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.
Critics of second injury funds contend they have outlived their purpose and shift costs to small businesses that may never benefit from the funds. The American with Disabilities Act provides greater legal protections to workers than existed during the World War II era. And today's veterans also have better access to federal health care benefits, said Jon Gelman, a New Jersey attorney whose has specialized in representing plaintiffs in workers' compensation and occupational disease cases.
"If you take away the second injury fund, it may not be missed at this point, because the reasons aren't as valid to have it as in the past," Gelman said.
But the Missouri Chamber of Commerce and Industry contends the funds still provide necessary protection to both employers and workers — especially in a slowly recovering economy.
Army veteran Valerie Brown, 34, knows how difficult it can be for the current generation of disabled veterans to find jobs. After two tours of duty in Iraq, Brown said she was diagnosed as 60 percent disabled from post-traumatic stress disorder and hearing loss. She searched for four months before landing an entry level job that she found so frustrating she quit. So she enrolled in college and is now re-starting her hunt for work.
"Coming forward and actually telling people you have PTSD is very, very risky," said Brown, an Oklahoma native who now lives in Independence, Mo.
Brown said injured veterans need help persuading employers to give them a chance.
"If something happened at work, say the person has a seizure or something and hits her head on the desk or gets injured, that would make such a huge difference," she said.
Among the veterans receiving weekly payments from the Missouri fund is John Cleeton, who broke his ankle while serving with the Army in Vietnam and then suffered a variety of on-the-job injuries as a Kansas City police officer. He fears it would be financially devastating for people who suffer future work-related injuries if the Second Injury Fund were to be eliminated.
"It helps people —it keeps them from having to resort to begging at the corners," Cleeton said
State disability funds have run into financial troubles for a variety of reasons. As more people have become eligible for payments — most of them civilians injured on the job, not veterans — the dollar value of the awards also has grown because of the rising cost of medical care, and the assessments charged to businesses have not kept pace.
Missouri is an extreme example. A 2005 law placed a 3 percent cap on the Second Injury Fund surcharge on businesses' workers compensation premiums, instead of allowing the rate to fluctuate to meet expenses. The law was backed by various business associations, who now are supporting legislation to raise the surcharge cap to 4.5 percent, or perhaps as much 6 percent. But some attorneys who represent the disabled say that won't be enough to save the fund.
"It is the business community that created this shortfall," said St. Louis attorney Mark Moreland, who is on the board of governors for the Missouri Association of Trial Attorneys. "It is time that we stop letting them be dead-beat dads to the disabled."