State disability funds going broke, and going away

By David A. Lieb

Associated Press

Published: Thursday, March 22 2012 12:00 a.m. MDT

Army veteran Valerie Brown helps out in the student veteran's affairs office on the University of Missouri-Kansas City campus in Kansas City, Mo., Thursday, March 22, 2012.

Orlin Wagner, Associated Press

JEFFERSON CITY, Mo. — With hundreds of thousands of wounded veterans looking for work after World War II, many states offered businesses an incentive to hire the returning heroes. They created special disability funds to help pay the tab should a soldier with a missing arm or eye suffer a second, debilitating injury in a private-sector job.

Over the ensuing decades, those disability funds provided aid not to only veterans, but to thousands of others with pre-existing ailments who slipped and fell, twisted their backs or blew out their knees while at work.

But as a new generation of wounded warriors returns from Iraq and Afghanistan, about 20 states have shut down their special disability funds because of rising costs and others are teetering on insolvency, tearing holes in the safety net the funds were intended to provide.

Today, the federal government and some states are offering tax breaks to encourage businesses to hire returning veterans. But more than 675,000 veterans from Iraq and Afghanistan have reported disabilities, and they are having a harder time getting jobs than their able-bodied, private-sector counterparts, said David Autry, a spokesman for Disabled American Veterans.

"We understand states are strapped for cash, thanks to the economy," Autry said. But "it would be a shame to just let these funds disappear." The unemployment rate for veterans injured in Iraq and Afghanistan is 12.1 percent, compared with 9.5 percent for those without disabilities.

Since the recession, many businesses are cautious about extra costs related to employees, according to Chamber of Commerce officials.

"If you talk to businesses, they are more hesitant in making any type of investment at this point, including the hiring of people," said Missouri chamber spokeswoman Karen Buschmann.

The "second injury funds" are meant to encourage the hiring of disabled workers by limiting the financial risk to businesses. If an employee who is partially disabled suffers an on-the-job injury that further impairs his or her ability to work, the second injury fund covers the workers' compensation benefits for that new injury. Without such funds, businesses are left to bear the full cost through their workers' compensation insurance. Although businesses pay into the second injury fund, the tab may be less than the increase in their workers' compensation premiums would be.

A little over half the states still have second injury funds, but rising costs have contributed to the closure of numerous others over the past two decades.

South Carolina's Second Injury Fund, which is due to be phased out by next year, stopped considering claims from injuries that happened after June 2008 because of rising losses that resulted in surcharges to employers and insurers of nearly $200 million annually. New York, which created the nation's first second-injury fund 1916, closed the fund to all new claims in July 2010 when its outstanding liabilities topped $18 billion, according to a report by Workers Compensation Research Institute. New Jersey's has been plagued by cash-flow problems.

Missouri's Second Injury Fund is on the verge of insolvency. Last year, the fund collected $43 million from businesses while its obligations increased to $77 million. To cope with a growing shortfall, Attorney General Chris Koster quit settling cases in late 2009, forcing them to drag out through a hearing process. He laid off about one-third of the attorneys who defend the fund. And last year, he quit paying new awards for permanent, total disability cases.

The state now owes about $15 million to more than 190 people who were awarded benefits in the past year.

"The fund is spiraling out of fiscal control," said Koster, a Democrat, who wants the fund to either be abolished or revamped with a new funding mechanism.

Oklahoma was in a similar situation about a decade ago when it closed its second-injury fund to new claims. But it later adopted a new flexible surcharge and reinstated its fund in 2005.

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