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CHICAGO-States should abolish their second injury funds and begin to deal with the problem of unfunded liability, according to a workers compensation expert.

Second injury funds were developed in the early 1900s to encourage employers to hire disabled workers by providing them economic relief if the disabled worker had a second injury rendering him or her totally disabled.

Since then, states have broadened the qualifications to tap second injury funds, allowing more injured workers to receive benefits. And because second injury funds operate on a pay-as-you-go basis, all the system is doing is collecting enough money to cover the next year's payments, said Roger J. Thompson, a director with Travelers/Aetna Property Casualty Corp. in Hartford, Conn.

Many states now are burdened with excessive unfunded liabilities as a result.

Connecticut, for example, paid out $103.7 million in annual expenditures in 1994 but has total unfunded liability of about $2 billion, he said.

At the same time, federal legislation such as the Americans with Disabilities Act has been passed to promote the hiring of disabled employees, he noted.

Second injury funds no longer serve their purpose, Mr. Thompson said during a session at UBA Inc.'s Current Issues in Workers Compensation conference held in Chicago last week.

"We've found most employers are not even aware of their state's second injury fund. They are much more aware of the ADA," Mr. Thompson noted.

In addition, most self-insured employers never have filed a claim with their second injury fund, he said. "Their focus is to get the employee immediately back to work."

In addition to Connecticut, which repealed its second injury fund in July 1995, eight other states have followed suit.

Maine was the first state to do so-in April 1992-and Kentucky became the latest when it repealed its second injury fund in December 1996. The six other states are Alabama, Colorado, Kansas, Minnesota, New Mexico and Utah.

The Florida Legislature may repeal its second injury fund, Mr. Thompson said. New York is starting discussions on the topic.

According to the most recent statistics, which do not include the state's total unfunded liabilities, Florida had an average of $125.3 million in second injury fund annual expenditures in 1995 and 1996, and New York paid $109.7 million in 1993, according to Mr. Thompson.

"When you're trying to get out of a hole, you've got to stop digging," he said. "I won't deny there is a cost (to employers) associated with this." But states "are going to have to deal with the reality of unfunded liability."

Repealing second injury funds "is ultimately the best thing for the (workers comp) system because we need to work with employees on returning to work," Mr. Thompson said.