AIA Calls 98 Percent Increase in Second Injury Fund a ‘Tax’ on S.C. Employers

August 24, 2005

The South Carolina Second Injury Fund for workers’ compensation has approved a record-breaking 98 percent annual increase in the Fund’s 2005 assessment charged to employers, another indication that repeal of the fund is long overdue, according to the American Insurance Association.

“Steadily increasing SIF assessments that are ultimately borne by every employer who carries workers’ compensation coverage is a symptom of a system gone bad,” Raymond G. Farmer, AIA assistant vice president, Southeast Region said. “This year’s 98 percent increase is not just another cost of doing business, but a wholly unnecessary ‘tax’ on South Carolina employers that makes workers’ compensation coverage unduly expensive.”

Farmer said SIFs were originally created to reduce the financial impact of a workers’ compensation claim if a worker with a disability (who was injured on the job) aggravated a pre-existing impairment. The theory was to encourage the employment of “handicapped” workers, many of whom were returning World War II veterans. But the theory has never been demonstrably borne out by the reality.

All SIFs have accomplished in reality is a massive subsidization by some employers (generally smaller employers) for the benefit of larger employers with more claims qualifying for SIF relief. In addition, SIFs are a costly anachronism in view of direct remedies available under the Americans With Disabilities Act. In recognition of this fact many states have abolished their SIFs. SIF costs are distributed among all employers through annual assessments paid by insurance carriers (and collected from their policyholders) and self-insured employers.

South Carolina’s annual assessments have increased sharply in recent years, driven by increases in disbursements from the Fund. Supporters of the SIF’s continued existence convinced legislators in 2004 that costs would stabilize if employers were prevented from being reimbursed for claims related to an “unknown condition” – injuries that were never intended to be covered by the SIF.

“The 2004 change in the law has obviously not been successful in reducing the fund’s payouts,” Farmer said. “The bottom line is that the current SIF environment in South Carolina is not attractive to business and is a drag on economic development. AIA has long urged abolition of the SIF. We urge legislators again to take the long overdue step of eliminating the Second Injury Fund. It is time to stop digging the hole deeper.”

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