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Government, Politics & Issues

Missouri Second Injury Fund, for workers with existing injuries, is broke, report says

This article first appeared in the St. Louis Beacon, Jan. 11, 2013 - The Missouri state auditor’s office issued its latest findings today of the state’s embattled Second Injury Fund, and the report’s conclusions came as no surprise:

"The fund is currently insolvent, with unpaid liabilities totaling over $28.1 million, and no means to pay the benefits required by statute.”

State Auditor Tom Schweich and his staff conclude that the General Assembly and Gov. Jay Nixon need to revamp the revenue stream for the injured-workers' fund, or eliminate the program by rolling it into the general workers compensation system.

"It's in grave condition,'' Schweich said in an interview Friday.

That conclusion has been repeated by others, including Nixon and Attorney General Chris Koster, for years.

The attorney general's office currently has stopped paying benefits, and some unpaid claimants have gone to court.

Schweich said his staff prepared this latest report over the past month, at the request of Koster. The office's last audit of the program was in 2007.

Missouri’s Second Injury Fund was set up in 1943 to encourage employers hire people, notably World War II veterans, with pre-existing injuries. The fund, which covers any new injuries they incur on the job, is overseen by the attorney general’s office.

The fund’s revenue comes from a surcharge on employers based on their workers' compensation insurance premium. Until 2005, the amount of the surcharge – a percentage of the total premium – varied from year to year to reflect the Second Injury Fund’s needs.

But in 2005, under then-Gov. Matt Blunt, the Republican-controlled General Assembly imposed a 3 percent cap on the size of the surcharge. The aim was to reduce workers compensation premiums. At the time, then-Attorney General Jay Nixon and other cap critics warned that the percentage wasn’t large enough to cover expected Second Injury Fund costs.

Since then, they’ve been proven right. Even before he took office, Koster said in late 2008 that a top priority was to persuade legislators to fix the fund’s financial problems. So far, the General Assembly has declined to increase the fund’s revenue, although legislation has been enacted to curb or eliminate benefits.

The Missouri Chamber of Commerce and Industry, among others, has unsuccessfully sought law changes to increase the fund’s revenue – in part out of fear that court awards could end up being even larger than the fund now allows (if benefits were being paid.)

Pending bills would increase the surcharge up to 6 percent.

Schweich's report says it would take a 7 percent surcharge -- for one year -- to take care of immediate problems. The surcharge could then be lowered to 5 percent, which Schweich said would eventually take care of the current fiscal problems.

Koster’s office has stopped paying out benefits, although at least 260 people have been awarded them – at a total cost of more than $20 million, plus interest. There are more than 28,000 pending cases. Some claimants have gone to court to force the state to pay up.

As of Dec. 31, according to Schweich’s report, “ the fund had a cash balance of approximately $3.2 million and unpaid obligations of $28.1 million, leaving a deficit of $24.9 million.”

“Our analysis of the division's 2013 projections of receipts and expenses indicate the 3 percent maximum surcharge will be insufficient to cover the ongoing payments due from the fund in 2013,” the report concludes.

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