oversight

Recent GAO Reports on the Federal Employees' Compensation Act

Published by the Government Accountability Office on 1997-09-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Workforce Protections
                          Committee on Education and the Workforce
                          House of Representatives


For Release on Delivery
Expected at
10:00 a.m., EST
                          RECENT GAO REPORTS ON
Tuesday
Sept. 30, 1997
                          THE FEDERAL EMPLOYEES’
                          COMPENSATION ACT



                          Michael Brostek
                          Associate Director, Federal Management and
                          Workforce Issues
                          General Government Division




GAO/T-GGD-97-187
Summary

Recent GAO Reports on the Federal
Employees’ Compensation Act

              The federal government’s workers’ compensation program is authorized
              under the Federal Employees’ Compensation Act (FECA). This program,
              which is administered by the Department of Labor, provides employees
              suffering from work-related injuries and occupational diseases with
              various types of benefits, depending on the nature and extent of the injury
              and their ability to return to work. In recent years, GAO has issued reports
              on three subjects that are being addressed in today’s FECA oversight
              hearings: (1) recovery of “continuation of pay” (COP) benefits in third-party
              cases, (2) selected comparisons of FECA provisions with provisions of
              other workers’ compensation laws, and (3) issues associated with
              changing benefits for older FECA beneficiaries.

              In a June 1995 report, GAO recommended that FECA be amended to allow
              the government to obtain refunds of COP benefits when injured employees
              recover damages from liable third parties. Injured employees are to
              continue to receive their regular pay for up to 45 days when they are
              absent from work for traumatic injuries. Because of interpretations of FECA
              by the Employees’ Compensation Appeals Board and a federal court, the
              government no longer has a legal basis to obtain refunds of injured
              employees’ COP benefits in third-party injury cases. In effect, these
              employees receive a double recovery of income for their first 45 days of
              absence from work due to injury.

              GAO’s April 1996 report compared FECA provisions with those of other
              workers’ compensation laws and identified three principal ways in which
              benefits under FECA could be greater than those under other workers’
              compensation laws. First, although the formula for calculating benefits
              under FECA was similar to most other laws, FECA’s authorized maximum
              weekly benefit amount was greater. Second, unlike most states, FECA
              provides claimants with a spouse or a dependent with an additional
              benefit of 8-1/3 percent of salary. Finally, under other workers’
              compensation laws, employees must be out of work for a 3- to 7-day
              waiting period before they can receive wage-loss benefits. Under FECA, the
              3-day waiting period is preceded by a period of 45 days in which
              employees with traumatic injuries continue to receive their regular pay.

              GAO’s August 1996 report provided information on (1) selected
              characteristics of individuals on FECA’s long-term rolls, 2) views of
              proponents and opponents of changing FECA benefits for older
              beneficiaries, and (3) questions and issues that Congress might consider if
              crafting benefit changes. Of the $1.28 billion in compensation benefits paid




              Page 1                                                       GAO/T-GGD-97-187
Summary
Recent GAO Reports on the Federal
Employees’ Compensation Act




in 1995, about $611 million was paid to beneficiaries on the long-term rolls
who were age 55 and older.




Page 2                                                      GAO/T-GGD-97-187
Statement

Recent GAO Reports on the Federal
Employees’ Compensation Act

              Dear Mr. Chairman and Members of the Committee:

              I am pleased to be here today at this Federal Employees’ Compensation
              Act (FECA) oversight hearing to discuss three reports we have completed in
              the last few years. These reports address (1) the recovery of continuation
              of pay (COP) benefits in cases where third-parties were liable for injuries,
              (2) selected comparisons of FECA provisions with provisions of other
              federal and state workers’ compensation laws, and (3) issues associated
              with changing benefits for older FECA beneficiaries.

              In the recovery of COP report, we recommended that Congress redefine COP
              to preclude injured employees from, in effect, receiving double recoveries
              by obtaining both COP benefits from the government and damages from
              third parties who were responsible for their work-related injuries. In the
              comparisons’ report, we identified and compared the more significant FECA
              benefit provisions with the provisions of other federal and state workers’
              compensation laws. In our report on issues associated with changing FECA
              benefits for older beneficiaries, we identified the views of proponents and
              opponents of change and issues that we believe would merit consideration
              by anyone crafting legislation to change workers’ compensation benefits
              for older beneficiaries.


              FECA  was enacted in 1916 to provide federal employees with workers’
Background    compensation coverage for injuries and diseases sustained while
              performing their duties. One of the principal reasons for establishing
              workers’ compensation programs was to provide adequate benefits to
              injured workers while at the same time limiting employers’ liabilities
              strictly to workers’ compensation payments. Payments were to be prompt
              and predetermined to relieve employees and employers of uncertainty
              over the outcome of court cases and to eliminate wasteful litigation.

              Benefits authorized by FECA include payments for (1) loss of wages for an
              employee who cannot work because of a work-related disability,
              (2) occupational diseases, (3) schedule awards for loss of, or loss of use
              of, a body part or function, (4) vocational rehabilitation, (5) death benefits
              for survivors, (6) burial allowances, and (7) medical care for injured
              workers.

              According to Labor’s Office of Workers’ Compensation Programs (OWCP),
              in fiscal year 1996, OWCP used the equivalent of 902 full-time staff in
              administering FECA. In addition, the agencies for whom injured employees



              Page 3                                                        GAO/T-GGD-97-187
                    Statement
                    Recent GAO Reports on the Federal
                    Employees’ Compensation Act




                    worked also used their staff to assist OWCP in managing claims. In fiscal
                    year 1996, about 175,000 workers’ compensation cases were created and
                    20,400 wage-loss claims were filed. For many employees whose injuries
                    were not serious, the only FECA benefits that were paid were those that
                    covered medical expenses.


                    In June 1995, we reported to Senators Joseph I. Lieberman and Thad
Recovery of COP     Cochran on additional refunds that the government could obtain in
Benefits in         third-party cases if FECA were amended to change the definition of COP.1
Third-Party Cases   Under FECA, federal agencies are authorized to continue paying their
                    employees regular salaries for up to 45 days when they are absent from
                    work due to work-related traumatic injuries. Benefits paid for these 45
                    days are called COP benefits.

                    In the case of some injuries, federal employees can receive damages from
                    third parties who are liable for the injury that caused them to be absent
                    from work. Common injuries for which third parties might be liable
                    include dog bites and automobile accidents.

                    Because of interpretations of FECA by the Employees’ Compensation
                    Appeals Board (ECAB) and a federal court, the federal government no
                    longer has a legal basis to obtain refunds of COP benefits paid to injured
                    employees when they recover damages from third parties who are liable
                    for their on-the-job injuries. As a result, employees can receive regular
                    salary payments (i.e., COP) from their employing agencies and
                    reimbursement from third parties—in effect, a double recovery of income
                    for the first 45 days that they are absent from work due to injury. In
                    contrast, employees may not receive double recoveries for medical
                    expenses or for wage-loss compensation benefits after the 45-day COP
                    period has expired because FECA provides that the government can recoup
                    funds for these payments from employees receiving third-party recoveries.

                    In a June 1985 decision, ECAB held that OWCP could not recover COP benefits
                    when employees receive damages from responsible third parties, even
                    though employees could in effect obtain double recoveries for
                    work-related injuries. ECAB stated that FECA specifically provided that COP
                    was not compensation, and FECA only required refunds of compensation
                    benefits in third-party cases.2 In August 1985, the U.S. Court of Appeals for

                    1
                    Federal Employees’ Compensation Act: Redefining Continuation of Pay Could Result in Additional
                    Refunds to the Government (GAO/GGD-95-135, June 8, 1995).
                    2
                     Paul L. Dion, 36 ECAB 656 (1985).



                    Page 4                                                                       GAO/T-GGD-97-187
Statement
Recent GAO Reports on the Federal
Employees’ Compensation Act




the Ninth Circuit held that FECA established the government’s exclusive
remedy for reimbursement from any damages that federal employees
might recover from third parties and that no common law remedy, such as
equitable subrogation,3 was available.4

After ECAB’s and the Court of Appeals’ decisions on COP benefits, federal
employees who had previously refunded COP benefits to the government
filed three class action suits to compel the government to repay these
benefits. These lawsuits were either litigated or settled in favor of the
employees. According to a Labor official, the lawsuits provided for the
government to return over $5 million to claimants who had previously
refunded COP benefits to the government.

To preclude employees from, in effect, receiving double recoveries and to
help reduce the costs to the federal government of employees’
work-related injuries caused by third parties, we recommended that
Congress amend FECA to expressly provide for refunds of amounts paid as
COP when employees receive third-party recoveries. Subsection (e) of 5
U.S.C. 8118 of FECA could be amended to provide that COP shall not be
considered compensation “except for the purpose of refunds to the United
States from third-person recoveries pursuant to section 8132 of this title.”
Additionally, to ensure that refunds of COP benefits are returned to the
employing agency that paid them, section 8132 could be amended to
provide that amounts refunded shall be credited to the Employees’
Compensation Fund “except for continuation of pay under section 8118 of
this title, which shall be credited to the employing agency that paid it.”

We estimated the government could recover from $1 to $2 million per year
if FECA was amended to change the definition of COP to allow the
government to obtain refunds of COP benefits in third-party cases. We also
estimated that the Postal Service would realize about 70 percent of these
recoveries.




3
 Equitable subrogation is a legal theory, developed in common law courts, which allows one person to
acquire the rights of another person to bring a claim against a third party.
4
 Janakes v. U.S. Postal Service, 768 F.2d 1091 (9th Cir. 1985).


Page 5                                                                         GAO/T-GGD-97-187
                       Statement
                       Recent GAO Reports on the Federal
                       Employees’ Compensation Act




                       In April 1996, we issued another report on FECA to Senators Cochran and
Selected Comparisons   Lieberman.5 In this report, we compared monetary and other significant
of Federal and State   benefits authorized by FECA with those authorized under the Longshore
Workers’               and Harbor Workers’ Compensation Act (the Longshore Act) and state
                       workers’ compensation laws.
Compensation Laws
                       In general, FECA provided the same types of benefits to injured federal
                       workers as those provided to injured workers covered under other federal
                       and state workers’ compensation laws. The principal workers’
                       compensation benefits paid under all of these laws were for wage loss and
                       medical care. We identified three principal ways in which FECA benefits
                       differed from those of other workers’ compensation laws. In each of these
                       cases, benefits available under FECA could be greater than those under the
                       other workers’ compensation laws.

                       First, although the formula for calculating benefits under FECA was similar
                       to the formulas of most other laws (66-2/3 percent of salary), FECA’s
                       authorized maximum weekly benefit amount was greater. Under FECA, in
                       1995 the maximum weekly compensation benefit could not exceed $1,274
                       (75 percent of the maximum base pay of a GS-15, step 10 employee). The
                       maximum weekly benefit under the Longshore Act was $761. State
                       maximums ranged from $253 to $817. According to OWCP, as of
                       September 30, 1995, less than 1 percent of the beneficiaries on the
                       long-term compensation rolls6 actually received compensation benefits
                       based on the authorized maximum benefit amount.

                       Second, FECA provides claimants who have a spouse and/or dependent
                       with an additional benefit of 8-1/3 percent of salary. While seven states
                       authorized additional dependent benefits, increased benefits are generally
                       for a fixed amount ranging from $5 to $10 per week for a spouse and/or
                       each child. Increased benefits for dependents are generally provided only
                       when authorized maximum benefit levels are not exceeded. The
                       Longshore Act and workers’ compensation laws of the other 43 states and
                       the District of Columbia do not provide increased compensation benefits
                       for injured workers with dependents.

                       Finally, FECA provides eligible federal workers who suffer traumatic
                       injuries with COP benefits for a period not to exceed 45 days. These are the

                       5
                        Workers’ Compensation: Selected Comparisons of Federal and State Laws (GAO/GGD-96-76, Apr. 3,
                       1996).
                       6
                        Injured workers on the long-term (or periodic) rolls are those with permanent disabilities or with
                       injuries that have lasted or are expected to last for prolonged periods (over 1 year).



                       Page 6                                                                            GAO/T-GGD-97-187
    Statement
    Recent GAO Reports on the Federal
    Employees’ Compensation Act




    COP benefits discussed earlier. After the 45th day, there is a 3-day waiting
    period before wage-loss benefits begin. Under the Longshore Act and all
    state workers’ compensation laws, injured workers do not receive COP
    benefits but can receive wage-loss benefits after they are absent from
    work for a 3- to 7-day waiting period. If these workers continue to be
    absent from work for specified periods of time, ranging from 5 to 42 days,
    they are generally eligible for benefits retroactive to the date of injury. In
    cases where employees are not eligible for retroactive wage-loss benefits,
    some employers may provide their employees with salary continuation
    benefits or may allow them to receive paid sick leave or other types of
    leave for days absent from work.

    Other differences and similarities exist between FECA and states’ workers’
    compensation laws. However, in cases where there are differences, they
    do not appear to be as significant as those mentioned above. Examples of
    these differences and similarities are described as follows:

•   Because FECA’s maximum authorized benefit amount exceeded those of
    the other workers’ compensation programs, income replacement rates for
    higher-paid federal employees could exceed 100 percent. For example, a
    married federal employee living in Virginia earning $60,000 annually who is
    injured on the job would be eligible to receive nontaxable FECA benefits of
    $45,000. For income replacement rate comparison purposes, this
    employee’s take-home pay7 would be $43,407 ($60,000 less deductions for
    (1) FERS benefits ($5,070), (2) state income taxes ($2,813), and (3) federal
    income taxes ($8,710). The income replacement rate (FECA benefits divided
    by take-home pay) in this case would be nearly 104 percent.
•   For some injured federal workers, schedule awards for the permanent
    loss, or loss of use, of specific body parts could be higher than the awards
    under other workers’ compensation programs because of the higher
    maximum weekly benefit amount authorized by FECA.
•   In 1995, the maximum burial allowance authorized under FECA was $800.
    This benefit was lower than all but one state’s maximum burial allowance.
•   Under FECA and in 25 states, injured employees may choose their
    physicians. In other states, employees or their employers may select
    physicians from state workers’ compensation agency approved lists of
    physicians.




    7
     Actual take-home pay could be different.



    Page 7                                                        GAO/T-GGD-97-187
                     Statement
                     Recent GAO Reports on the Federal
                     Employees’ Compensation Act




                     In August 1996, we reported to the Chairmen of the House and Senate
Issues Associated    Appropriations Committees,8 on possible changes to FECA benefits for
With Changing        beneficiaries who are at or beyond retirement age. Our briefing report on
Compensation         this issue provided (1) a profile of beneficiaries on the long-term FECA
                     rolls, (2) views of proponents and opponents of changing FECA benefits for
Benefits for Older   older beneficiaries, and (3) questions and issues that Congress might
Beneficiaries        consider if crafting benefit changes.

                     Older FECA beneficiaries make up a high percentage of cases on the
                     long-term rolls and account for a substantial portion of the FECA benefits
                     paid for long-term compensation. Sixty percent of the approximately
                     44,000 long-term beneficiaries receiving compensation benefits in
                     June 1995 were 55 years of age or older; 37 percent were age 65 or older.
                     Of the $1.28 billion in compensation benefits paid in 1995, $947 million
                     went to long-term beneficiaries—those who would most likely be affected
                     by a change in benefits for older beneficiaries. About $611 million
                     (64 percent) of the compensation benefits paid to these beneficiaries went
                     to those age 55 and over. The specific number of older beneficiaries that
                     could be affected if changes in workers’ compensation benefits were made
                     is not known because actual retirement eligibility information is not
                     readily available from FECA records.

                     For our August 1996 report, we identified widely divergent views that were
                     held by proponents and opponents of changing benefits for older FECA
                     beneficiaries. Among the views held by proponents of change were that
                     “lifetime” wage/salary replacement under FECA is too generous because it
                     does not reflect the normal progression to lower income that typically
                     occurs with retirement. Proponents also saw the government’s FECA cost
                     as being too high, thus putting a strain on agencies’ program budgets.

                     Opponents of change, in contrast, believed that benefits that replace
                     wages lost because of a work-related injury are justified because these
                     benefits have traditionally been considered substitutes for tort action
                     under the workers’ compensation approach for compensating for
                     work-related injuries. Under the workers’ compensation approach,
                     employers are generally liable for complete medical coverage and the
                     replacement of a substantial portion of injured employees’ wages,
                     regardless of fault. Employees, in exchange for guaranteed benefits, give
                     up their rights to sue for recovery of damages based on employers’



                     8
                     Federal Employees’ Compensation Act: Issues Associated With Changing Benefits for Older
                     Beneficiaries (GAO/GGD-96-138BR, Aug. 14, 1996).



                     Page 8                                                                      GAO/T-GGD-97-187
    Statement
    Recent GAO Reports on the Federal
    Employees’ Compensation Act




    negligence. Employees also give up their rights to recover damages from
    the employer for pain and suffering.

    The opponents of change also said that reducing benefits for older
    beneficiaries could be considered age discrimination, and reductions
    could cause beneficiaries economic hardships. To the extent that
    opponents would agree that FECA is costly, they believed that other
    cost-saving measures may be more appropriate, such as keeping
    employees off the rolls by implementing better safety programs to prevent
    injuries and by more effectively returning injured employees to productive
    employment.

    Lastly, we identified the following questions and associated issues that we
    believe would merit consideration by anyone crafting legislation to change
    wage compensation benefits for older beneficiaries:

•   What type of changed benefits would be provided? Converting
    beneficiaries from FECA to retirement benefits or providing beneficiaries
    with a FECA annuity are the two main options proposed in the past. One
    proposal for a FECA annuity would reduce FECA benefits by one-third when
    beneficiaries were 2 years beyond their retirement eligibility date.
•   How would benefits be computed? Converting from FECA to retirement
    benefits might involve adjustments to retirement benefits based on factors
    such as credit for time on FECA rolls and increases in an employee’s salary
    base since the time of injury. Calculating a separate FECA annuity would be
    relatively simple.
•   Which FECA beneficiaries would be affected? That is, would change affect
    all beneficiaries, including those who do not participate in a federal
    retirement plan (e.g., Peace Corps volunteers)? Would change only affect
    workers injured after the effective date of change or would it also affect
    beneficiaries who are currently receiving compensation benefits?
•   What criteria would initiate changed benefits? Would age or retirement
    eligibility alone trigger the change, or would secondary criteria need to be
    considered to protect some employees from economic adversity?
•   How would other benefits be treated? The administration of benefits, such
    as medical benefits and survivor annuities, may need clarification.
•   How would benefits be funded? If beneficiaries were converted from FECA
    to retirement benefits, alternatives for funding these benefits may have to
    be developed.




    Page 9                                                      GAO/T-GGD-97-187
           Statement
           Recent GAO Reports on the Federal
           Employees’ Compensation Act




           Mr. Chairman, this completes my statement. I would be pleased to answer
           any questions.




(410191)   Page 10                                                 GAO/T-GGD-97-187
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested