In the editorial below, Gary Kern of RiskSAVERS LLC addresses criticisms of the Second Injury Fund, its functionality and its assessments. Kern believes that despite its problems, we owe it to small employers and workers who have previously experienced an injury to have the Second Injury fund in place in Louisiana.
I disagree with Troy Prevot, Executive Vice President of LCTA Workers’ Comp in Louisiana Comp Blog’s recent article on the Second Injury Board assessment increase. He suggests that the Second Injury Fund (SIF) function is an archaic instrument that is past its need, I think it still serves an important function.
The real purpose of the Second Injury Fund
The SIF, as a system, is designed to encourage employers to hire workers who have had injuries or illnesses that could be a “hindrance to employment or reemployment.” The alternative approach to the SIF system is the apportionment system. This alternative is not part of the Louisiana workers’ comp system. In general, apportionment only works if the employee had a prior work-related injury and as a result of that injury was given a permanent partial disability (PPD rating.) In simple terms, if an employee had a prior knee injury resulting in a 10 percent PPD, and then has a new injury to the same knee and if the new injury results in a greater than 10 percent PPD, the injured worker can collect only for the increase PPD percentage. Louisiana is a wage loss system. A 10 percent PPD knee injury may not result in a significant wage loss claim. However, if a new injury results in a greater PPD – say 15 percent – the additional 5 percent PPD award may not compensate the worker for a significant wage loss associated with the new injury.
It would be more correct to view the Louisiana Second Injury Fund system as a form of insurance that protects the employer from the uncertainty of a “high risk” hire. America has an aging workforce that is living longer and will need to work longer. This fact alone increases the employer’s risk of uncertainty associated with a potential adverse hire. All employers face the normal workplace risks associated with their job classification. These risks are handled by either self-insurance or some form of risk transfer (insurance being the most common method). But in Louisiana, as in other jurisdiction, the employer takes the worker as they find him – warts and all. The employer owes the worker indemnity and medical benefits for the effects of the actually injury, as well as the unintended effects of the injury if the new injury merges with a prior medical condition or prior injury. A hearing impaired worker who suffers a significant back injury that prevents a return to their prior form of employment faces greater wage loss risk to the employer than the exposure from a similar back injury with no adverse hearing loss.
Anyone who owns a car needs to buy car insurance but none of us complain when we do not get to use the auto insurance. The same applies to the Second Injury Fund program – if all of one’s losses are below the Second Injury Fund threshold deductible that is great underwriting. Proper management of a worker’s compensation risk requires the proper application of knowledge. If an underwriter elects not to investigate compensability issues, subrogation issues and SIF potential, etc. then the underwriter, will more likely than not, pay more per claim and have a higher loss cost than the underwriter who does. The trade-off may be a lower underwriting allocated costs.
How underwriting quality and the ADA play into the Second Injury Fund debate
For the underwriter to then blame a program like the Second Injury Fund system for their poor results is at best short-sightedness. The Louisiana Second Injury Fund system is an excellent risk management tool that transfers the risk from the single hiring employer to all Louisiana employers. It also benefits workers by not banishing them from the workforce because of a prior injury.
The cost of the system to the individual employer and payers is based on that entity’s annual medical and indemnity costs less its subrogation and Second Injury Fund recoveries. The better the entity manages its losses, the less financial burden it will incur as a result of the annual assessment.
Some of those who oppose the current system point to the Americans with Disabilities Act (ADA) as a reason why Second Injury Funds have outlived their usefulness. The ADA only applies to employers who have more than 15 full-time employees. These larger employers have HR and other resources to screen their workforce. These same tools are not normally available to the smaller employer. Does the smaller employer have a greater exposure to the risks associated with a “high risk” hire? If the answer is yes, then spreading this risk throughout the workforce to all employers is not only fair, but justified by allowing the employer community to offer work to all willing employees. Finally, the ADA is punitive in nature and does nothing to encourage hiring, does nothing to protect the employer’s experience modifier and does nothing to improve workplace safety.
If, as an employer, I cannot ask health and wellness questions then I am limited in my ability to create the safest work environment for all employees. The Second Injury Fund Medical History questionnaire provides a safe and inexpensive (post-hire) method for inquiry into the functional needs of each employee. This allows the diligent employer to offer job accommodation and to create safer work environments.
Where the problems with the Second Injury Fund lie
I would agree with Second Injury Fund critics that the current Second Injury Fund approval system appears to be adverse to the stated purpose of the program. The current lack of transparency concerning assessments; how much the Second Injury Board is collecting in annual assessments; how much has been collected; how much the system is paying out in reimbursements; and what determines submission reimbursement has created a negative impression of the system and its purpose.
My background includes experimental psychology, and one of the concepts generally studied is the Skinner box. The concept is to design a reward system that maximizes the desired behavior of a test subject (normally a white rat) at the lowest possible cost. In my humble opinion, the approval process and the reimbursement processes currently being employed by the Second Injury Board fail to educate the overall employer community about the objectives and merits of the system. In addition, the approval process and approval rate tend to discourage employers who actually use the system. Finally, the delay processes associated with reimbursements does little to reward the desired behavior. Back to my Skinner box, if the rodent in my Skinner box preformed the desired behavior and I took a year or more to reward that behavior I can assure you that even the smartest rodents would abandon the behavior. Humans are smarter than the average rodent, but we too can suffer from the effects of an anchoring bias. A negative experience anchors us to expect a bad experience the next time we file a claim. This anchoring bias causes us to focus on the faults of the system and not its merits.