Second Injury Funds

At one point in time, it was a standard feature of most workers compensation systems to have a Second Injury Fund (SIF) in place. A typical Second Injury Fund provides coverage for employers when an employee who already has a pre-existing injury or condition, and is hurt on the job that makes the pre-existing condition worse.

New York implemented the first Second Injury Fund in 1916, which paved the way for many other states to follow suit. The fundamental purpose of SIFs was to encourage employers to hire workers with disabilities, without fear of an injury impacting their work comp coverage. Prior to the establishment of Second Injury Funds, two scenarios would occur when a second injury arose:

1)      The injured worker would be limited to recovering benefits for the second injury alone or

2)      The employer would be obligated to pay benefits equal to the combined effects of the preexisting disability and the second injury

Neither of these options were good for either the employer or employee, so the establishment of SIFs made sense as a way to protect both parties and encourage proper hiring practices.

The costs of SIFs are spread out amongst all employers paying for workers compensation benefits in a given state, typically charged in a percentage tax built into a policy (in Missouri, the second injury fund tax is currently 3% of premium).

In the past 30 years, almost 20 states have discontinued SIFs for a myriad of reasons – all related to the fund experience financial strains. Some of the reasons for difficulties Second Injury Funds experienced include: the fund’s coverage extending beyond its initial intended scope; assessment/fees to supply the funds not keeping up with actual expenses and coverage payments; and the argument that a Second Injury Fund is no longer a necessary remedy to hiring practices since the inception of the Americans With Disabilities Act (ADA).

It is important to note that the many of the states that have discontinued their SIF still have assessments and staff in place as the length of the runoff for payouts takes quite some time to go away. Typically, these states will gradually phase down the assessment percentages as the payout amounts dwindle.

Here is a list of states that have eliminated Second Injury Funds: