Missouri injury fund refusing to pay, heading for insolvency

BY JASON HANCOCK • jhancock@post-dispatch.com > 573-635-6178 | Posted: Monday, June 6, 2011 12:21 am | (58) Comments

JEFFERSON CITY • Diabetes is something Mark Brumfield has been dealing with since he was 6. And even though it has caused numerous medical problems throughout his life, the Affton resident, 56, has always been able to work.

He was a custodian at St. Catherine Laboure Parish for years, continuing to work even after blisters on his feet got infected and resulted in toe amputations in 2005 and 2007. That all changed in June 2008 after he slipped and broke his hip while preparing to wax the floor of the school.

“I’ve done that job for years with no problem, but that stuff is so slippery, all it takes is one bad step,” Brumfield said.

He was ruled permanently totally disabled and eventually began receiving about $800 a month in disability payments. After three years, he also was awarded a little more than $300 a week out of the state’s Second Injury Fund, which covers certain workplace injuries that aggravate pre-existing disabilities.

But instead of receiving his first check from the state, he got a letter from the attorney general’s office saying Missouri couldn’t afford to make his payments.

“His case has been tried, there was no appeal, and this was a final decision,” said Phil Hess, Brumfield’s lawyer and president-elect of the Missouri Association of Trial Attorneys. “Yet he’s not being paid.”

Brumfield is among 55 workers who were left permanently disabled after a workplace injury and who are owed money out of the Second Injury Fund — but who are not getting paid.

To keep the fund from becoming insolvent, Attorney General Chris Koster decided in March to withhold paying any new permanent total disability awards. And with 28,000 pending claims against the fund, the number of people owed state money is expected to grow.

Despite warnings from Koster that the fund could go broke by year’s end, lawmakers last month adjourned for the year without passing legislation addressing the problem. Koster said this will likely result in some hard choices in coming months.

“All options involve some party not being paid what’s owed them,” Koster said.

That could mean more permanently disabled workers not getting paid, layoffs in the attorney general’s office or a combination of both, observers say.

“As the fiscal crunch gets deeper and deeper, they’ll start shifting back the people they can’t pay to include individuals who have already started getting checks,” Hess said. “Those folks are at risk of losing their payments, and those folks are terrified.”

FUNDING LAGS

The Second Injury Fund was established after World War II to encourage businesses to hire veterans who returned from the war with some disability but who could still work.

It has been a hot topic in political circles since former Attorney General Bill Webster and a group of St. Louis attorneys were caught up in a federal investigation over misuse of the fund in the early 1990s.

The fund’s solvency has been in question since 2005, when lawmakers placed a cap on its revenue source. Businesses pay a 3 percent surcharge on their workers’ compensation insurance to fund the payouts to injured workers.

That 2005 law was intended, in part, to lower workers’ compensation rates for businesses, and it has been successful in that regard. But because of the 3 percent cap, the funding for the Second Injury Fund hasn’t kept pace with claims made against it.

The fund began the 2006 fiscal year with a nearly $40 million balance. By May 2011, Koster said, the fund had about $7 million — and that’s only because of the $3.5 million being withheld from new permanently disabled workers since March.

“If we paid those and the other payments we need to make, the fund would be under water. Since September 2009, we’ve been paring back where we can just to keep the lights on,” Koster said, referring to his decision in 2009 to stop settling Second Injury Fund cases, sending all claims to litigation.

By year’s end, if all liabilities against the fund are paid, it will be $20 million in the red, Koster said. Also, there are about 28,000 pending claims against the Second Injury Fund, with about 700 new claims filed each month.

Legislation aimed at solving the funding problem won support from groups ranging from the Missouri Association of Trial Attorneys to the Missouri Chamber of Commerce and Industry. It would have eliminated the fund and shifted all claims to the Workers’ Compensation System. The cap on the 3 percent surcharge would have been temporarily lifted and allowed to float as needed each year to cover existing claims. That surcharge would have eventually shrunk to zero.

Disagreements in the business community doomed the plan. The Associated Industries of Missouri decried it as “the largest tax and government-imposed cost increase on Missouri employers in Missouri history.”

Richard Moore, director of regulatory affairs for the Missouri Chamber, said calling the change a tax increase is misleading. While the plan would have resulted in higher workers’ compensation costs for businesses, it was still far less expensive than doing nothing.

That’s because of a pending federal lawsuit filed by three disabled workers who fear they are at “imminent risk” of being deprived benefits if the fund becomes insolvent. A fourth plaintiff, who like Brumfield has been awarded payments from the Second Injury Fund but is not getting paid, recently joined the lawsuit.

“By enforcing the cap on the surcharge, which everyone agrees is inadequate, the state is depriving people of their property,” said John Boyd, a Kansas City attorney representing plaintiffs in the federal lawsuit.

The judge in the case could rule the surcharge cap unconstitutional, allowing the state to raise the rate employers pay to a level that is sufficient to cover all liabilities.

Another option, Moore said, would be for the judge to order the state to cover the liabilities regardless of the surcharge, putting taxpayers on the hook for millions.

“I anticipate other people are going to file suit as well,” Moore said. “And ultimately, a judge could decide how the state ends up fixing the problem.”

In addition to the pending lawsuit, Moore fears the attorney general’s office, in an effort to keep making payments, will be forced to lay off employees who defend the fund.

Moore points out that 60 percent of claims against the Second Injury Fund are dismissed and result in no payments. If the attorney general’s office has no one left to handle the cases, people filing claims could “get everything they asked for,” he said.

‘TWO-YEAR BILL’

Koster reiterated that there has been no final decision on how to keep the fund in the black.

Gov. Jay Nixon could call the Legislature back into session this summer to focus on the Second Injury Fund. But Nixon appeared to rule out the idea at a press conference last month when he called proposed fixes a “two-year bill,” meaning one year to educate lawmakers on the problem so that legislation can be passed the next year.

For Mark Brumfield, the situation could be worse. He tried to return to work but found he wasn’t physically able. And poor eyesight, another condition caused by his diabetes, keeps him from moving to a desk job. He currently shares a duplex with his sister, splitting expenses with her and trying to “live cheaply.” He’s in a much better situation than a lot of folks, he said, but he worries about the future.

“Right now, I’m not under financial distress,” he said. “But I want to make sure I can provide for myself down the road.”

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