FAQ – Second Injury Fund

What Is Second Injury Fund Recovery?

Second injury funds (SIFs) were created to relieve a portion of the employer/insurer’s claims costs when the employer hired or retained an employee with a pre-existing medical condition who then suffered a “second” injury, creating a greater disability due to the combined effects of both conditions.  Before second injury fund statutes, these situations caused employers to bear the additional cost of the greater disability; therefore, employers were reluctant to hire workers with pre-existing medical conditions.

Many second injury funds are now closed to new injuries; however, these funds still exist in several jurisdictions and provide employers and insurers with a valuable, yet often underused, recovery/cost-containment tool.

An estimated $800 million is paid out annually from second injury funds across the country, primarily by reimbursement to the insurer or sometimes directly to the employee.

The first second injury fund was created in New York in 1916. Similar  statutes gained popularity across the country in the 1940s, when a National Model Workers’ Compensation Code was promulgated in large part to help combat employment discrimination against disabled WWII veterans. Second injury funds were further expanded in the 1950s after many states adopted language from a model workers’ compensation act drafted by the Council of State Governments.   Among other changes, this draft expanded the definition of pre-existing impairment and the point of fund liability.  As these statutes found their way into each jurisdiction’s workers’ compensation system, they developed various other names ― e.g., special disability fund, subsequent injury trust fund, apportionment fund, workers’ compensation trust fund, handicap reimbursement fund, etc.

Initial funding mechanisms for SIFs were essentially inadequate, because they had little relationship to the actual exposure of the SIF. Today, in most jurisdictions, employers/insurers are required to pay a yearly assessment based on a percentage of premiums written or losses paid the previous year. In turn, the funds pay directly to the employee, or reimburse the insurer, for a portion of the claims costs when a prior impairment combines with the industrial injury to create a greater disability and claim exposure.

For various reasons some of these funds have had a volatile life within their jurisdictions’ workers’ compensation systems and several such statutes have been repealed. Surviving funds, however, are quite active and share many of the same characteristics while remaining consistent with their own jurisdiction’s workers’ compensation statutes.

Common Second Injury Fund Elements and Issues

The following are some common elements and issues found in today’s more active second injury funds.

Pre-existing Medical Condition – Most second injury fund statutes require that in order to prove a claim, there must be evidence that the employee suffered from a known pre-existing medical condition arising from a prior accident, disease, or congenital condition and that this condition was diagnosed before the date of the second injury.

The prior condition is generally required to have been permanent.  Some states, such as Arizona and Nevada, require the prior permanent condition to qualify as a specified percentage under the AMA Guides to the Evaluation of Permanent Impairment (10 percent and 6 percent, respectively).

Unfortunately, many qualified claims do not get filed because of insufficient documentation of the prior permanent condition. In some cases, evidence obtained from medical experts can be presented to support the claim

To further qualify claims under this element, many statutes will list a number of exclusive or presumptive prior impairments. It is important to note the difference between an exclusive list and a presumptive list; when a list of prior impairments is merely presumptive, a claim may still be filed with the fund if the prior impairment otherwise qualifies.

Another element commonly required of the prior condition is that it be a hindrance or obstacle to employment. This definition is usually inserted by stating that prior impairment “is or is likely to be” a hindrance or obstacle to employment or “an obstacle or hindrance to employment should the employee become unemployed.” As a somewhat subjective qualifier, the “hindrance” requirement can be satisfied numerous ways, including presenting evidence of the employee’s vocational background, medical expert records and opinions, employer statements, or a combination thereof.

Notice to Fund – Almost all active second injury fund statutes have a notice provision that requires the employer/insurer to put the fund on notice of a potential claim within a specified time, e.g., within 100 weeks from the employer’s first report of injury. Failure to notify the fund within the statutory time limit is generally a complete bar to fund liability. Notice requirements and forms vary from jurisdiction to jurisdiction.

New Hampshire’s statute allows for reimbursement of almost all medical and indemnity benefits after the first $10,000 of combined benefits. Fifty percent of payments are reimbursed within the first 104 weeks of disability and 100% thereafter.

Most reimbursement funds will be involved in any workers’ compensation settlement discussions between the employee and the employer or insurer. Some jurisdictions, such as New Hampshire, require the fund’s prior approval of the settlement.  In those jurisdictions, if the fund is not involved, any otherwise reimbursable portion of the settlement cannot be recovered.

In some states, such as Massachusetts, if SIF liability has been established, the Fund may be involved with any third-party settlement. Not all funds want to be involved at this level, but most funds will review any third-party settlements and take appropriate credit so as not to reimburse an employer/ insurer for monies on which it has already been reimbursed.

In order of largest opportunity, the following states, which we call reimbursement states, have the best recovery potential: Massachusetts, New Hampshire, Louisiana, Nevada, Arizona, and Alaska, as well as the following states, which have closed their funds prospectively: New York, Florida, Washington D.C., South Carolina and Georgia. Other states have opportunities for transfer of the second injury fund liability, such as New Jersey (which takes over future payments).

Second injury fund recovery is IRG’s core competency.  Our combined legal and claims based approach maximizes SIF recovery dollars and reserve reductions for every IRG client. We accomplish this through a proactive recovery process that combines the talents of experienced attorneys and recovery specialists with both medical and claims knowledge following comprehensive, structured, best practice recovery procedures. Together with our proprietary database of rules, regulations, state specific strategies, and “out of the box” thinking when appropriate, the IRG process results in the earliest possible claims resolution and maximum recovery.

Benefits extend beyond recovery dollars and reserve reduction.  IRG’s programs help clients to accelerate recovery cycles, accurately forecast financial results with customized recovery reports, reduce litigation costs, help resolve underlying claims sooner, allow adjusters to focus on their primary responsibilities, and institute a best practice, single source, nationwide solution for maximizing recoveries.

IRG contracts with many major insurance companies, third party administrator, self-insured employers, trusts, and insured employers with high retentions. Our clients include ACE, AIG, Electric Insurance, Fireman’s Fund, General Motors, The Boston Globe, The Hartford and Travelers. A more complete client list is available upon request.

We are experienced in recovering from second injury funds in all reimbursement states.  Together with our captive law firm, Cheung-Truslow & Uehlein, LLC, we are able to manage the recovery process from “cradle to grave.” We follow Best Practices in our recovery process to ensure maximum recoveries for our clients.

In addition, IRG is capable of managing the data and quality control for any other SIF vendors who may provide recovery services to our clients, so that there is one best practice standard for performance and one SIF recovery database. Our information systems manage and track the quality of work provided and ensure that continuous quality improvement is in place.  We also continuously monitor legislative actions that may affect recovery and suggest proactive solutions to our clients.

We are experienced in recovering from second injury funds in all reimbursement states, and together through our captive law firm, we are able to manage the recovery process from “cradle to grave.” We follow best practices in our recovery process to ensure that we are maximizing recoveries for our clients.

We manage the data and quality control for any other SIF vendors who may provide recovery services to our clients, so that there is one best practice standard for performance and one SIF recovery database. Our information systems manage and track the quality of work provided and ensure that continuous quality improvement is in place. Finally, we continuously monitor legislative actions that may affect recovery and suggest proactive solutions to our clients.

At no cost, IRG will perform a review of workers’ compensation claims for potential SIF recovery and submit our findings.  We will then discuss the recovery opportunities identified and initiate an aggressive and systematic recovery process.  Our clients incur absolutely no risk and pay no fee for service, unless and until IRG successfully obtains recovery.

We have a great deal of experience in seamlessly and quickly integrating our processes with existing claims operations. We communicate claims strategy and the status of all recovery opportunities on a periodic basis to the claims handler and client manager, through individual and/or customized reports.

Employer’s Knowledge of the Pre-Existing Medical Condition – Most, but not all, second injury funds require that the employer have knowledge of the prior condition before the second injury occurs. Alaska, Arizona, Louisiana, New Hampshire, Nevada, and Massachusetts are examples of active SIF jurisdictions with a strong employer knowledge element.  Interestingly, Massachusetts did not require employer knowledge until it changed its workers’ compensation statute in December 1991.

A common misconception about the employer knowledge element is that the employer’s knowledge of the prior condition must be ascertained at the time of hire. Most statutes allow employer knowledge to take place at any time before the second injury. Massachusetts is one of the only “knowledge” jurisdictions that provides a time limit (30 days) from the date of hire or retention in employment for the employer to gain knowledge of the pre-existing condition. Allowing knowledge to be ascertained after the date of hire is one of the ways that SIF statutes try to dovetail with disability discrimination laws.

Some jurisdictions, including New Hampshire, Alaska, and Nevada, also require the employer’s knowledge to be corroborated with documentation from the employer. The purpose of written documentation is to verify the employer’s statement that it knew of the prior impairment before the second injury. Unfortunately, such a strict requirement disqualifies many otherwise deserving claims in these jurisdictions. Many employers do not document their employees’ pre-existing impairments although they are well aware of a prior disability.

Combination of Prior Condition and Disability from “Second Injury” – Most funds require medical evidence to prove that the employee’s disability after the second injury is substantially greater because of the combined effects of the prior and second injury than it would have been had the second injury happened alone. A common misconception of this element is that the prior disability must be to the same body part as the second injury and that the second injury must somehow directly aggravate the prior disability. Direct aggravation is not always required, and many different combinations of disabilities can give rise to a SIF claim.

Some funds even promulgate a form containing questions to be answered, preferably by the treating physician, before they will approve a claim. These forms must be carefully reviewed, as they do not always conform to the statutory requirements. Many claims can be perfected by including an expert medical report, carefully constructed to mirror the statutory language, whether or not it is written by the treating physician.

Point of Fund Liability – The point at which the fund has potential liability varies from state to state. Louisiana’s second injury fund allows reimbursement for medical benefits after a certain monetary threshold ($25,000) and indemnity after a certain number of weeks of indemnity has been paid on the claim (104).

New Hampshire’s statute allows for reimbursement of almost all medical and indemnity benefits after the first $10,000 of combined benefits. Fifty percent of payments are reimbursed within the first 104 weeks of disability, and 100 percent thereafter.

Some funds are liable for both indemnity and medical benefits, and some for indemnity only.  A few funds limit indemnity liability to disability claims and exclude dependency benefits on death cases (e.g., New Jersey).

Types of Funds

The two major types of second injury funds are reimbursement funds and funds that pay the employee directly. With both types, the employer/insurer is able to significantly write down any future reserves on a claim when the fund becomes liable. In certain jurisdictions, such as Louisiana, the fund requires the employer/insurer to sign an affidavit that it is writing down its reserves on the claim before a reimbursement check will even be issued.

Reimbursement Funds

Most reimbursement funds reimburse the insurer for indemnity and medical benefits made to or on behalf of the employee. Once SIF liability has been established, the employer/insurer remains the primary claims handler and must request periodic reimbursement from the fund (usually quarterly, semi-annually, or annually) for certain payments made on the claim.

Most reimbursement funds will be involved in any workers’ compensation settlement discussions between the employee and the employer/insurer. Some jurisdictions, such as New Hampshire, require the fund’s prior approval of the settlement.  In those jurisdictions, if the fund is not involved, any otherwise reimbursable portion of the settlement cannot be recovered.

In some states, such as Massachusetts, if SIF liability has been established, the Fund may be involved with any third-party settlement. Not all funds want to be involved at this level, but most funds will review any third-party settlements and take appropriate credit so as not to reimburse an employer/ insurer for monies on which it has already been reimbursed.

Funds that Pay the Employee Directly

Some second injury funds pay the injured employee directly once SIF liability has been established.  In New Jersey, once the fund’s liability has been established, it pays the employee’s permanent and total benefits for the life of the claim. Although the employer/insurer remains liable for the medical aspect of the claim, it can write down the indemnity reserves, which is usually a significant amount.  The federal Longshore and Hawaii funds work the same way.

A “charge to” fund exists when a non-self-insured employer in a monopolistic jurisdiction is allowed to “charge” that portion of the claim cost, caused by a combination of a prior and second disability, to a fund in that state so that the cost for that claim will not be calculated into the employer’s experience modification rate. In Ohio, for example, that portion of the claim that otherwise would have been charged to the employer’s experience is deducted from that claim and charged to the Statutory Surplus Fund.

Conclusion

There are many active second injury funds in existence today, and perfecting all claims takes focused time and effort. Strict attention should be paid to the statutory and regulatory requirements.  Although no two funds are exactly the same, they were all born from the same intent.  A sound knowledge of the various fund requirements provides significant benefit to handling any one jurisdiction’s claims.

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How Much Money Does Second Injury Fund Recovery Involve?

The SIF laws vary significantly from state to state, but recoveries of several hundred thousand dollars per claim are typical in many jurisdictions. In addition, future recoveries allow for an immediate reserve reduction.

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What States Offer the Best Opportunities?

In order of largest opportunity, the following states, which we call reimbursement states, have the best recovery potential: Massachusetts, New Hampshire, Louisiana, Nevada, Arizona, and Alaska, as well as the following states, which have closed their funds prospectively: New York, Florida, Washington D.C., South Carolina, and Georgia. Other states have opportunities for transfer of the second injury fund liability, such as New Jersey (which takes over future payments).

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What Are the Benefits of Outsourcing to IRG?

Second injury fund recovery is IRG’s core competency.  Our combined legal/claims based approach maximizes SIF recovery dollars and reserve reductions for every IRG client. We accomplish this through a proactive recovery process that combines the talents of experienced attorneys and recovery specialists with both medical and claims knowledge following comprehensive, structured, best practice recovery procedures. Together with our propriety database of rules, regulations, state specific strategies, and “out of the box” thinking when appropriate, the IRG process results in the earliest possible claims resolution and maximum recovery.

Benefits extend beyond recovery dollars and reserve reduction.  IRG’s programs help clients to accelerate recovery cycles, accurately forecast financial results with customized recovery reports, reduce litigation costs, help resolve underlying claims sooner, allow adjusters to focus on their primary responsibilities, and institute a “Best Practice” single source, nationwide solution for maximizing recoveries.

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Who Has Benefited from IRG Services?

IRG has worked with many major insurance companies, TPAs, self-insured employers, trusts, and insured employers with high retentions. Our clients include ACE, AIG, Electric Insurance, Fireman’s Fund, General Motors, The Boston Globe, The Hartford and Travelers. A more complete client list is available upon request.

We are experienced in recovering from second injury funds in all reimbursement states.  Together with our captive law firm, Cheung-Truslow & Uehlein, LLC, we are able to manage the recovery process from “cradle to grave.” We follow Best Practices in our recovery process to ensure maximum recoveries for our clients.

In addition, IRG is capable of managing the data and quality control for any other SIF vendors who may provide recovery services to our clients, so that there is one Best Practice standard for performance and one SIF recovery database. Our information systems manage and track the quality of work provided and ensure that continuous quality improvement is in place.  We also continuously monitor legislative actions that may affect recovery and suggest proactive solutions to our clients.

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Why is IRG so Successful on Behalf of its Clients?

We are experienced in recovering from second injury funds in all reimbursement states, and together through our captive law firm, we are able to manage the recovery process from “cradle to grave.” We follow Best Practices in our recovery process to ensure that we are maximizing recoveries for our clients.

In addition, we are capable of managing the data and quality control for any other SIF vendors who may provide recovery services to our clients, so that there is one Best Practice standard for performance and one SIF recovery database. Our information systems manage and track the quality of work provided and ensure that continuous quality improvement is in place. Finally, we continuously monitor legislative actions that may affect recovery and suggest proactive solutions to our clients.

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Are Initial Claim Reviews Free?

At no cost, IRG will perform a review of workers’ compensation claims for potential recovery and submit a report of our findings.  We will then discuss the recovery opportunities identified and initiate an aggressive and systematic recovery process.  Our clients incur absolutely no risk and pay no fee for service, unless and until IRG successfully obtains recovery.

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How Involved is IRG with the Second Injury Fund Recovery Process?

The SIF recovery function, once it is outsourced to IRG, is not in any way disruptive to claims handlers, who have minimal to no involvement in the process. We have a great deal of experience in seamlessly and quickly integrating our processes with existing claims operations. We communicate claims strategy and the status of all recovery opportunities on a periodic basis to the claims handler and client manager, through individual and/or customized reports.

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How is the Injured Employee Affected?

The injured employee is not affected in any way. The employee collects benefits without disruption to the timing or amount of benefits received.

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How Can IRG Services Provide a Single-Source Solution for the Client?

Today it is not enough to be a small local vendor in a single state or region.  Clients need a fully integrated, enterprise-wide, recovery solution through a single source.  IRG’s focus is countrywide and enterprise-wide, enabling us to do several things on behalf of all our clients:

  • Offer a variety of programs, either on a jurisdictional or enterprise-wide basis, including total outsourcing.
  • Integrate and coordinate the recovery process and/or settlement with claims personnel.
  • Track all jurisdictional legislative changes and reforms that affect each individual client through one focal point for information.
  • Manage other vendors’ performance and report their data while enforcing best practices in those situations where another vendor is required due to the client’s business needs.
  • Customize enterprise-wide reports, detailing the recoveries made, the future value of recoveries, and the timing of such recoveries.

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What Types of Reports are Available from IRG and what is the Frequency of Reporting?

Reports Include:

  • File Review Reports
  • Individual Case Reports
  • Multi-State Client Reports
  • End of Year Reports

IRG provides a report shortly after any file review with a description of the number of files reviewed, and which ones IRG identified for potential SIF recovery. Individual case reports are sent to the adjuster soon after IRG opens the claim and periodically during the investigation and processing of the claim.

Complete multi-state client reports are provided on an agreed-upon basis during the year, with a listing of all active claims and their current status in the SIF process. These reports can be customized to fit the client’s requirements.

End of the year reports, summarizing the year’s activity, generally contain the claim status, amounts recovered, value of cases in the pipeline, and expected recovery to allow the client to use the data for forecasting purposes.

Throughout the claims recovery process, potential recovery values are updated as relevant data from the investigation process impacts estimated amounts. This information can be provided on demand to the client, on a claim-by-claim basis.

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How Do We Get Started?

Typically, we only need a list of claims that fit our file review criteria in order to give you a preliminary evaluation of the opportunity. If the list of claims is sent to IRG in a spreadsheet, we can sort them to determine how many qualify for an audit according to state-specific guidelines.

Once we have a list of qualified claims, we make arrangements to audit the files (electronic or paper) for recovery potential. Paper files simply need to be pulled and placed in a centralized office/space for our team to review or, at our expense, shipped to us for review and promptly returned to you.   Electronic files may be reviewed onsite or remotely.

Further recoveries are initiated by periodic reviews performed by us, or by direct referral of claims by your claims handlers.

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