Audit predicts worker disability fund will run out of money by 2008

Thursday, April 26, 2007

JEFFERSON CITY, Mo. -- A state audit released Wednesday predicts a state fund to compensate disabled workers who suffer additional work injuries will likely run out of money by 2008.

The audit blames the Second Injury Fund's potential insolvency partly on a 2005 law that caps employer contributions into the fund and a 2007 court case that required disability benefits to continue to be paid even after the injured worker died.

State Auditor Susan Montee, a Democrat, said the 2005 law is having the biggest impact. She said the state needs to come up with more money for the fund.

"We have a solvency problem today, and that needs to be solved on the revenue side today," she said.

Montee said the problem is likely to be short-term because the 2005 law change also is helping reduce claims. Further cutting payouts will not help, she said, because it takes about three years for a case to be processed. That means current payments involve cases that began several years ago and have already gone through the courts.

The fund, created in 1943, is designed to encourage employers to hire workers who already have been injured. The fund is designed to take businesses off the hook for work injuries that worsen existing disabilities. Thirty-four other states have similar funds.

According to the audit, the Second Injury Fund handled 10,600 claims and spent $68 million last year on benefits and administrative costs. Auditors estimate claim payments will top revenue by $19 million per year from 2007 to 2009.

The Department of Labor and Industrial Relations, which administers the fund, estimates the fund will run out of money during the second half of 2008. Current law does not have provisions for what to do if the fund does not have enough cash to continue paying out benefits, which could endanger injured-worker claims.

"If there is not money to pay out these claims, the people who are owed money simply would not get paid," Montee said.

The audit came at the request of Republican Gov. Matt Blunt after the Missouri Supreme Court ruled in January that the state workers' compensation law allows the dependents of injured workers to continue receiving benefits after the worker has died.

Blunt said Wednesday that he has not reviewed the audit but has concerns about increasing payments into the fund.

"I'm very concerned about the viability of the fund," he said.

The fund balance comes from a fee employers must pay on top of their workers' compensation insurance premiums. That surcharge had fluctuated based on a formula created by the Department of Labor and Industrial Relations. But in 2005, lawmakers overhauled the workers' compensation system and capped the fee for the Second Injury Fund at 3 percent.

Auditors calculated that the surcharge should be 3.5 percent to keep the fund solvent. The fee was 4 percent in 2003 and 2004.

Republican critics, however, blamed the pace of payouts for the fund's financial problems.

Paul Sloca, a spokesman for the Missouri Republican Party, said Montee's audit wrongly blames the Republican-led Legislature instead of Democratic Attorney General Jay Nixon's defense of the fund. He called the audit "a political whitewash."

A spokesman for Nixon did not immediately return a call seeking comment.

Rep. Nathan Cooper, who authored a budget amendment that would strip from the attorney general's office funding to defend against injury claims, said rapidly increasing dispersal of funds is causing the problem. The Senate restored the funding.

"The reason the fund is going bankrupt is that the payments have skyrocketed," said Cooper, R-Cape Girardeau.

From 1999 to 2002, payments from the Second Injury Fund nearly doubled from $26 million to more than $48 million. Last year, disabled workers were paid $64 million.

The audit urges the Legislature and the Department of Labor and Industrial Relations to develop a plan for what to do if the fund runs out of money and determine whether the court case expanding who is entitled to disability benefits will have a long-term effect on the fund.

In its formal response to the audit's findings, the Labor Department said controlling expenses is needed instead. The department said keeping pace with the increasing claims would require raising employers' fees to 4.5 percent in 2009 and by at least 1 percentage point every year after.

The Second Injury Fund has been at the center of political controversy before. State law was changed to require the attorney general's office to defend complaints against the fund after former Attorney General Bill Webster was investigated for hiring campaign donors to do that.

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