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© 2008 Property Casualty Insurers Association of America CAS Spring Meeting June 17, 2008 Second Injury Funds: From the Beginning to the End? Keith Bateman, Vice President, Workers Compensation Property Casualty Insurers Association of America (PCI)
© 2008 Property Casualty Insurers Association of America Will Cover Philosophical Tension Underlying Second Injury Funds History of Second Injury Funds Variation in SIFs Pros and Cons Recent Developments Future Influences?
© 2008 Property Casualty Insurers Association of America Philosophical Tension Balancing Interests of Employer and Employee
© 2008 Property Casualty Insurers Association of America Employee Interest Socializing (Spreading) Cost of Industrial Injury Non-Fault (Limited) Income Protection Taking Worker As He Walked Through Plant Gate
© 2008 Property Casualty Insurers Association of America Employer Concerns Compensate Only Industrial Injury Don’t Penalize Employer Good Citizenship Maintain the Limited Income Protection Concept
© 2008 Property Casualty Insurers Association of America History Rationale for Creation Growth Number Scope and Size Changing Nature Movement to Repeal Impact of Changing External Environment
© 2008 Property Casualty Insurers Association of America Rationale Encourage Employment of the Handicapped Provide Economic Relief to Employer
© 2008 Property Casualty Insurers Association of America Growth Number A Rose by Any Other Name First New York 1916 By Start of World War II, By End, 34 By Early 1950’s, 41 States
© 2008 Property Casualty Insurers Association of America D.C. SIF High Water Mark Wyoming was the only state not having Second Injury Fund
© 2008 Property Casualty Insurers Association of America Growth Scope and Size Changes in Pre-existing Conditions Covered Elimination of Knowledge Requirement Move Away from Permanent Total Soft Tissue/Cumulative Injury Rather than Traumatic Weakening of Impact on Employment Requirements 1970’s Expansion of Workers Compensation Changes in Life Expectancy
© 2008 Property Casualty Insurers Association of America Movement to Repeal – The Drivers Assessment Growth Unfunded Liabilities ADA and State Anti-Discrimination Laws Contraction of System Accounting Standards
© 2008 Property Casualty Insurers Association of America Movement to Repeal – How Far To Go Repeal/Close v. Tightening Entry Example of Tightening Restore Knowledge Requirement Massachusetts 1991, South Carolina 2003 Increase Employer Retention New York 1996 Also, some funds closed because little used – tough entry requirements or inadequately funded
© 2008 Property Casualty Insurers Association of America D.C. Closures Present No Fund Closed in 2000, but reopened Repeals/Closures UT CO NM SD NE KS OK MN AR KY AL GA FL SC WV NY VT CT RI
© 2008 Property Casualty Insurers Association of America Impact of Changing External Environment In addition to those mentioned earlier, the following have been suggested as factors influencing SIF: Factors Leading to Fund Expansion Expansion of Compensability Expansion of Benefits Lifetime or Long Duration (Indemnity and Medical) Medical Treatment Improvements and Technology Indexing Benefits Limits on Settlement
© 2008 Property Casualty Insurers Association of America Factors Leading to Fund Contraction Contraction in Compensability Limits on Duration Cut Backs in Indexing Moving PPD to Impairment Basis Apportionment Unfortunately, don’t know of any credible studies that have tested these
© 2008 Property Casualty Insurers Association of America Variations in SIFs Differences Treatment of Pre-existing Conditions How Combined Effects are Treated Knowledge Requirement Conditions Covered Impact of Employability Degree Disability/Impairment Increase Thresholds
© 2008 Property Casualty Insurers Association of America Differences (continued) Relief Provided to Employer Financing/Administration Single Purpose v. Multi-Purpose Multi-Purpose Concurrent Employment Uninsured Employer Cost of Living/Supplemental Benefits Occupational Diseases or Special Disease/Injury Provisions
© 2008 Property Casualty Insurers Association of America Pros and Cons Arguments For Need Hasn’t Changed Provides Employer Incentive to Hire Protects Income Maintenance While Removing Employer Perception of Unfairness ADA and Anti-Discrimination Acts Have Had Limited Impact Funding Problems may not be due to Second Injuries Closing Funds and Running Off Likely to Increase Employer Short Run Costs Encourages Anti-Worker Legislation
© 2008 Property Casualty Insurers Association of America Arguments Against No Evidence Hiring of Handicapped Encouraged ADA and Anti-Discrimination Laws make SIF Obsolete Undermines Internalization of Cost/Safety Incentive Because Pay-As-You-Go, Unfunded Liabilities Build Up Apportionment Eliminates Need Financial Impact Of Combined Effect Overstated Negative Impact of Loss-Based Assessments on Insurers Increase Transaction Costs Funds Subject to Legislative Raids
© 2008 Property Casualty Insurers Association of America Recent Developments Repeal Verses Reform Differences Among Employers and Among the Industry Alternatives to Second Injury Funds The Oregon Approaches State Activity Limited Activity in 2008 Fewer Enactments
© 2008 Property Casualty Insurers Association of America The Future Is the Second Injury Fund Era Ending? Can’t answer, but here are some questions to think about. Have been several decades of greater concern about employer costs than about benefits. What if: Political climate moves to the left? Will it matter if economy doesn’t grow rapidly? Has the move to a world economy changed the political environment?
© 2008 Property Casualty Insurers Association of America The Future (continued) What impact will an aging workforce and population have on both politics and the views about pre-existing conditions? Will science allow us to better separate out occupational and nonoccupational factors in impairment, disability, and causation or will it complicate determinations? Which produces more transaction costs – apportionment or second injury funds? Will the return of our citizen soldiers from the Middle- East produce the same pressures as World War II? How will the movement from national to international accounting standards impact how liabilities must be recorded?
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