This article first appeared in the St. Louis Beacon, Oct. 23, 2012 - In the coming year, while I plan to focus on issues like urban crime and consumer protection, my immediate priority is to push for a solution to the crisis facing the state’s Second Injury Fund – a solution that protects businesses, workers and Missouri taxpayers.
The Second Injury Fund, or SIF, is almost 70 years old. Created to protect employers from the rare but high costs of their employees’ sudden, long-term disabilities, the fund has helped thousands of previously injured workers find new and gainful employment.
The SIF is funded by a surcharge on all workers’ compensation and self-insurance policies. Prior to 2005, that surcharge, paid by Missouri businesses, was adjusted up or down depending on the SIF’s annual expenditures. That’s how responsible insurance companies work: actuarial adjustments are made on a regular basis so a plan’s premiums cover the cost of the insurance promised, plus a little more.
By 2005, the SIF had $25 million in reserve. The surcharge was 3.5 percent that year and netted another $9 million surplus. But rather than allowing the Department of Labor and Industrial Relations to make the appropriate actuarial adjustments to equalize the SIF’s costs and coverage, the General Assembly voted that spring to permanently cap the surcharge at 3 percent.
By 2008, the SIF’s annual expenditures had increased to $74 million while its revenue dropped to $56 million, forcing the fund to consume more than two-thirds of its built up reserves. As the housing market collapsed and unemployment increased, revenue fell further. In 2011, the SIF collected only $43 million, as its obligations increased to $77 million.
As attorney general, my only recourse to preserve the dwindling fund has been to triage the claims against it. When I first took office, I lowered settlement authority for meritorious claims from $60,000 to $40,000. By 2010, I stopped all new settlements against the fund, as its balance fell to less than $4 million. I have also laid-off approximately one-third of the staff and attorneys that defend the fund.
When the General Assembly failed to agree on a fix over the last two legislative sessions, the SIF could no longer cover all its debts. The only option left to preserve the SIF was to stop paying new permanent total disability awards altogether and allow the fund could build up enough revenue to pay its ongoing, pre-existing obligations.
As of mid-October 2012, the Second Injury Fund has unpaid bills of more than $25 million, the cost of awards to claimants who have received permanent or partial total disability awards.
In human terms, 623 Missourians -- unable to work because of their disabilities -- have never received benefits guaranteed them by the General Assembly and the business community, and adjudicated in their favor by Missouri’s courts. And these statistics still do not contemplate more than 29,000 new claims filed against the fund.
The total liability facing the fund is valued at well over $100 million.
There are three hypothetical paths ahead of us. The first is to do nothing and let the fund continue to rack up debt. This is the most chaotic and, in my opinion, the most irresponsible path the General Assembly can take. Such a strategy continues the financial downward spiral for employers, leaves injured claimants unpaid, and waits for court rulings that no one can predict.
The second path is to phase out the fund permanently. The General Assembly has proven that government should not be in the insurance business, making basic pricing decisions that have bankrupted the Ffund in just a few short years. However, this option is unlikely in today’s political climate, since pricing Second Injury Fund risk in the worker’s comp market would require businesses to pay market rates for insurance.
The third path is to recapitalize the fund. If we choose that path, premiums should set for Second Injury Fund coverage should be adjusted just as they are in the business world: premiums should cover expenses and allow for small and consistent reserves. The fund’s surcharge should be based on actuarial evidence and mathematical fact. Recapitalizing the fund demands a long-term commitment and a willingness to face the economic realities around us.
It’s time to resolve this crisis. The longer we wait, the more expensive our solution becomes. Either phase out the SIF, or restore its full faith and credit. We must do one or the other. Doing nothing is a breach of the promises we have made to our employees, the people of Missouri, and to ourselves.
Chris Koster is the Democratic candidate for Missouri attorney general.