Analysis says Calif. second-injury fund not aligned with legislative intent

The nonpartisan fiscal and policy adviser to the California legislature said the Subsequent Injury Benefit Trust Fund is no longer aligned with the benefit structure lawmakers intended for the workers compensation system.

“This is because many injured workers with less severe injuries eventually receive the most generous benefit under SIBTF when they otherwise would have received much smaller awards under the standard workers’ compensation benefit system as designed by the Legislature,” the Legislative Analyst’s Office said in a report published Thursday.

More generous awards lead to more workers requesting benefits, which the LAO said has yielded a growing backlog of unprocessed claims that delays benefit delivery and likely conceals the true cost of the program that employers will have to cover.

The analysis says the SIBTF program, created after World War II to encourage employers to hire veterans, in recent years has evolved into a much larger and broader disability benefits program than intended. Increased use of the program has driven the employer assessment to $850 million in the most recent fiscal year from $35 million in 2015.

“This increase nevertheless understates employer costs,” the report says. “This is because, at present, the state processes about one-fifth of the incoming claims each year, leading to a backlog of about 25,000 claims for which employer taxes are not yet due. Employers likely face lifetime benefit costs of $2 billion to $3 billion for each annual cohort of claims.”

The LAO offered a handful of suggestions for the legislature to consider if it wants to more closely align the fund with its original purpose, including limiting the preexisting conditions that qualify for benefits, requiring that the preexisting conditions directly interact with or exacerbate the second injury, and revising how preexisting conditions are stacked to reach the eligibility threshold.

To qualify for SIBTF benefits, a worker with one or more preexisting conditions must suffer a second injury with at least a 35% disability that combines with the preexisting condition to result in a disability rating of at least 70%.

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