L 16.2 IN 5/4 Second-Injury Funds AS EMPLOYMENT AIDS TO THE HANDICAPPED LIBRARY UNIVERSITY OF WASHINGTON SEATTLE UNITED STATES DEPARTMENT OF LABOR DIVISION OF LABOR STANDARDS, 1947UNITED STATES DEPARTMENT OF LABOR L. B. Schwellenbach, Secretary DIVISION OF LABOR STANDARDS Clara M. Beyer, Associate Director Washington - January 19 47SECOND-INJURY FUNDS AS EMPLOYMENT AIDS TO THE HANDICAPPED by Marshall Dawson i ! Neel for Second-Injury Fund Legislation Early workmen's compensation laws did not take into consideration the effect of compensation insurance upon hiring policies that injured.workers. had to face. Under these laws, which in some States have been left unchanged, many employers have believed that hiring physically handicapped workers results in markedly higher workmen's compensation costs. If a man who has lost an eye, arm, or leg should lose another member, the employer feared he might be liable for payment of compensation for a permanent total disability. The purpose of second-injury funds is to protect employers who hire handicapped workers against ouch a disproportionate loss, thereby removing this ground for refusing employment to impaired persons. At the same time, the fund assures the injured worker full compensation for his loss. Most States have amended their compensation laws to provide for second-injury funds or equivalent arrangements, in some instances soon after World War I. For many years, National Conferences on Labor legislation have recommended the adoption of such funds In all States. As of January 1, 19Mb only lb of the States having workmen's compensation laws are without such funds or equivalent arrangements. l/ In these States the proposal for second-injury fund legislation is sometimes met with the objection that since the provision has not already been made, there must be some good reason why it should not se adopted. Probably .there was no strong local demand. But now the handicapped veterans of World Wrar II who have not yet found employment and who have a right to expect that everything possible will be done by a grateful public to speed their placement in suitable jobs, urge the immediate passing of second-injury fund legislation. Moreover, the experience of industry during the war demonstrated the outstanding productive capacity of handicapped persons, and the need for full production continues. Example of What can Happen When There is no Second-Injury Fund An example was cited, during the 1951 convention of the International Association of Industrial Accident Boards and Comm: ;o sh: she s as — ;rous effect upon individuals and upon the employment program in a State resulting from the failure to make special provision for second-injury cases . It was stated that as a result of a court decision holding an employer liable for the payment of permanent total compensation 'where an employee who had previously lost the sight of his left eye received an injury in the 1/ Alabama, Florida, Georgia', Indiana, Louisiana, Montana, Nebraska, Nevada, New Hampshire, New Mexico, South Dakota, Texas, Vermont, Virginia. Mississippi has.no workmen's compensation law.- P - course of his employment destroying his right eye," 7_,000 one-eyed, one-armed, and one-legged workmen in the State of Oklahoma lost their jobs "because employers were unwilling to assume the broad liability that this decision imposed. (Bureau of Labor Statistics Bulletin Ko. fpo, page 272; "Workmen's Compensation Laws in Relation to the Employment of the Kiysically Handicapped," page p, federal Security Agency, U. S. Office of Education. Lease v. Hughes Stone Company et al, 244 Lac. 778). From that time until the passage of a second-injury fund amendment, it was very hard for men having only one eye, one arm, or one leg to get jobs in Oklahoma. Such difficulties were experienced in many States by workers who had lost an eye, arm, hand, or leg. How Second-Injury Funds Operate The simplest form of second-injury fund provision states that when an employee who has previously lost a hand, arm, foot, leg, or eye loses another member, and as a result is totally or almost totally disa.bled by the combined injuries, the employer shall pay only for the partial disability that would have been caused by the last injury considered by itself. The employee, however, will be paid compensation for the disability resulting from the combined injuries. Tie difference between the cost, for example, of the loss of a second arm or leg, and the cost of compensation for permanent total disability will se paid out of the second-injury fund. The second-injury funds are usually supported by a charge or award • mad e against employers when the worker who has been killed does not leave any dependents. Such charges range from $p00 in Maine to $1,000 in Michigan, However, in some States the second-injury fund is supported by a levy of a small percentage of the compensation allowable for permanent partial disabilities; that is, the disability resulting, for example, from the loss of one member— an eye, hand, foot, or leg. In Minnesota these two arrangements are combined. Again, the insurance carriers may be taxed a certain percentage of their compensation payments. The Cost of Maintaining Second-Injury Funds Tie cost of maintaining a second-injury fund varies according to the type of cases that are compensated out of its resources, the State benefit level, the administrative policy, the arrangement for the defense of claims presented against the fund, the Incidence of certain types of injuries, and the court decisions. It has been noted that the scope of some second-injury fund provisions is broader than that of others, and also that assessments in no-dependency death cases range from SpOO to $1,000. In 1911 the International Association of Industrial Accident Boards and Commissions recommended an assessment of $9 In the few instances when a second-injury fund has encountered temporary financial difficulty, the main source of trouble has usually been the vagueness of the legislation, Inadequate arrangement for defending claims .... against the fund, too smal.1 an assessment for supporting a fund of the type that was proposed, or all of these causes. Such temporary difficulties are readily removed by administrative and legal changes. It Is, of course, important for administrators to keep In mind the consideration that in controverted- 3 - no-dependency death cases there may he no one having a monetary interest j^ho ’will proceed to develop the evidence, since the beneficiary will he the iund. For instance, at one time in New York there was an accumulation of death cases in which the insurance carrier had filed a notice oi controversy upon causal relation of industrial injury to the death. This made it necessary for the Department to assign special investigators and a special rei eree to dispose Oj. those cases, resulting in awards of many thousands of dollars in that year to the second-injury fund. Since at one time or another several arrangements for the support of a second-injury fund have had to he revised, the question may he asked when legislation to set up a fund is being considered, "How large must a fund be at the start?" A quarter of a century's experience with the definite type of second-injury fund—the application of which is limited to compensating cases involving the loss or loss of use, in prior and suosequent injuries, 01 eyes, hands or feet, arms or legs, resulting in permanent toual disability has shown that the cost of financing such a fund is relatively negligible. Moreover, there is little if any need for a "nest egg" with which to start this type of fund, because payments to be made out of it in any case do not begin untix the payments for an injury considered by itself and without regard to prior disability have ended. Consequently, there Is time for resources wo accumij_a<>e in the fund before expenditures from it are required. Experience of the hew York Special Disability Fund to January 1, To meet the requests for information received from States considering the establishment of second-injury funds, a fairly complete analysis^oi the experience of the New York special disability fund, was obtained in 19I3 from M. T. Howard, then director of the Finance Bureau, Hew York State Department oi Labor, and also from the Division of Statistics and Information. The previous disabilities covered by the New York provision are "permanent partial disability through the loss of one hand, one arm, one foot, one leg, or one eye. Charges are made against the special disability fund only where the second injury results in permanent total disability. The liability oi the xund is ±or the additional compensation above that allowed for the second injury considered by itself as a permanent partial disability. Payments in the permanent total cases continue during the lifetime of the disabled worker. The number of cases charged against the special disability j.und on December l6, 19l3, was 99. Tills fund began operating in 1919- The number of cases terminated in 19l3 5; the number acquired, p. In relation to the total number of compensated cases, the number of second-injury cases chargee, against the fund is negligible. For the years 1931 through lpt 7,816.06 14,576.69 8,993.77 11,977.18 22,969.89 29,157.77 11,358.76 8,929.69 > , > > > ’ > > 6,822.60 2,336.00 10,720.06 6,952.25 3.330.18 11,117,66 5.676.18 5,761.90 7,286.56 10,056.00Arrangements fox* Maintaining Second-Injury Funds It has been noted that the cost of supporting a second-injury fund depends upon a number of factors—mainly, the benefit scale, the breadth of coverage of the second-injury provision, and the regional incidence of certain types of injuries. In 1933 the International Association of Industrial Accident Boards and Commissions recommended a $500 charge in no-dependency death cases to maintain such a fund, but some commissioners considered this amount a starting point, rather than an adequate charge. The New York special disability fund was mainly sup.poi’ted oy a $500 charge in no-dependency death cases, together with interest, on investments and receipts from fines and representatives' license fees. There were dij.ieren.ces of oninion with regard to the adequacy of the $500 charge in New York, out lb nas been noted that the receipts were larger than the payments* In Wisconsin the second-injury fund has' been supported by a levy o± $75 upon the employer in listed major permanent disability cases. In fhnnesota the "special compensation fund" is supported by a $300 levy upon employers' xh no-dependency death cases together with a levy of an additional 2 percent of the total compensation paid in permanent partial cases. It has long been recognised that to prevent hiring discrimination•in favor of-single men without dependents, and for other reasons, the levies'mentioned ($500 and $300) in no-dependency death cases understate the total amount or amounts that should be charged for all purposes, In New York the $500 levy for .'its second-in jury fund, the coverage-of which was the limited rather than the broad pattern, was matched by another levy of $500 for the rehabilitation fund, and in addition there was a levy of $1,000 for the "fund for reopened cases." 2/ In Wisconsin a levy not to exceed $2,000 is made in no-dependency death cases to provide additional benefits to dependent children. • ’ ' ' In discussions during the conventions of the International Association of Industrial Accident Boards and Commissions, the well-informed opinion was expressed that $2,500 would be a reasonable total charge to make in no-dependency death cases, for financing a second-injury and rehabilitation fund, special payments to dependent children, and for other purposes recognized in some of the compensation acts. Especially under any act which provides lifetime payments in permanent total disability cases,.a $500 levy in no-dependency death cases-should be considered a minimum starting charge. It has heretofore been noted that it Is not a matter of" concern to provide an initial appropriation for a second-injury fund, because the first payments out of such a fund, unless the 'second-injury provision is broad, do not start until the termination 01 payments -for the second injury considered by Itself without regard to the previous disability. Other questions asked In States considering the establishment of second-injury funds are: ' "How many of the compensable workmen's compensation claims will be second-injury cases that are charged against the special fund?" "How frequently will the cases be acquired, and what is the incidence of the types oi 2/ Under the legislation as of 19^3.- 7 - disabilities in the acquired cases?” ”Eow much must be the contributions necessary to enable the fund to meet the demands upon it and keep solvent?” Dependable information upon such pointe can be obtained only from long-range experience "with the type of fund provision that is being considered ior adoption. The International Association of Industrial Accident Boards and Commissions, in 19^4, recommended for adoption a type of fund provision enacted in Maine in I9U5 which is substantially the same in respect to injury coverage as the original previsions in New York and Wisconsin. Because of the length of experience with this type of provision in New York and Wisconsin, and the excellence of the statistics in those States, their accounts and statistics during the period of operation mentioned furnish answers to essential questions upon relative frequency and cost of second injuries and the requirements for supporting second-injury funds of the types examined. The New York experience examined was that during the years 1919“ 19^-5 5 the Wisconsin experience, from 1919 to-1999* Since those dates, both States have experimented with broader types of provisions. Their long experience cited below makes them good proving grounds for such experimentation. The Drafting of Second-Injury Fund Provisions The main purpose of second-injury fund legislation has been to allay an employer's fear that If he hires a man who has lost an eye, hand, foot, arm, or leg he may, In event of another Injury, be charged with the relatively high cost of an award for permanent total disability. The impact even of this cost upon the employer is, of course, cushioned by insurance. Indeed, unless the insured employer is subject to merit rating, a permanent total disability award to one of his employees would not cost him a cent, although. It might make his "risk” seem less desirable to an insurance agent. Insurance premiums are cased upon State and Nation-wide experience. The effect of the permanent total disability award would be felt directly by a "self insured” employer, that is, one who has been allowed the privilege of carrying his own risk and not buying Insurance. But it has frequently been put forward that unless "self insurance” is to lose favor with, labor unions, governmental agencies, and the public, it must recognize its social responsibility along with the insurance carriers for the employment 01 a fair quota of impaired workers. In view of the fact, then, that the employer is in the main protected against the impact of compensation cost by the insurance carrier, it may be an over-refinement to attempt to extend the further protection of the second-injury fund to cover the expense of a difference between the cost of an existing major permanent disability and the cost of subsequent disability less than permanent total. In fact, very seriously impaired workers usually receive permanent total disability awards. It is important that the operation of the second-injury fund shall be successful from the start, and that it shall xeep out of the courts. Hence the advantage of a definite, plain legal basis. The justification for a limited type of second-injury fund is, then, that the purpose of this arrangement is limited. The broad and complete protection is to be furnished by the insurance policy, in the case of insured employers, and by regulation and supervision in the case of "self insurers.”Recommended. Draft Althougla the Rational Conferences on Labor Legislation had repeatedly urged the adoption of second-injury funds, there was a wide variety-as to substance and detail of many of the bills presented to legislatures for establishing such funds. It has been noted that the draft recommended by the IAIABC was simple and specific, confined to apparent anatomical impairments, aimed at meeting the employer's fear of heavy loss in event of a subsequent injury the effect o± which would be permanent total disability. But In an effort to meet the mixed demands of diverse groups, bills have been introduced and sometimes passed which were Involved and hard either for a layman or the courts to understand. The result was a rush of claims, administrative delays in paying claims, and the threatened or actual insolvency of the funds, The matter came to a head in Oklahoma., which had adopted In April 19^-5 a type of provision which covered even very trivial Variations in compensation cost due to second injuries. Amendment was required to save the fund. In September 19bb the International Association of Industrial Accident Boards and Commi ssi ops adopted a recommended draft, after prolonged study and -many committee meetings attended by representatives of all groups interestedc This draft was the time-tested type, shown by long experience to be administratively practical . The source of the draft was the Maine law, notably brief and plain, ’ the only change being to raise the $p00 assessment to $5^0. The mention of the $500 levy in no-dependency death cases, in the recommended draft, simply indicates that such a charge will, cn the average, meet the. financial requirements of this type of second-injury fund, and is not intended to set a limit upon what may be levied in no-dependency 01- other cases to support a special, fund or iimdso Some States support more than one fund by such levies: for example, funds for additional grants to dependents, for rehabilitation, or for meeting the cost of old cases that have been reopened. The recommendation is concerned only with the financial needs of the second-injury fund. The recommended draft, is as follows: - 9 - Becommended Draft of a Second-Injury Fund Provision, adopted by the International Association of Industrial Accident Boards and Commissions September lU, 19^ COMPENSATiON OP EMPLOYEES WHO HAVE RECEIVED PRIOR INJURIES Permanent total incapacity due partly to prior injury; second-injury fund—If an employee who" has^previously lost, or lost the use of, one hand, 1 one arm, one foot, one leg, or one eye, becomes permanently and totally inca- pacitated through the loss or loss of use of another member or organ, the employer shall be liable only for the compensation payable for such second injury, / Provided, however, that in addition to such compensation and after the comple- tion of the payments therefor, the employee shall be paid the remainder of the compensation that would be due for permanent total incapacity, out of a special fund known as the "second-injury fund," and created for such purpose in the followIng manner: In every case of the death of an employee under this act, where tnere is no person entitled to compensation, the employer shall pay to the industrial accident nommisaion the sum of $5^0 deposited with the treasurer of State for the benefit of said fund, and the commission shall direct the disurisution thereof. NOTE: Support of the Second-Injury Fund f As previously indicated there are several methods of supporting second-injury funds, the selection having been governed by local considerations or the existing frame of legislation in the States. The support may oe derived from death benefit where there are no dependents, from payments in first major injury cases, from both these sources, or from a percentage levy upon insurance 0 carriers and self-Insurers based either upon their compensation losses or the insurance premiums and estimated insurance cost of self-insurance coverage. If the amounts collected prove deficient or redundant for meeting losses, the charge can be adjusted by amendment of the law in the light of adequate experience upon local circumstances and needs. If a percentage levy upon insurance carriers and self-insurers is employed, there may be, if desired, a provision that whenever the resources of the fund exceed by 20 percent the actuarial value of the losses, the Commission may in its discretion suspend the further collection of assessments until the liabilities equal the resources of the fund. Second injury fund provisions and methods of financing required by Wisconsin and Mt nnes ot a follow: WISCONSIN—"In case of the loss or the total impairment of a hand, arm, foot, leg, ear, or eye, the employer shall be required to pay $75 into the State Treasury. The payment shall be made in all cases regardless of whether the employee, his dependents or personal representatives, commence action against a third party." - 1C MINNESOTA'—!'(l) In every case from an accident arising out of and where there are no persons entitled of death of an employee resulting in the course of his employment to compensation^ the employer shall pay to the industrial commission the sum of "(2) When an employee shall suffer a compensable injury which results in permanent partial disability by reason of the total loss of a member or members, or injury to a member or members resulting in less than a total loss of such member, and which injury entitles him to compensation pursuant to section i76.ll (727^-); clause (c-) the employer;, or his insurer^ shall; in addition to the compensation provided for in clause (c); pay to the industrial commission for the benefit of the special compensation fund a lump sum;- without interest deductions; equal to two percent of the total compensation to which the employee Is entitled under clause (c) for the permanent partial disability; this sum to be paid to the industrial commission as soon as the total amount of the permanent partial disability payable for the particular injury is determined by the industrial commission; or arrived at by the agreement of the parties and such amount is approved by the industrial commission.' The draft adopted by the International Association of Industrial Accident Boards and Commissions was also recommended by the Council of State Governments and the U. S. Employees' Compensation Commission. This type of draft is known to assure the safe starting and operation of a second-injury fund provision. (ST 47-291) {' J ( A