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For Release — Wednesday, September 6, 2000

BUSINESS COUNCIL URGES STATE TO REFORM OR ELIMINATE
'SECOND-INJURY' FUND IN WORKERS' COMPENSATION SYSTEM

ALBANY—The Business Council today urged the reform or elimination of the "second injury fund" in New York's workers' compensation system, saying it has outlived its intent and driven up workers' comp costs.

In testimony before the Governor's Study Commission on Workers' Compensation Special Funds, Ed Reinfurt, vice president of The Business Council, said business is recommending this action even though, in the short term, it could mean higher comp costs for some employers.

The second injury fund was created in 1916 and modified after World War II to encourage employers to hire returning veterans. "That seems reasonable. For what these veterans did for our country and for future generations, it was little to ask," Reinfurt said.

But today, the fund has outlived its original intent, Reinfurt testified. Most World War II veterans are beyond retirement age, and New York's workplace accident rate is 38 percent below the national average.

Nonetheless, disbursements from the fund have more than doubled over the last five years, Reinfurt noted. And since 1987, the percentage of workers' compensation assessments that went to the fund has increased from 36 percent to 55.5 percent, he added.

Workers' compensation costs have two components; premiums, which are rates employers pay to insure workers, and assessments, a surcharge on the total premiums that all employers pay. Money collected from the assessments supports the administrative costs of the Workers' Compensation Board (WCB) and provides funds for the second injury fund and nine other special-purpose funds.

The top priority of the system should be workplace safety. "But once an injury occurs, prompt and fair payment to workers and equitable assessment of costs to employers must be the priority," he said.

"The second injury fund has created a situation where employers with great safety records are being asked to subsidize a fund for injuries occurring in other work sites over which they have literally no control," he said.

"When the assessments were much lower, this may have been an annoyance but not a reason to urge a major overhaul of the system. Times have changed, and the current situation is undermining the integrity of the system—which no longer can say that good experience alone will determine the rates you pay as an employer for the safety of the workplace you provide."

Reinfurt likened this recommendation to The Business Council's strong and successful advocacy in 1998 for reform of the state's financing mechanism for unemployment insurance. That reform, Reinfurt noted, delivered significant benefits to the state' business climate, even though some employers were required to pay more as a result of the reforms.

"The companies that have rigorous safety programs and keep their experience modification low often do not experience the benefit they should," Reinfurt said. "These companies may see their premiums decrease yet they still come out up short, due to the rising nature of their assessments. This is inherently unfair. Until more is done to bring equity to the system, many businesses with safe workplaces will continue to pay artificially higher prices."

Reinfurt noted that New York's workers compensation premium costs have decreased significantly in recent years, "due in no small part to the 1996 reforms supported by Governor Pataki and the state legislature." But he noted that other states have also worked aggressively to lower their workers compensation costs, and that New York State employers still frequently ask for further efforts to reduce comp costs.

Reinfurt also noted that the Americans with Disabilities Act prohibits the kind of discrimination in employment that the postwar restructuring of the second injury fund was intended to address.

Some 16 other states have reformed or eliminated their second injury funds, and Reinfurt urged policymakers to consider those states' experiences in deciding how best to modify or eliminate the second injury fund.

The complete testimony can be viewed at www.bcnys.org/whatsnew/2000/fundstest900.htm.