye in a work-related accident, the employer is responsible only for benefits due for medical, temporary total disability and loss of sight in one eye. The additional compensation for the permanent total disability (loss of sight in both eyes is considered permanent total disability) is paid from the second-injury fund.

Benefits Vary by State

Injuries qualifying for second-injury coverage differ among states. In many jurisdictions, the second injury and prior impairment must combine to cause permanent total disability. Other states require that only the second injury when added to a pre-existing disability results in substantially greater disability than from the second injury alone.

Some funds are considered broad coverage (see table 1) because they apply to a wide range of diseases or conditions, if aggravated by an on-the-job injury. South Carolina, for example, covers many types of pre-existing handicaps, including arthritis, diabetes, cardiovascular disorders and cancer. In contrast, North Carolina, a narrow coverage state (see table 2), covers only second injuries involving the loss of a member or eye which result in permanent total disability when added to a pre-existing similar injury.

In many states, reimbursement from the second-injury fund equates to the difference between compensation payable for the second injury and that payable for permanent total disability. Other funds begin paying benefits after a specified time period (often 104 weeks) and/or require that the employer incur liability above designated dollar thresholds.

Some states require that the employer have knowledge of the employee's prior impairment before the subsequent injury, but others cover known, unknown and withheld conditions. Some funds pay the employee directly while others reimburse the employer or insurance company.

The method of financing the second-injury fund also varies from state to state. The most common method is a contribution made by an employer or his insurer in death cases in which there are no dependents. In some states, employers and insurers are taxed on the basis of the total workers' compensation paid by them during the year or on premiums collected for workers' compensation insurance. Penalty fines resulting from violations of workers' compensation laws may provide additional revenues. A few states support second-injury funds by direct legislative appropriations.

Cost Containment

Most broad coverage second-injury funds limit an employer's liability to approximately $30,000. Maximum liability cases not involving second-injury reimbursement depend on insurance contract terms or on the amount of excess workers' compensation insurance purchased by the self-insured company. In most cases, however, this maximum ranges from $85,000 to $250,000. A successful second-injury fund claim, then, significantly decreases the employer's liability, thus reducing workers' compensation costs for the insured or self-insured employer.

Compensation costs of self-insured employers are directly reduced by reimbursements from second-injury funds. Insured employers should monitor their insurance companies to assure they seek second-injury reimbursement when appropriate. Employers whose workers' compensation insurance premiums exceed a designated minimum--usually ranging from $3,000 to $8,000 over a two-year period--are normally experience-rated. Premiums for these companies are based on their own experiences under the plan. Recoveries from second-injury funds should be deducted retroactively from a company's workers' compensation experience rating data, thus reducing the loss experience and the resulting premium.

Reimbursement from second-injury funds is not automatic. Notification and application must be made to the appropriate state agency by the self-insured employer or the insurance company, most of whom do not file.

Though they exist in every state, second-injury funds are not widely publicized and companies often do not recognize opportunities to recover through these funds. Many second-injury funds have strict requirements to discourage overutilization and the application process for recovery can be complex. As a result, many employers and insurance companies fail to avail themselves of the benefit. In Georgia alone during 1987, 85 percent of employers and insurance companies failed to make a claim or receive any recovery from the state's second-injury fund, the Georgia Subsequent Injury Trust Fund.

Most insurance companies tend to rely on their adjusters to seek recoveries from second-injury funds. Because of heavy time constraints, excessive workloads and responsibilities which often span several types of insurance and multiple states, it is difficult for an individual adjuster to recognize claims qualifying for reimbursement and/or to pursue these claim. In addition, inquiries from the second-injury fund for detailed and often complex information may further discourage the adjuster's claims effort.

Recommended Actions

Becoming aware of your state's second-injury fund is an important step toward seeking benefits from the fund. Knowledge of the fund and its provisions helps you identify claims which may qualify for reimbursement.

It is important to discuss second-injury considerations with your plan administrator or insurance representative. Your insurance company can recover from second-injury funds and retroactively apply lower net losses to your experience rating calculation, which may reduce past, present and future premiums. Sometimes through an oversight, the experience rating data is not properly adjusted. It is a good idea to confirm with your insurance company that second-injury fund recoveries are removed from your loss experience before your Unit Statistical Report is filed with the National Council on Compensation Insurance for the promulgation of your workers' compensation experience rating modifier.

Some states require prior knowledge of the pre-existing condition. Therefore, companies should have their personnel or human resources department obtain a medical disclosure statement from newly hired employees to comply with these requirements.

Because of the complexities of the second-injury fund requirements, you may wish to consider seeking assistance from a consultant specializing in claims and worker's compensation. A qualified consultant with true experience in handling second-injury fund claims can help:

* identify likely claims;

* notify the administrator of the second-injury

fund of a possible claim in a timely

manner;

* compile and review the necessary

documentation, including information to

support the merger between the

subsequent injury and the prior impairment,

along with proof of payment of

compensation benefits to the injured worker;

* file the request for reimbursement;

* respond to inquiries stemming from the

fund administrator's investigation of the

claim; and

* in cases of denial, if appropriate, request

a formal hearing to ensure a claim is

thoroughly considered. [Tabular Data 1 to 2 Omitted]

Olan A. Hembree Jr. is vice president of claims consulting for Walston & Associates, an insurance consulting firm based in Atlanta, GA.
COPYRIGHT 1989 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Author:Hembree, Olan A., Jr.
Publication:Risk Management
Date:May 1, 1989
Words:1196
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