Maintaining healthy workers’ compensation systems is a continuing challenge for states. The American Insurance Association (AIA) believes that one important reform that can benefit employers, carriers and ultimately, employees, is the elimination of state second (or subsequent) injury funds (SIFs).
While originally a laudable concept – encouraging the employment of disabled employees – there never has been any demonstrable evidence that SIFs ever met their intended purpose. Furthermore, in light of the financial trouble many funds have encountered and the more direct (and modern) remedy for protecting disabled workers available through the Americans With Disabilities Act (ADA), SIFs should be eliminated. They are dinosaurs; they serve no purpose other than allowing some employers to shift their losses to other employers, through broad assessments on all employers. Those assessments are tantamount to a perpetual tax on all employers.
In recent years almost 20 states have eliminated SIFs. Two states, Georgia and South Carolina continue to debate the viability of SIFs, and whether drastic changes in their operations or outright elimination is preferable.
AIA has been successful in getting legislation introduced in both legislative bodies that would do away with these outdated and costly mechanisms, but some still resist this move, despite ever-increasing costs and the development of alternative remedies that will achieve the policy objective SIFs never did.
SIFs are designed to reduce the financial impact of a workers’ compensation claim in the event a worker with a disability, injured on the job, aggravates a pre-existing impairment. Insurance carriers and self-insured employers receive reimbursements from the fund to cover eligible indemnity and medical costs. The costs sustained as a result of these second injuries to workers are then distributed among all employers in the state, through annual assessments.
SIFs violate a key tenet of sound insurance pricing: internalizing losses.
Editor’s Note: Ray Farmer is assistant vice president of state affairs, for the American Insurance Association’s Southeast region. To see the full story, see the Feb. 9 issue of Insurance Journal Southeast. For more information on this magazine, which contains news for independent agents in Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee and West Virginia, visit www.insurancejournal.com/subscribe or e-mail email@example.com.
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