Federal Workers’ Compensation: Senate Committee Reviews Legislative Proposals

Federal Workers’ Compensation: Senate Committee Reviews Legislative Proposals

 By Karen Yotis, Esq.

On July 26, 2011, the United States Senate Committee on Homeland Security and Governmental Affairs, Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia, held a hearing entitled “Examining the Federal Workers’ Compensation Program for Injured Employees.” The purpose of the hearing was to review a number of legislative proposals intended to modernize and improve the Federal Employees’ Compensation Act (FECA).  Following is a summary of key points made in the opening statement and witness testimony.

Senator Daniel K. Akaka (D-Hawaii), Chairman, Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia explained in his opening statement the importance of improving and modernizing a federal workers’ compensation system that has not been significantly updated in almost 40 years. Akaka outlined a number of legislative proposals, favoring various “common sense” reforms that included: (1) ensuring that injured civilian employees serving in dangerous areas such as Iraq and Afghanistan—as well as off-duty employees injured in terrorist attacks—receive appropriate FECA compensation; (2) providing U.S. Department of Labor access to FECA recipients’ social security wage information as a stop-gap measure against improper payments and fraud; and (3) focusing on improving the administration of return-to-work programs.  Akaka expressed concern about S. 261, the Federal Employees’ Compensation Reform Act, proposed by Senator Susan Collins (R-Maine) that would transfer disabled FECA recipients from FECA into the Federal retirement system automatically at retirement age, because it would create a substantial and unfair income reduction for many elderly, disabled recipients and result in an even more drastic drop in pay for the large majority of federal employees covered by the Federal Employee Retirement System (FERS). Akaka cautioned that any proposal that would significantly reduce benefits at retirement would need substantial work.

The Honorable Christine M. Griffin, Deputy Director, U.S. Office of Personnel Management (OPM) explained two proposed—and very different—workers’ compensation reforms, offered on the one hand by the Obama Administration in its budget request for fiscal year 2012 and on the other hand by Senator Susan Collins (R-Maine) in S. 261. Griffin expressed OPM’s support for the Administration’s efforts to reform FECA “in an equitable and fair manner,” and spoke out against S.261 for potentially unintended and inequitable consequences. Because FECA benefits are in many instances more generous compared to what the employee would receive through less expensive retirement benefit programs, Griffin was critical of S.261 because the proposed legislation would: (1) terminate FECA benefits for individuals eligible for a Civil Service Retirement System (CSRS) and FERS without incorporating numerous other federal retirement programs into its system change; (2) provide for retirement based only upon employment performed before an employee’s injury, which could result in many individuals being placed in extreme financial hardship with a very small annuity and without health benefits; (3) permit individuals with the least amount of service at the time of injury (and not subject to S.261 for failure to meet annuity requirements) to receive much higher benefits than injured employees with more service. Griffin also expressed OPM’s support of improving employment for people with disabilities in accordance with Executive Order 13548 to Increase Federal Employment of Individuals with Disabilities.

Gary Steinberg, Acting Director, Office of Workers’ Compensation Programs, U.S. Department of Labor, after briefly summarizing FECA's history and present conditions, testified regarding his office's proposed FECA reforms in three areas: return to work and rehabilitation; updating benefit structures; modernizing and improving FECA. With respect to the first, he recommended that OWCP be granted authority to make injured employees' participation in return to work programs mandatory, six months after injury. Moreover, he recommended that OWCP's existing program of subsidizing the salaries of injured federal employees who return to work in the private sector be expanded to include those who return to work in different agencies in the federal government sector. Finally, he recommended elimination of two existing disincentives to return to work, i.e., (1) benefits that are so high that injured employees may receive more than they received when they were working, and (2) the disparity that exists between the level of retirement benefits received by most federal employees and the level of long-term FECA benefits for retirement age FECA recipients. With respect to the updating of benefit structures, he recommended changes to the schedule award provisions and increases in the benefit levels for funeral expenses and facial disfigurement. Finally, he made various recommendations for modernizing FECA, which included: (1) changes to the waiting period imposed before an injured worker is entitled to wage-loss compensation and to the manner in which FECA subrogation provisions are applied to claims; (2) a grant of direct authority to OWCP to match Social Security wage data with FECA files; (3) an increase in the authority and use of Physicians’ Assistants and Nurse Practitioners; and (4) addressing the needs of deployed civilian employees by amending Continuation of Pay provisions for injuries sustained in a designated zone of armed conflict.

Andrew Sherrill, Director, Education, Workforce, and Income Security Issues, U.S. Government Accountability Office focused on previous proposals for changing FECA benefits for older beneficiaries and discussed questions and associated issues that impacted the crafting of legislation to change benefits for older beneficiaries.  After briefly recapping FECA’s background and outlining the federal retirement systems, Sherrill explained how a perception about retirement-age beneficiaries—namely that they were receiving more generous benefits—had generated the two alternative proposals to change benefits once beneficiaries reached retirement age. The first proposal was to convert FECA benefits to retirement benefits, and the second proposal was to change FECA wage-loss benefits to a newly established FECA annuity.  As Congress considers current reform proposals for FECA, Sherrill also recommended that a number of questions and issues be considered, including: (1) how would benefits be computed? (2) which beneficiaries would be affected? (3) what criteria, such as age or retirement eligibility, would initiate changed benefits? (4) how would other benefits, such as FECA medical and survivor benefits, be treated and administered; and (5) how would benefits, particularly retirement benefits, be funded? Because FECA’s benefit structure has not been significantly amended in more than 35 years, Sherrill statement reiterated many of the policies that were addressed in a prior GAO report GGD-96-138BR issued August 14, 1996.

Joseph A. Beaudoin, President, National Active and Retired Federal Employees Association (NARFE) urged the adoption of common sense legislative reforms to improve program efficiency, achieve cost savings and improve fairness without reducing basic compensation provided to employees that suffered injury or illness as a result of their public service. Although Beaudoin criticized the DOL’s current proposal as well as S.261 introduced by Senator Susan Collins (R-Maine) for not adequately taking into account the disadvantages faced by employees unable to work because of a work-related injury or illness and leaving them worse off in terms of income, he did support H.R. 2465, Federal Workers’ Compensation Modernization and Improvement Act as providing a fairer, more considered approach to reform that achieves cost savings without reducing basic benefits.  Beaudoin criticized  S.261 because: (1) it does not include any provision to account for wage inflation and would cause FECA recipients to lose the ability to increase their salary through raises and promotions; (2) it prevents FECA recipients not covered by FERS from receiving credit for years of service for the time between injury or illness and age 62; (3) FERS-covered FECA recipients lose the ability to invest a portion of their payments into the Thrift Savings Plan (TSP) and receive matching contributions from their agencies; and (4) FERS-covered employees may have a reduced Social Security benefit due to their inability to earn quarterly credits to increase average monthly earnings used to calculate those Social Security benefit payments.  Beaudoin was also critical of the DOL proposal—even though it provides a retirement level income closer to that of current retirees—because it does not fully account for disadvantages faced by FECA recipients, most notably loss of the ability to increase salary through raises and promotions, reduced ability to save via TSP contributions and matching contributions, and reduced Social Security benefits.  Beaudoin expressed NARFE’s specific support for the reforms set forth in H.R. 2465, including its provisions to expand coverage for injuries or illnesses caused by terrorist attack, to increase the maximum compensation to employees for serious disfigurement of the head, face or neck from an outdated $3,500 to a more reasonable $50,000, to extend the time period for a continuation of pay in a zone of armed conflict to 135 days, and to increase compensation for funeral expenses from $800 to $6,000.

Ronald Watson, Consultant to National Association of Letter Carriers (NALC) President Fred Rolando, favored FECA reform proposals as long as they met the test of not resulting in unfair harm to the injured workers FECA was designed to protect. While the DOL’s efforts to obtain Social Security earnings information for all claimants met this test, other items—such as the 70% Proposal, which appeared to be based on an over-simplified viewpoint that was completely at odds with NALC’s experience—unfairly harmed injured workers. Watson emphasized two major points—namely, the loss of benefits and barriers that prevented large numbers of willing postal workers from returning to work—that he recommended be considered in any effort to assess return-to-work disincentives in the context of FECA wage-replacement rates. Instead of reducing the current 75% compensation rate to 70%, Watson instead encouraged addressing OWCP policies that may foster disincentives for employing agencies to allow injured workers to continue working and/or to return to work. Watson also explained the significant problems with various proposals to impose a mandatory retirement age, and demonstrated how major arguments in support of mandatory retirement were no longer accurate.  Watson was very clear—although NALC supports FECA reform, proposals to level wage-loss compensation benefits to 70% and to mandate transition to OPM retirement (or reduced FECA benefits) at Social Security retirement age, as currently written, did not satisfy the basic test that reforms be consistent with the intended remedial nature of the FECA.

Dr. Gregory Krohm, Executive Director, International Association of Industrial Accident Boards and Commissions described the current status of compensation benefits in the state systems and how a claim is typically handled within a private insurance system. He also sketched the typical patterns of claims handling practiced by workers’ compensation insurers for common types of claims. Krohm began by comparing and contrasting state benefits with the FECA program, and focused on the four benefit categories. Under the first category of medical benefits, Krohm noted that while FECA allows claimants unlimited choice of medical providers and has no treatment guidelines, only a handful of states were comparable. When discussing the second category of temporary disability, Krohm pointed out that FECA’s income continuation feature was without any counterpart in the state workers’ compensation system. In addition, while a handful of states made minor allowances for dependents, those amounts were nothing similar to the magnitude of FECA’s increase of the percentage of wage replacement to 75% for workers with at least one dependent. For the third category of permanent partial disability, Krohm explained that all but a few states paid benefits, while states that did not recognize the benefit continued to pay lost wages.  Most difficult was summarizing the fourth benefit category of permanent total disability because of the variation across state systems in how permanent disability is determined and how benefits are paid.  Krohm made particular note of some possible differences with FECA, such as a relatively unstructured and undefined criterion for PTD in FECA and the fact that few states offer the high upside potential for PTD payments from FECA’s combined offering of PTD for life and annual CIP adjustment. By way of comparison, Khrom sketched some characteristics of state WC systems, including the decline of the frequency of compensable injuries, the steady rise in the percentage of insurance benefits paid that go to medical providers, and an increase in duration of TTD indemnity benefits. In the second part of his remarks, Khrom focused on the goal, techniques and benefits of disability management, and described the discipline as “common sense dressed up with a new title and more cache.” Khrom noted that the first step in disability management was to break down suspicion and communication barriers between the claims handler, the injured worker and the treating physician.

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