Sep 10, 2025
Which States Require Employers to Pay Into Second-Injury Funds?
Upeka Bee
As a founder, you'd not hesitate to hire a qualified candidate with a pre-existing health condition or a prior injury. But a nagging question might linger: what if they get re-injured on the job? Does that create an unfair financial risk for my company?
Historically, the answer was a state-run program called a second-injury fund. These funds insulate employers from this exact scenario. But today, most of these funds have closed.
In this article, we explore what these funds are, why most were closed, which states still have them, and what this all means for your company.
What Is a Second-Injury Fund?
A second-injury fund is a state-administered fund designed to encourage employers to hire and retain workers with disabilities. It protects an employer from full financial liability if the employee suffers a subsequent or second work-related injury (SIF) that is significantly more severe due to the combination of the new injury and the old one.
Example: An employee who previously lost sight in one eye (the first injury) is hired. While on the job, they suffer an accident that affects their other eye. The combined effect results in a total permanent disability. Instead of the current employer being liable for the cost of a total disability, they would only be responsible for the costs associated with the loss of one eye.
In a state with an SIF, your company's liability would be limited to the costs associated with the second injury (the right eye). The SIF would then step in to pay the remaining benefits for the total disability. This process, known as apportionment, ensures your business is not unfairly burdened for hiring a worker with a past injury.
Why Most States Have Closed Their Second-Injury Funds
Earlier, every state operated a second-injury fund. Today, most have closed to new claims. Key reasons include:
Financial insolvency: Many funds became financially unstable. They were often funded by small assessments on insurers and self-insured employers; however, the long-term payouts for catastrophic claims frequently exceeded the funding.
Redundancy due to the ADA: The passage of the Americans with Disabilities Act (ADA) in 1990 was a turning point. The ADA protects against discrimination in hiring based on disability. The ADA made it illegal for employers to refuse to hire a qualified candidate because of a pre-existing condition, making the original purpose of the funds less critical.
Administrative complexity: The process of determining how to apportion costs between the employer's insurer and the fund was often slow and fraught with litigation, prompting states to seek simpler solutions.
States With Active Funds
Despite the national trend of closures, some states continue to operate active second-injury funds.
The list of states with active funds is complex and can change with new legislation. However, a recent analysis by Reuters highlights several states where these funds still play a significant role in the workers' compensation system. These are:
New Jersey: The state’s fund, known as the Second Injury Fund, is also active and plays a critical role in cases involving total and permanent disability. If a worker is rendered totally disabled as a combined result of a work-related injury and a pre-existing condition, the employer is only responsible for the disability benefits corresponding to the second injury. The Fund pays the remaining portion of the total disability benefits.
Illinois: Illinois maintains multiple funds, including the Second Injury Fund and the Injured Workers’ Benefit Fund. The SIF is specifically for cases where a second injury results in total disability or the loss of a limb, while surcharges on premiums fund the IWBF and cover different scenarios. The continued operation of these funds means employers in Illinois contribute to a complex state-run system.
Connecticut: Connecticut provides an excellent example of a tail fund. The state’s second injury fund was closed to new injuries that occurred on or after July 1, 1995. However, the fund continues to pay benefits for a massive caseload of pre-1995 injuries. To cover these long-term liabilities, the state continues to levy significant annual assessments on all employers and insurance carriers within the state.
South Carolina: The state's second injury fund is active and plays a significant role in its workers' compensation system. Its purpose is to encourage the employment of physically disabled persons by protecting employers from the increased costs of a second injury. The fund is financed by assessments on insurance carriers and self-insured employers, which directly impact the workers' compensation costs for businesses in the state.
Massachusetts: The Massachusetts Workers' Compensation Trust Fund serves multiple purposes, including providing benefits to injured employees whose employers have failed to provide insurance as required by law. It also has a second injury component, covering certain subsequent injuries to war veterans. This fund is financed by assessments on all employers in the state, making it a critical piece of the state's compensation laws that businesses must fund.
Hawaii: Hawaii’s Special Compensation Fund is active and serves a similar purpose to a traditional SIF. It covers the additional liability when a pre-existing condition combines with a work-related injury to cause a greater disability. The fund is financed by an assessment levied on insurance carriers and self-insurers based on the total compensation paid out in the state.
Decode State Compensation Laws With Experts
Understanding your obligations under various state compensation laws can be challenging, especially in cases involving obscure and evolving rules related to second-injury funds. DianaHR’s seasoned HR experts take the burden of compliance and tracking laws off your shoulders.
State-specific premium and surcharge management: The HR experts understand that your workers' comp premium isn't just a base rate. They track and manage the specific surcharges and assessments required in each state.
Compliant hiring practices: The experts help you implement hiring and onboarding processes that are fully compliant with the ADA and other anti-discrimination laws—the modern, primary way to manage the risks second-injury funds were originally designed to address.
Accurate record-keeping: They ensure you meet all workers' compensation posting requirements by state, providing employees with the correct notices and maintaining the meticulous records needed to navigate any workers' compensation claim successfully.
Secure employee trust and demystify compliance with DianaHR. Talk to our experts today.
FAQs
1. What was the original purpose of a second-injury fund?
The original purpose of a second-injury fund was to encourage businesses to hire workers who had pre-existing disabilities or had been injured in the past. It did this by protecting the employer from the full financial liability of a catastrophic claim if the new, work-related injury was made substantially worse by the pre-existing condition. The fund would cover the difference, ensuring the employer was only responsible for the costs of the second injury.
2. If my state closed its second-injury fund, how am I protected when hiring a previously injured worker?
Today, your primary protection comes from the robust anti-discrimination provisions of the Americans with Disabilities Act (ADA). The ADA makes it illegal to refuse to hire a qualified candidate because of a disability or a past injury. From an insurance perspective, modern underwriting practices are designed to price risk based on the industry and your company's specific claims history (your EMR), regardless of the individual medical history of your employees.
3. How do employers typically pay into a second-injury fund?
Employers typically pay into a second-injury fund indirectly through their workers' compensation insurance premiums. The state fund is financed by levying an assessment or surcharge on all workers' compensation insurance carriers and self-insured employers in the state. The insurance carriers then pass this cost on to their policyholders as part of the overall premium calculation. This means that if you operate in a state with an active fund, a small percentage of your total workers' compensation cost is being used to finance these legacy or ongoing claims.
As a founder, you'd not hesitate to hire a qualified candidate with a pre-existing health condition or a prior injury. But a nagging question might linger: what if they get re-injured on the job? Does that create an unfair financial risk for my company?
Historically, the answer was a state-run program called a second-injury fund. These funds insulate employers from this exact scenario. But today, most of these funds have closed.
In this article, we explore what these funds are, why most were closed, which states still have them, and what this all means for your company.
What Is a Second-Injury Fund?
A second-injury fund is a state-administered fund designed to encourage employers to hire and retain workers with disabilities. It protects an employer from full financial liability if the employee suffers a subsequent or second work-related injury (SIF) that is significantly more severe due to the combination of the new injury and the old one.
Example: An employee who previously lost sight in one eye (the first injury) is hired. While on the job, they suffer an accident that affects their other eye. The combined effect results in a total permanent disability. Instead of the current employer being liable for the cost of a total disability, they would only be responsible for the costs associated with the loss of one eye.
In a state with an SIF, your company's liability would be limited to the costs associated with the second injury (the right eye). The SIF would then step in to pay the remaining benefits for the total disability. This process, known as apportionment, ensures your business is not unfairly burdened for hiring a worker with a past injury.
Why Most States Have Closed Their Second-Injury Funds
Earlier, every state operated a second-injury fund. Today, most have closed to new claims. Key reasons include:
Financial insolvency: Many funds became financially unstable. They were often funded by small assessments on insurers and self-insured employers; however, the long-term payouts for catastrophic claims frequently exceeded the funding.
Redundancy due to the ADA: The passage of the Americans with Disabilities Act (ADA) in 1990 was a turning point. The ADA protects against discrimination in hiring based on disability. The ADA made it illegal for employers to refuse to hire a qualified candidate because of a pre-existing condition, making the original purpose of the funds less critical.
Administrative complexity: The process of determining how to apportion costs between the employer's insurer and the fund was often slow and fraught with litigation, prompting states to seek simpler solutions.
States With Active Funds
Despite the national trend of closures, some states continue to operate active second-injury funds.
The list of states with active funds is complex and can change with new legislation. However, a recent analysis by Reuters highlights several states where these funds still play a significant role in the workers' compensation system. These are:
New Jersey: The state’s fund, known as the Second Injury Fund, is also active and plays a critical role in cases involving total and permanent disability. If a worker is rendered totally disabled as a combined result of a work-related injury and a pre-existing condition, the employer is only responsible for the disability benefits corresponding to the second injury. The Fund pays the remaining portion of the total disability benefits.
Illinois: Illinois maintains multiple funds, including the Second Injury Fund and the Injured Workers’ Benefit Fund. The SIF is specifically for cases where a second injury results in total disability or the loss of a limb, while surcharges on premiums fund the IWBF and cover different scenarios. The continued operation of these funds means employers in Illinois contribute to a complex state-run system.
Connecticut: Connecticut provides an excellent example of a tail fund. The state’s second injury fund was closed to new injuries that occurred on or after July 1, 1995. However, the fund continues to pay benefits for a massive caseload of pre-1995 injuries. To cover these long-term liabilities, the state continues to levy significant annual assessments on all employers and insurance carriers within the state.
South Carolina: The state's second injury fund is active and plays a significant role in its workers' compensation system. Its purpose is to encourage the employment of physically disabled persons by protecting employers from the increased costs of a second injury. The fund is financed by assessments on insurance carriers and self-insured employers, which directly impact the workers' compensation costs for businesses in the state.
Massachusetts: The Massachusetts Workers' Compensation Trust Fund serves multiple purposes, including providing benefits to injured employees whose employers have failed to provide insurance as required by law. It also has a second injury component, covering certain subsequent injuries to war veterans. This fund is financed by assessments on all employers in the state, making it a critical piece of the state's compensation laws that businesses must fund.
Hawaii: Hawaii’s Special Compensation Fund is active and serves a similar purpose to a traditional SIF. It covers the additional liability when a pre-existing condition combines with a work-related injury to cause a greater disability. The fund is financed by an assessment levied on insurance carriers and self-insurers based on the total compensation paid out in the state.
Decode State Compensation Laws With Experts
Understanding your obligations under various state compensation laws can be challenging, especially in cases involving obscure and evolving rules related to second-injury funds. DianaHR’s seasoned HR experts take the burden of compliance and tracking laws off your shoulders.
State-specific premium and surcharge management: The HR experts understand that your workers' comp premium isn't just a base rate. They track and manage the specific surcharges and assessments required in each state.
Compliant hiring practices: The experts help you implement hiring and onboarding processes that are fully compliant with the ADA and other anti-discrimination laws—the modern, primary way to manage the risks second-injury funds were originally designed to address.
Accurate record-keeping: They ensure you meet all workers' compensation posting requirements by state, providing employees with the correct notices and maintaining the meticulous records needed to navigate any workers' compensation claim successfully.
Secure employee trust and demystify compliance with DianaHR. Talk to our experts today.
FAQs
1. What was the original purpose of a second-injury fund?
The original purpose of a second-injury fund was to encourage businesses to hire workers who had pre-existing disabilities or had been injured in the past. It did this by protecting the employer from the full financial liability of a catastrophic claim if the new, work-related injury was made substantially worse by the pre-existing condition. The fund would cover the difference, ensuring the employer was only responsible for the costs of the second injury.
2. If my state closed its second-injury fund, how am I protected when hiring a previously injured worker?
Today, your primary protection comes from the robust anti-discrimination provisions of the Americans with Disabilities Act (ADA). The ADA makes it illegal to refuse to hire a qualified candidate because of a disability or a past injury. From an insurance perspective, modern underwriting practices are designed to price risk based on the industry and your company's specific claims history (your EMR), regardless of the individual medical history of your employees.
3. How do employers typically pay into a second-injury fund?
Employers typically pay into a second-injury fund indirectly through their workers' compensation insurance premiums. The state fund is financed by levying an assessment or surcharge on all workers' compensation insurance carriers and self-insured employers in the state. The insurance carriers then pass this cost on to their policyholders as part of the overall premium calculation. This means that if you operate in a state with an active fund, a small percentage of your total workers' compensation cost is being used to finance these legacy or ongoing claims.
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