By Jim Kistler

A recent Missouri Supreme Court decision has sparked grave concern in Missouri. The decision could render Missouri's already fragile Second Injury Fund program essentially bankrupt, leaving employers to pick up the tab. That tab could potentially total more than a billion dollars. Many other states will be watching this drama closely.

Construction companies in particular will be watching the situation as workers' compensation rates for construction companies generally run higher per $100 of payroll than many other industry classifications. Statistics from the National Council on Compensation Insurance show premiums for the construction industry in Missouri and Kansas as three times higher than the average of all employers in each state. And Missouri premiums run higher than Kansas for the construction industry. A higher rate means construction employers pay more in workers' compensation costs, attributable to an elevated level of risk on the job site. 

The Second Injury Fund is a state fund that is funded by a surcharge imposed on the employer's workers' compensation premiums in Missouri. The fund compensates injured employees when a current work-related injury combines with a prior disability to create an increased combined disability.

An injured employee must have a permanent preexisting disability to trigger liability of the fund. The fund can provide additional benefits to injured workers for medical treatment if the employer is required to have workers' compensation insurance but for whatever reason does not have any.

Second injury funds were commonplace across the United States and came into existence as a way to encourage employers to hire individuals with pre-existing conditions and/or disabilities. Second injury funds were prominent following World War II, assisting injured soldiers returning from the war in finding jobs. Minimizing discrimination for those returning from the war was a primary catalyst.

Changing Times
Since that time, much of the responsibility for addressing discrimination of handicapped workers has fallen under the umbrella of the Americans with Disabilities Act (ADA). About half of all states have either eliminated their Second Injury Funds, or substantially reduced the liability associated with them. An example can be found in Kansas.

Prior to July 1, 1994, Kansas law provided coverage for "handicapped employees" afflicted with any physical or mental impairment of such magnitude that it served as an obstacle to obtaining employment. Coverage included afflictions such as epilepsy, diabetes, heart disease, arthritis, loss of a limb, and so on. Courts generally held that employers could get monetary relief from the fund for any handicap so long as it created a detriment to employment. Employers were allowed to shift all or part of the cost of such a handicap to the "fund," whose cost was spread to all employers in the state.

In 1994, Kansas law changed so the fund was no longer liable for second injuries. More than a decade later, and facing a billion dollars or more in unfunded liability, Missouri and its employers are looking to states such as Kansas for guidance on this tricky issue.

Missouri's Fund
Missouri's Second Injury Fund, created in 1943, provided coverage for permanent total disability, assisting disabled veterans with obtaining employment, and limiting the liability of employers only to the work-related injury incurred in the workplace. This limitation was an important part of promoting the employment of disabled workers. Over time, Missouri's system has expanded to include physical rehabilitation, permanent partial disability, benefits for uninsured workers and loss of wages from a secondary job. This expansion has caused an explosion of claims within the Second Injury Fund, with some individuals collecting from the Second Injury Fund dozens of times.

The case producing the current firestorm, Schoemehl v. Treasurer of the State of Missouri, hinged on a previously untested part of Missouri law. Under prior case law, workers' compensation benefits ceased with the employee's death, if that death was not related to the work injury. The new ruling states that benefits will continue to be paid to dependents of the deceased employee for the lifetime of those dependents.

The potential cost of this ruling is difficult to estimate because Second Injury Fund benefits have been paid since the 1940s, and it's unclear how far back this ruling will reach. Another difficulty in calculating the potential cost is in how the court extended benefits to dependents. The court stated that a person is entitled to lifetime benefits if they are related to the deceased worker by blood or marriage and are dependent "in whole or in part" upon the deceased worker's wages.

This is an unprecedented expansion of workers' compensation benefits. Employers will bear the cost, since the program is funded 100 percent by employer surcharges. Even if this program is eliminated, the cost for current benefits will continue for decades. Due to the higher costs, construction employers must be especially cautious about cases such as Schoemehl.

In other states, large unfunded deficits have remained after similar programs were eliminated. Connecticut faced a $6 billion deficit, Florida faced a deficit in excess of $4 billion and Kentucky faced a deficit of more than $2 billion. Missouri faces a choice: deal with the issue now and address a known but very large deficit, or allow the deficit to grow even larger year after year.

Jim Kistler is president and CEO of the Associated Builders and Contractors Heart of America Chapter. You can reach him at (913) 831-2221or .