[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]

EXAMINING THE LABOR DEPARTMENT'S PROPOSED REFORMS TO THE FECA PROGRAM

=======================================================================

HEARING

before the

SUBCOMMITTEE ON WORKFORCE PROTECTIONS

COMMITTEE ON EDUCATION
AND THE WORKFORCE

U.S. House of Representatives

ONE HUNDRED THIRTEENTH CONGRESS

FIRST SESSION

__________

HEARING HELD IN WASHINGTON, DC, JULY 10, 2013

__________

Serial No. 113-27

__________

Printed for the use of the Committee on Education and the Workforce

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COMMITTEE ON EDUCATION AND THE WORKFORCE

JOHN KLINE, Minnesota, Chairman

Thomas E. Petri, Wisconsin George Miller, California,
Howard P. ``Buck'' McKeon, Senior Democratic Member
California Robert E. Andrews, New Jersey
Joe Wilson, South Carolina Robert C. ``Bobby'' Scott,
Virginia Foxx, North Carolina Virginia
Tom Price, Georgia Ruben Hinojosa, Texas
Kenny Marchant, Texas Carolyn McCarthy, New York
Duncan Hunter, California John F. Tierney, Massachusetts
David P. Roe, Tennessee Rush Holt, New Jersey
Glenn Thompson, Pennsylvania Susan A. Davis, California
Tim Walberg, Michigan Raul M. Grijalva, Arizona
Matt Salmon, Arizona Timothy H. Bishop, New York
Brett Guthrie, Kentucky David Loebsack, Iowa
Scott DesJarlais, Tennessee Joe Courtney, Connecticut
Todd Rokita, Indiana Marcia L. Fudge, Ohio
Larry Bucshon, Indiana Jared Polis, Colorado
Trey Gowdy, South Carolina Gregorio Kilili Camacho Sablan,
Lou Barletta, Pennsylvania Northern Mariana Islands
Martha Roby, Alabama John A. Yarmuth, Kentucky
Joseph J. Heck, Nevada Frederica S. Wilson, Florida
Susan W. Brooks, Indiana Suzanne Bonamici, Oregon
Richard Hudson, North Carolina
Luke Messer, Indiana

Juliane Sullivan, Staff Director
Jody Calemine, Minority Staff Director
------

SUBCOMMITTEE ON WORKFORCE PROTECTIONS

TIM WALBERG, Michigan, Chairman

John Kline, Minnesota Joe Courtney, Connecticut,
Tom Price, Georgia Ranking Member
Duncan Hunter, California Robert E. Andrews, New Jersey
Scott DesJarlais, Tennessee Timothy H. Bishop, New York
Todd Rokita, Indiana Marcia L. Fudge, Ohio
Larry Bucshon, Indiana Gregorio Kilili Camacho Sablan,
Richard Hudson, North Carolina Northern Mariana Islands
Suzanne Bonamici, Oregon

C O N T E N T S

----------
Page

Hearing held on July 10, 2013.................................... 1

Statement of Members:
Courtney, Hon. Joe, ranking member, Subcommittee on Workforce
Protections................................................ 3
Prepared statement of.................................... 4
Walberg, Hon. Tim, Chairman, Subcommittee on Workforce
Protections................................................ 1
Prepared statement of.................................... 2

Statement of Witnesses:
Seabury, Seth A., Ph.D., University of Southern California... 24
Prepared statement of.................................... 26
Sherrill, Andrew, Director of Education, Workforce and Income
Security, U.S. Government Accountability Office............ 22
Prepared statement, Internet address to.................. 24
Steinberg, Gary, Director, Office of Workers' Compensation
Programs (acting), U.S. Department of Labor................ 15
Prepared statement of.................................... 16
Szymendera, Scott, analyst in disability policy,
Congressional Research Service............................. 6
Prepared statement of.................................... 8

Additional Submissions:
Mr. Courtney:
Additional submissions:
Kelley, Colleen M., national president, National
Treasury Employees Union, prepared statement of.... 50
Excerpts from GAO report, ``Federal Employees'
Compensation Act: Percentages of Take-Home Pay
Replaced by Compensation Benefits,'' Internet
address to......................................... 51
Report, ``Adequacy of Earnings Replacement in
Workers' Compensation Programs,'' National Academy
of Social Insurance study panel on benefit
adequacy, excerpts from............................ 52
Slide presentation, ``Long-Term FECA Recipients:
Equitable Transition to the Retirement Years,''
U.S. Office of Personnel Management................ 56
Table: ``FY 2012 Cases Created by State''............ 61
Questions submitted for the record to:
Mr. Sherrill......................................... 62
Mr. Steinberg........................................ 65
Mr. Sherrill, response to questions submitted for the record. 63
Mr. Steinberg, response to questions submitted for the record 66

EXAMINING THE LABOR DEPARTMENT'S
PROPOSED REFORMS TO THE FECA PROGRAM

----------

Wednesday, July 10, 2013

U.S. House of Representatives

Subcommittee on Workforce Protections

Committee on Education and the Workforce

Washington, DC

----------

The subcommittee met, pursuant to call, at 10:01 a.m., in
room 2175, Rayburn House Office Building, Hon. Tim Walberg
[chairman of the subcommittee] presiding.
Present: Representatives Walberg, Kline, DesJarlais,
Rokita, Hudson, Courtney, and Bonamici.
Also present: Representative Miller.
Staff present: Katherine Bathgate, Deputy Press Secretary;
Owen Caine, Legislative Assistant; Ed Gilroy, Director of
Workforce Policy; Benjamin Hoog, Legislative Assistant; Marvin
Kaplan, Workforce Policy Counsel; Nancy Locke, Chief Clerk;
Donald McIntosh, Professional Staff Member; Brian Newell,
Deputy Communications Director; Krisann Pearce, General
Counsel; Molly McLaughlin Salmi, Deputy Director of Workforce
Policy; Nicole Sizemore, Deputy Press Secretary; Alissa
Strawcutter, Deputy Clerk; Tylease Alli, Minority Clerk/Intern
and Fellow Coordinator; Jody Calemine, Minority Staff Director;
John D'Elia, Minority Labor Policy Associate; Daniel Foster,
Minority Fellow, Labor; Eunice Ikene, Minority Staff Assistant;
Richard Miller, Minority Senior Labor Policy Advisor; Michele
Varnhagen, Minority Chief Policy Advisor/Labor Policy Director;
Michael Zola, Minority Deputy Staff Director; and Mark
Zuckerman, Minority Senior Economic Advisor.
Chairman Walberg. A quorum being present, the subcommittee
will come to order.
Good morning and welcome, to our guests. We appreciate you
being here. We have, I believe, assembled a distinguished panel
of witnesses and thank you all for joining us this morning.
Today's hearing is part of an effort that began last
Congress to improve the Federal Employees' Compensation Act. In
2011 the house passed with strong bipartisan support--and I
note that: bipartisan support--a package of reforms that would
have strengthened FECA program significantly.
Among other provisions, the bill would have improved
administrative efficiency, modernized various benefits, and
strengthened the overall integrity of the law. While the
legislation did not become law, it still represents good public
policy and reflects our commitment to addressing this issue in
a bipartisan way.
We recognized then, as we do now, that the bill passed by
the House during the 112th Congress was simply a first step.
Without a doubt more comprehensive changes are needed to ensure
the FECA program is meeting the needs of workers and taxpayers.
Toward that end, committee leaders asked the nonpartisan
Government Accountability Office to examine proposals put
forward by the Department of Labor. I am pleased to have
representatives from both the GAO and the department with us
this morning.
The department's proposal would eliminate increased
benefits for those employees with dependents, covert benefits
to 50 percent of gross wages once an individual reaches
retirement age, and implement a three-day waiting period before
an individual can draw continuation-of-pay benefits. These are
significant changes to the FECA program, which is why a careful
review by the GAO was both necessary and appropriate.
I will let the qualified experts describe in greater detail
the GAO's findings. However, the report does make a couple
things clear.
First, the department's proposal would have a
disproportionate impact on workers with dependents. Moving
toward a single rate of wage loss compensation is worthy of
consideration. However, we have to be mindful how this will
affect federal employees with families, especially when their
colleagues without dependents stand to gain financially.
The second point the GAO report makes clear is that there
are no easy answers. Fundamentally, we are talking about men
and women who suffer an injury or illness while employed by the
federal government. But as with any government program, there
will be those who try to take advantage of the system.
In an article entitled ``Experts Say Fraud Rampant in
Federal Worker Disability Programs,'' the Washington Examiner
reveals a program plagued by waste, abuse, and inefficiencies.
This is not acceptable, especially at a time when our nation
faces a severe debt crisis.
Creating a program that prevents abuse by bad actors,
reflects the realities of the 21st century, and provides
adequate support to workers will require policymakers to make
some tough choices, but we all agree maintaining the status quo
is not an option. We have a responsibility to federal workers
and federal taxpayers to create a stronger program, and I look
forward to the work that lies ahead. I am hopeful that in the
coming weeks and months we can build on the bipartisan efforts
that took place in the last Congress.
With that, I will now recognize the senior Democratic
member of the subcommittee, Representative Joe Courtney, for
his opening remarks.
[The statement of Chairman Walberg follows:]

Prepared Statement of Hon. Tim Walberg, Chairman,
Subcommittee on Workforce Protections

Good morning and welcome to our guests. We have assembled a
distinguished panel of witnesses and thank you all for joining us this
morning.
Today's hearing is part of an effort that began last Congress to
improve the Federal Employees' Compensation Act. In 2011 the House
passed with strong bipartisan support a package of reforms that would
have strengthened the FECA program. Among other provisions, the bill
would have improved administrative efficiency, modernized various
benefits, and strengthened the overall integrity of the law. While the
legislation did not become law, it still represents good public policy
and reflects our commitment to addressing this issue in a bipartisan
way.
We recognized then--as we do now--that the bill passed by the House
during the 112th Congress was simply a first step. Without a doubt more
comprehensive changes are needed to ensure the FECA program is meeting
the needs of workers and taxpayers. Toward that end, committee leaders
asked the nonpartisan Government Accountability Office to examine
proposals put forward by the Department of Labor. I am very pleased to
have representatives from both GAO and the department with us this
morning.
The department's proposals would eliminate increased benefits for
those employees with dependents, convert benefits to 50 percent of
gross wages once an individual reaches retirement age, and implement a
three day waiting period before an individual can draw continuation-of-
pay benefits. These are significant changes to the FECA program, which
is why a careful review by the GAO was both necessary and appropriate.
I will let the qualified experts describe in greater detail the
GAO's findings. However, the report does make a couple things clear.
First, the department's proposal would have a disproportionate impact
on workers with dependents. Moving toward a single rate of wage loss
compensation is worthy of consideration. However, we have to be mindful
how this will affect federal employees with families, especially when
their colleagues without dependents stand to gain financially.
The second point the GAO report makes clear is that there are no
easy answers. Fundamentally, we are talking about men and women who
suffer an injury or illness while employed by the federal government.
But as with any government program, there will be those who try to take
advantage of the system. In an article entitled ``Experts say fraud
rampant in federal worker disability program,'' the Washington Examiner
reveals a program plagued by waste, abuse, and inefficiencies. This is
not acceptable, especially at a time when our nation faces a debt
crisis.
Creating a program that prevents abuse by bad actors, reflects the
realities of the 21st century, and provides adequate support to workers
will require policymakers to make some tough choices, but we all agree
maintaining the status quo is not an option. We have a responsibility
to federal workers and federal taxpayers to create a stronger program,
and I look forward to the work that lies ahead.
I am hopeful that in the coming weeks and months we can build on
the bipartisan efforts that took place in the last Congress. With that,
I will now recognize the senior Democratic member of the subcommittee,
Representative Joe Courtney, for his opening remarks.
______

Mr. Courtney. Thank you, Mr. Walberg. Good morning.
And good morning to all the witnesses, and thank you for
being here today.
And I want to thank you, Mr. Chairman, for calling this
hearing to discuss the Federal Employees' Compensation Act, or
FECA.
FECA has been the governing statute providing benefits for
federal civilian workers injured or killed on the job since
1916. Not only does it provide compensation for lost wages,
medical care, and vocational rehabilitation, but it also
ensures that disabled workers are not impoverished while their
claims are being processed by continuing their pay for 45 days
following an injury.
This committee has primary jurisdiction over workers'
compensation laws and it has overseen and repeatedly improved
FECA since 1949.
At the outset it is worth noting some of the key principles
which underpin this law. First, workers and their families
should be no worse off, and no better off, than if the worker
had not been injured or made ill in the course of their federal
service. Those who are disabled from their work on behalf of
the American people should not be forced to bear any of that
cost.
Second, since workers surrender their right to bring tort
claims against the government for work-related injuries, they
need to be fairly compensated in a timely manner with benefits
administered in a non-adversarial manner. Civilian workers from
all three branches of government are and should be treated
equally under FECA, whether they are firefighters, overseas
food inspectors, law enforcement officers, or postal workers.
This hearing follows a bipartisan effort by this committee
in the last Congress, the 112th Congress, to enact consensus
reforms that improved program integrity, modernized benefits
that have not been updated since 1949, expanded the
availability of medical providers, and provided civilian
federal workers who are injured in a zone of armed conflict
with an additional 90 days to receive pay while they receive a
FECA claim. These reforms were reported out of committee in
July 2011 as the Federal Workers' Compensation Modernization
and Improvement Act, H.R. 2465, and passed the House by voice
vote in November of 2011, which is no mean feat in the 112th
Congress or the 113th Congress. Regrettably, however, this
legislation was not adopted by the Senate.
Mr. Chairman, I hope that bill will serve as a foundation
on which to build a bipartisan reform effort moving forward.
Today's hearing will review the Department of Labor's
proposal to, quote--``redesign,'' benefits under FECA. DOL's
proposal reduces the compensation rate for permanently disabled
workers at retirement age, reduces benefits for those with
families, and lowers the cap on benefits for widows and orphans
of federal workers killed on the job.
In July 2011, this committee jointly asked the Government
Accountability Office to assess whether injured workers in the
Federal Employee Retirement System would wind up worse off
under the DOL's proposal than if they worked a full career and
had never been injured. In late 2012, GAO issued three reports
covering impacts to federal workers, postal workers, and
partially disabled workers.
Included in these reports was the finding that cutting FECA
benefits for permanently disabled workers at retirement age
would leave them with 31 percent to 35 percent less than the
median benefit package they would have earned if they had never
been injured. To date, the Department of Labor has not modified
its proposals in response to these GAO reports.
I hope today's hearings will explore GAO's findings and
help us understand whether we can expect any changes to the
Department of Labor's proposal.
Again, I want to thank the witnesses for their preparation
and extend my appreciation for those who have had to travel a
long distance to be with us at this hearing.
I yield back the balance of my time.
[The statement of Mr. Courtney follows:]

Prepared Statement of Hon. Joe Courtney, Ranking Member, Subcommittee
on Workforce Protections

Chairman Walberg, thank you for calling this hearing today to
discuss the Federal Employees' Compensation Act, or FECA.
FECA has been the governing statute providing benefits for federal
civilian workers injured or killed on the job since 1916. Not only does
it provide compensation for lost wages, medical care, and vocational
rehabilitation, but it also ensures that disabled workers are not
impoverished while their claims are being processed, by continuing
their pay for 45 days following an injury. This Committee has primary
jurisdiction over workers' compensation laws, and has overseen and
repeatedly improved FECA since 1949.
At the outset, it is worth noting some the key principles which
underpin this law:
First, workers and their families should be no worse off,
and no better off, than if the worker had not been injured or made ill
in the course of their federal service. Those who are disabled from
their work on behalf of the American people should not be forced to
bear any of that cost.
Second, since workers surrender their right to bring tort
claims against the government for work-related injuries, they need to
be fairly compensated in a timely manner, with benefits administered in
a non-adversarial manner.
Civilian federal workers from all three branches of
government are and should be treated equally under FECA, whether they
are firefighters, overseas food inspectors, law enforcement officers,
or postal workers.
This hearing follows a bipartisan effort by this Committee in the
112th Congress to enact consensus reforms that improved program
integrity, modernized benefits that had not been updated since 1949,
expanded the availability of medical providers, and provided civilian
federal workers who are injured in a zone of armed conflict with an
additional 90 days to receive pay while they file a FECA claim. These
reforms were reported out of Committee in July 2011 as the Federal
Workers' Compensation Modernization and Improvement Act, H.R. 2465, and
passed the House by voice in November 2011. Regrettably, this
legislation was not adopted by the Senate.
Mr. Chairman, I hope that bill can serve as a foundation upon which
to build a bipartisan reform effort going forward.
Today's hearing will review the Department of Labor's proposal to
``redesign'' benefits under FECA. DOL's proposal reduces the
compensation rate for permanently disabled workers at retirement age,
reduces benefits for those with families, and lowers the cap on
benefits for widows and orphans of federal workers killed on the job.
In July 2011, this Committee jointly asked the Government
Accountability Office to assess whether injured workers in the Federal
Employee Retirement System would wind up worse off under the DOL's
proposal than if they had worked a full career and never been injured.
In late 2012, GAO issued three reports covering impacts to federal
workers, postal workers and partially disabled workers. Included in
these reports was the finding that cutting FECA benefits for
permanently disabled workers at retirement age would leave them (median
disabled workers) with 31% to 35% less than the median benefit package
they would have earned if they had never been injured.
To date, the Department of Labor has not modified its proposals in
response to these GAO reports. I hope today's hearing will explore
GAO's findings and help us understand whether we can expect any changes
to the Department of Labor's proposal.
I want to thank the witnesses for their preparation, and extend my
appreciation for those who had to travel a long distance to be with us
at this hearing.
I yield back the balance of my time.
______

Chairman Walberg. I thank the gentleman.
Pursuant to committee rule, all members will be permitted
to submit written statements to be included in the permanent
hearing record; and without objection the hearing record will
remain open for 14 days to allow statements, questions for the
record, and other extraneous material referenced during the
hearing to be submitted in the official hearing record.
It is now my pleasure to introduce our distinguished panel
of witnesses.
Mr. Scott Szymendera is from the Congressional Research
Service in Washington, D.C. and is not a stranger to this
committee.
Mr. Gary Steinberg is the acting director of the Office of
Workers' Compensation Programs at the U.S. Department of Labor
in Washington, D.C.
Welcome.
Mr. Andrew Sherrill is the director of education,
workforce, and income security at the U.S. Government
Accountability Office in Washington, D.C.
And welcome.
Dr. Seth Seabury is the longest-traveling member of this
panel, is an associate professor in the Department of Emergency
Medicine at the University of Southern California's Keck School
of Medicine in Los Angeles, California.
Welcome.
Before I recognize each of you to provide your testimony
let me briefly explain our lighting system. Green, yellow, red.
You know the rule on that.
Five minutes of testimony. The yellow comes on with a
minute remaining; seek to wrap it up as quickly as possible.
And when the red light comes on cut it off as quickly as
possible.
We will have opportunity to ask questions. The same will be
held for our committee members and we will have opportunity to
ask those 5 minutes of questions.
And so now let me recognize Mr. Szymendera for your opening
comments?

STATEMENT OF SCOTT SZYMENDERA, CONGRESSIONAL RESEARCH SERVICE,
U.S. LIBRARY OF CONGRESS

Mr. Szymendera. Thank you.
Chairman Walberg, Ranking Member Courtney, and members of
the subcommittee, my name is Scott Szymendera and I am an
analyst at the Congressional Research Service. Thank you for
inviting CRS to testify before the Subcommittee on Workforce
Protections on the Federal Employees' Compensation Act, the
workers' compensation system for federal employees administered
by the Department of Labor.
The FECA program began in 1916 and has not been
significantly amended since 1974. The testimony of CRS today
will focus on two provisions of the Department of Labor's FECA
reform proposal: the elimination of augmented compensation for
dependents coupled with an increase in the base rate of
compensation, and the creation of a lower benefit rate for
workers who receive benefits after reaching retirement age.
Under current law, the basic benefit rate used to determine
the amount of a person's FECA compensation is two-thirds of the
worker's pre-disability wage. However, if the worker has any
dependent children or a spouse the worker is eligible for
augmented compensation, bringing the total rate of compensation
to 75 percent of the worker's pre-disability wage.
The Department of Labor's proposal would eliminate
augmented compensation in cases in which a worker has a
dependent child or spouse. In addition, the proposal would
raise the basic benefit level for all workers regardless of
whether or not they have any dependents or a spouse to 70
percent of the worker's pre-disability wage.
In the majority of state workers' compensation systems the
basic permanent total disability benefit is two-thirds of a
worker's wage at the time of disability. Currently, 38 states
and the District of Columbia, as well as the federal Longshore
and Harbor Workers' Compensation Act, have total disability
benefit rates that are set at this level. The FECA augmented
compensation rate of 75 percent is higher than that paid by any
comparable state workers' compensation system except Texas,
which also has a 75 percent benefit rate.
When comparing benefit levels between the FECA program and
other workers' compensation programs it is important to also
consider the maximum benefits available to workers. Every
workers' compensation system has a limit on the amount of
weekly or monthly compensation that any given beneficiary may
receive.
The maximum FECA benefit is based on 75 percent of the GS-
15 Step 10 pay rate without any locality adjustments, whereas
state maximums are generally based on state average wages.
Thus, the maximum available benefits under FECA are greater
than under any state workers' compensation program or under the
federal Longshore and Harbor Workers' Compensation Act.
Under current law, FECA benefits for permanent total
disability are payable for the duration of the worker's
disability or for his or her lifetime. Benefits under FECA,
unlike federal pension benefits, are not subject to taxation.
In addition, FECA beneficiaries covered by the Federal
Employees Retirement System may not contribute to either Social
Security or the Thrift Savings Plan while receiving FECA
benefits. Thus, these employees, especially those who were
permanently disabled early in their federal careers, may only
be entitled to low Social Security benefit amounts and may have
low TSP balances to draw from upon retirement.
Permanent total disability benefits under FECA have always
been payable for the duration of disability or the life of the
worker. However, as part of the 1949 FECA amendments Congress
required the FECA program administrator to review the wage-
earning capacity of all beneficiaries upon reaching age 70 and
granted the administrator the authority to reduce a worker's
benefits upon reaching age 70 if, in the opinion of the
government, the worker's wage-earning capacity had been reduced
because of age independent of his or her disability. This
provision was removed by the 1974 FECA amendments.
The Department of Labor's proposal would create a new
conversion entitlement benefit for FECA beneficiaries who reach
Social Security, full retirement age, and have received FECA
benefits for at least 1 year. The conversion entitlement
benefit would be set at 50 percent of the worker's pre-
disability wage and, like all FECA disability benefits, would
be exempt from taxation.
In 39 states and under the federal Longshore and Harbor
Workers' Compensation Act, workers' compensation benefits for
permanent total disabilities are paid for the duration of
disability or the life of the worker. Thus, the FECA program is
currently in line with the practices of a majority of the
workers' compensation systems in the country.
In the remainder of the states, benefits terminate after a
set duration, when the worker reaches a certain age, or when
total benefits paid reach a certain level. North Dakota is the
only state that currently converts a worker's benefit to a
lower benefit at retirement age.
This concludes the testimony of the Congressional Research
Service. I will be happy to answer any questions that the
subcommittee may have.
[The statement of Mr. Szymendera follows:]

Prepared Statement of Scott Szymendera, Analyst in Disability Policy,
Congressional Research Service

Chairman Walberg, Ranking Member Courtney, and Members of the
subcommittee: My name is Scott Szymendera and I am an analyst at the
Congressional Research Service (CRS). Thank you for inviting CRS to
testify before the Subcommittee on Workforce Protections on the Federal
Employees' Compensation Act (FECA), the workers' compensation system
for federal employees administered by the Department of Labor.
Since 1916, federal employees have been protected from economic
losses associated with employment-related injuries and illnesses and
their families have been protected in cases of employment-related
deaths by FECA. My testimony today will focus on two provisions of the
Department of Labor's FECA reform proposal: the elimination of
augmented compensation for dependents coupled with an increase in the
base rate of compensation; and the creation of a lower benefit rate for
workers who receive benefits after reaching retirement age.\1\
Brief Overview of FECA\2\
In FY2012, there were 97,238 new, non-denied FECA cases created.\3\
Of these cases, 48,967 involved lost time from work and 48 were cases
of workplace fatalities.\4\ During FY2012 the FECA program paid $3.025
billion in benefits, including over $1.956 billion in disability
compensation, $929 million in medical and vocational rehabilitation
services, and $140 million in survivors benefits.\5\
Statutory and Regulatory Authorities
The FECA program is authorized in statute at 5 U.S.C. Sec. Sec.
8101 et seq. Regulations implementing FECA are provided at 20 C.F.R.
Sec. Sec. 10.00-10.826. The FECA program is administered by the
Department of Labor, Office of Workers Compensation Programs (OWCP).
Program Financing
Benefits under FECA are paid out of the federal Employees'
Compensation Fund. This fund is financed by appropriations from
Congress, which are used to pay current FECA benefits and which are
ultimately reimbursed by federal agencies through the chargeback
process.
The administrative costs associated with the FECA program are
provided to the Department of Labor through the appropriations process.
In addition, the United States Postal Service and certain other
government corporations are required to pay for the ``fair share'' of
the costs of administering benefits for their employees.
Employees Covered by FECA
The FECA program covers all civilians employed by the federal
government, including employees in the executive, legislative, and
judicial branches of the government. Both full-time and part-time
workers are covered as are most volunteers and all persons serving on
federal juries. Coverage is also extended to certain groups including
state and local law enforcement officers acting in a federal capacity,
Peace Corps volunteers, students participating in Reserve Officer
Training Corps programs, and members of the Coast Guard Auxiliary and
Civil Air Patrol.
Conditions Covered by FECA
Under FECA, workers' compensation benefits are paid to any covered
employee for any disability or death caused by any injury or illness
sustained during the employee's work for the federal government. There
is no list of covered conditions nor is there a list of conditions that
are not covered. However, conditions caused by the willful misconduct
or intoxication by alcohol or any other drug of the employee are not
covered by FECA.
FECA Claims Process
All FECA claims are processed and adjudicated by OWCP. Initial
decisions on claims are made by OWCP staff based on evidence submitted
by the claimant and his or her treating physician. The law also permits
OWCP to order a claimant or beneficiary to submit to a medical
examination from a doctor contracted to the federal government. An
employee dissatisfied with a claims decision may request a hearing
before OWCP or that OWCP review the record of its decision. A final
appeal can be made to the Employees' Compensation Appeals Board (ECAB).
The decision of the ECAB is final, cannot be appealed, and is not
subject to judicial review.
In general, a claim for disability or death benefits under FECA
must be made within three years of the date of the injury or death. In
the case of a latent disability, such as a condition caused by exposure
to a toxic substance over time, the three-year time limit does not
begin until the employee is disabled and is aware, or reasonably should
be aware, that the disability was caused by his or her employment.
FECA Compensation Benefits
Continuation of Pay
In the case of a traumatic injury, an employee is eligible for
Continuation of Pay for up to 45 days.\6\ Continuation of pay is paid
by the employing agency and is equal to 100% of the employee's rate of
pay at the time of the traumatic injury. Since continuation of pay is
considered salary and not compensation, it is taxed and subject to any
deductions normally made against the employee's salary.
Partial Disability
If an employee is unable to work full-time at his or her previous
job, but is able to work either part-time or at a job in a lower pay
category, then he or she is considered partially disabled and eligible
for the following compensation benefits:
if the employee is single and without dependents, a
monthly benefit equal to two-thirds of the difference between the
employee's pre-disability and post-disability monthly wage; or
if the employee has a spouse or at least one dependent, a
monthly benefit equal to 75% of the difference between the employee's
pre-disability and post-disability monthly wage.
The compensation benefits paid for partial disability are capped at
75% of the maximum basic pay at rate GS-15 (GS-15, Step 10), are not
subject to federal taxation, and are subject to an annual cost-of-
living adjustment.
Scheduled awards
In cases in which an employee suffers a permanent partial
disability, such as the loss of a limb, he or she is entitled to a
scheduled benefit which pays benefits for a set period of time provided
in statute or regulation.\7\ The scheduled benefit is in addition to
any other partial or total disability benefits received and an employee
may receive a scheduled award even if he or she has returned to full-
time work.
Total Disability
If an employee is unable to work at all, then he or she is
considered totally disabled and eligible for the following compensation
benefits:
if the employee is single and without dependents, a
monthly benefit equal to two-thirds of the employee's pre-disability
monthly wage; or
if the employee has a spouse or at least one dependent, a
monthly benefit equal to 75% of the employee's pre-disability monthly
wage.
The compensation benefits paid for total disability are capped at
75% of the maximum basic pay at rate GS-15 (GS-15, Step 10), are not
subject to federal taxation, and are subject to an annual cost-of-
living adjustment.\8\ Benefits are payable until it is determined that
the employee is no longer totally disabled and may continue until the
employee's death.
Death
If an employee dies on the job or from a latent condition caused by
his or her employment, the employee's survivors are eligible for the
following compensation benefits:
if the employee's spouse has no children, then the spouse
is eligible for a monthly benefit equal to 50% of the employee's
monthly wage at the time of death;
if the employee's spouse has one or more children, then
the spouse is eligible for a monthly benefit equal to 45% of the
employee's monthly wage at the time of death and each child is eligible
for a monthly benefit equal to 15% of the employee's monthly wage at
the time of death, up to a maximum family benefit of 75% of the
employee's monthly wage at the time of death.
Special rules apply in cases in which an employee dies without a
spouse or children or with only children or a spouse remarries after
the death of the worker. Benefits for a child end at age 18, or age 23
if the child is still in school. A child's benefits continue for life
if the child is disabled and incapable of self-support.
The compensation benefits paid for death are capped at 75% of the
maximum basic pay at rate GS-15 (GS-15, Step 10), are not subject to
federal taxation, and are subject to an annual cost-of-living
adjustment.\9\
FECA Medical Benefits
Under FECA, all medical costs, including medical devices, therapies
and medications, associated with the treatment of a covered injury or
illness are paid for, in full, by the federal government. Generally, a
beneficiary may select his or her own medical provider and is
reimbursed for the costs associated with transportation to receive
medical services. A FECA beneficiary who is blind, paralyzed, or
otherwise disabled such that he or she needs constant personal
attendant care may receive an additional benefit of up to $1,500 per
month.
Vocational Rehabilitation
The Secretary of Labor may direct any FECA beneficiary to
participate in vocational rehabilitation, the costs of which are paid
by the federal government. While participating in vocational
rehabilitation, the beneficiary may receive an additional benefit of up
to $200 per month. However, any beneficiary who is directed to
participate in vocational rehabilitation and fails to do so may have
his or her benefit reduced to reflect his or her increased wage earning
capacity that likely would have resulted from participation in
vocational rehabilitation.
Department of Labor's FECA Reform Proposal
The Department of Labor has proposed a package of reforms to the
FECA program intended to improve the return-to-work rate and
rehabilitation of injured federal workers; update the FECA benefit
structure; and modernize the program which has not been significantly
amended since 1974.\10\ Included in the Department of Labor's reform
proposal are the following two provisions that, if enacted, would make
significant changes to the structure of disability benefits paid by the
FECA program:
1. elimination of augmented compensation for dependents and the
creation of a new uniform basic benefit rate of 70% of the worker's
pre-disability wage; and
2. conversion of FECA beneficiaries to a new benefit rate of 50% of
the workers' pre-disability wage upon reaching Social Security full
retirement age.\11\
My testimony will focus on these two provisions.
Elimination of Augmented Compensation and Creation of a New Uniform
Basic Benefit Rate
Current Law
Under current law, the basic benefit rate used to determine the
amount of a person's FECA compensation is two-thirds (66.67%) of the
workers' pre-disability wage. However, if the worker has any dependent
children or a spouse, the worker is eligible for augmented compensation
in the amount of 8.33% of his or her pre-disability wage bringing the
total rate of compensation to 75% of the worker's pre-disability wage.
In the case of a total disability, a worker's benefit is equal to
either of these two basic benefit amounts (66.67% or 75%) and in the
case of a partial disability; the amount of benefits is a percentage of
either of these two basic benefit amounts.
Legislative History
The FECA basic benefit rate of two-thirds of a worker's pre-
disability wage was part of the original FECA statute enacted in
1916\12\ and was based on state workers' compensation laws in place at
the time. In its report on the legislation, the House Judiciary
Committee stated that the FECA benefit rates were ``in line with the
best precedents found in State compensation acts'' especially those in
Massachusetts, New York, and Ohio.\13\
Augmented compensation for workers with dependents or spouses was
added to the FECA program as part of the Federal Employees'
Compensation Act Amendments of 1949, P.L. 81-357. In their reports on
the 1949 amendments, both the House Education and Labor Committee and
the Senate Labor and Public Welfare Committee stated that augmented
compensation for workers with dependents or spouses would recognize the
``greater need'' of disabled employees with dependents than single
employees and would ``serve to prevent families from falling behind
financially during the crisis occasioned by industrial injury.''\14\ In
addition, both the House and Senate committees cited the existence of
augmented compensation for dependents in state workers' compensation
laws as justification for this provision.\15\
Proposed Change
The Department of Labor's proposal would eliminate augmented
compensation in cases in which a worker has a dependent child or
spouse. In addition, the proposal would raise the basic benefit level
for all workers, regardless of whether or not they have any dependents
or a spouse, to 70% of the worker's pre-disability wage.
Comparison to Other Workers' Compensation Programs
Basic Benefit Rate
In the majority of state workers' compensation systems, the basic
permanent total disability benefit is two-thirds of a worker's wage at
the time of disability. Currently, 38 states and the District of
Columbia have total disability benefit rates that are set at this
level.\16\ In addition, benefits under the federal Longshore and Harbor
Workers' Compensation Act are also set at two-thirds of the pre-
disability wage.\17\ New Hampshire's benefit rate is 60% of the
worker's pre-disability wage.
Currently, four states have total disability benefit rates that are
based on pre-disability or average wages that exceed the two-thirds
standard. In New Jersey and Oklahoma, benefits are paid at 70% of the
worker's wage at the time of injury whereas benefits in Texas are based
on 75% of the worker's average wage.\18\ In Ohio, benefits are paid at
72% of the pre-disability wage for the first 12 weeks, and then are
reduced to the standard two-thirds rate.
Six states--Alaska, Connecticut, Iowa, Maine, Michigan, and Rhode
Island--base benefits on net, rather than gross wages. It is generally
not possible to compare these benefits to FECA benefits because of
differences in tax rates that affect net income. In Washington, the
basic benefit rate ranges between 60% and 75% of wages and the value of
certain employee-provided benefits at the time of injury depending on
the number of dependents.
Because of the augmented compensation provision of the FECA
program, beneficiaries with dependents, including spouses, may receive
total disability benefits at a rate of 75% of their pre-disability
wages. No state pays augmented compensation for dependents, and the 75%
benefit rate is higher than that paid by the federal Longshore and
Harbor Workers' Compensation Act or any comparable state workers'
compensation system except Texas.
The uniform basic FECA benefit rate of 70% of the worker's pre-
disability wage proposed by the Department of Labor would be higher
than the basic benefit rates in 39 states, the District of Columbia,
and under the federal Longshore and Harbor Workers' Compensation Act;
equal to the basic benefit rates in New Jersey and Oklahoma; and lower
than the basic benefit rates in Texas and for the first 12 weeks of
benefits in Ohio.
Maximum Benefits
When comparing benefit levels between the FECA program and other
workers' compensation programs, it is important to also consider the
maximum benefits available to workers. Every workers' compensation
system has a limit on the amount of weekly or monthly compensation that
any given beneficiary may receive. Because of these benefit maximums,
some workers may not receive the full benefits that they would
otherwise be entitled to based solely on their pre-disability income
level. When comparing maximum benefits available, it is important to
note that while these are the maximum benefits available, the
individual benefits available to each claimant are based on that
claimant's individual circumstances and pre-disability wage and that
absent additional data, it is not possible to estimate the number of
claimants in FECA program or any other workers' compensation system
whose benefits are reduced because they reach the program's maximums.
The maximum FECA benefit is based on 75% of the GS-15, Step 10 pay
rate, without any locality adjustments, whereas state maximums are
generally based on state average wages or the worker's own pre-
disability wage. For 2013, the annual salary at GS-15, Step 10, is
$129,517, whereas the average federal salary for the executive branch
in December 2012 was $76,913.\19\ Thus, the maximum FECA benefit under
the current system is higher than it would be if the FECA system based
its maximum benefit level on average wages as is the case in the
majority of the states.
The maximum FECA benefit, when calculated on a per-week basis is
$1,868 which is higher than the current maximum weekly benefit
available in any state or under the federal Longshore and Harbor
Workers' Compensation Act. For example, the maximum weekly benefit for
non-federal workers in the District of Columbia is based on 100% of the
District's average weekly wage and is currently $1,416, or
approximately 76% of the FECA maximum.\20\ In Mississippi, the state
with the lowest maximum benefit for permanent total disability, the
maximum weekly benefit is based on two-thirds of the state's average
weekly wage and is currently $449.12, or 24% of the FECA maximum.\21\
In Texas, the only state that matches the augmented FECA compensation
level of 75% of a workers' pre-injury wage, the weekly maximum for
permanent total disability benefits (referred to as Lifetime Income
Benefits in Texas) is based on 100% of the state's average weekly wage
and is currently $818, or 44% of the FECA maximum.\22\
Conversion of Benefits at Retirement Age
Current Law
Under current law, FECA benefits for permanent total disability are
payable for the duration of the worker's disability, or for his or her
lifetime. There is no maximum duration of FECA benefits and workers are
given the option of converting from FECA to their federal employee
retirement system, but are not required to do so.
Benefits under FECA, unlike federal pension benefits, are not
subject to taxation. In addition, FECA beneficiaries covered by the
Federal Employees' Retirement System (FERS) may not contribute to
either Social Security or the Thrift Savings Plan (TSP) while receiving
FECA benefits.\23\ Thus, these employees, especially those who were
permanently disabled early in their federal careers, may only be
entitled to low Social Security benefit amounts and may have low TSP
balances to draw from upon retirement.\24\
Because the cost of FECA benefits are charged back to each
employee's host agency, the costs of providing FECA benefits to
employees after they likely would have retired from the federal
government is borne by those employees' host agencies and must be paid
annually out of those agency's budgets. Unlike in the case of federal
retirement benefits, there is no cost-sharing by the employees
themselves who pay a portion of their federal retirement through
payroll contributions.
Legislative History
1949 amendments
Permanent total disability benefits under FECA have always been
payable for the duration of disability or the life of the worker.
However, as part of the 1949 FECA amendments, Congress required the
FECA program administrator to review the wage-earning capacity of all
beneficiaries upon reaching age 70 and granted the administrator the
authority to reduce a worker's benefits upon reaching age 70 if, in the
opinion of the government, the worker's wage-earning capacity had been
reduced because of age, independent of his or her disability.
This provision was opposed by several representatives from federal
employee organizations who testified before the House Education and
Labor Committee that such a provision was inconsistent with the
mandatory federal employee retirement age of 70 in place at the time
and could cause undue hardships to workers who, because of their
disabilities, had not been able to reach their full earning potential
or who had reduced pensions because of many years of limited or no
earnings.\25\ In addition, the Department of Labor testified in
opposition to this provision and stated:
Workmen's compensation is not supposed to be predicated upon the
financial needs of an employee depending upon the particular stage of
life through which he is passing. It is predicated on the basis of his
lost wage-earning capacity at the time he suffered the disability, and
this compensation is, and should be, completely unrelated to his
longevity. Moreover, simple justice, it seems to me, would require that
a worker whose income has been reduced for a period of time, who may
have been denied the opportunity because of his injury to augment his
wages through promotions, should not be further penalized in his later
years by a downward revision of his disability payments. Moreover, the
wage-earning capacity of an employee may have been considerably greater
in his later years had he not been injured than it was at the time of
the accident, so that a recomputation on the basis of what he was
actually earning, when injured, rather than on the basis of his
probable wage-earning capacity, would hardly constitute a fair and
equitable mode of determining the benefits to be paid a disabled worker
after he has attained the age of 70.\26\
1974 amendments
The provision requiring that FECA benefits be reviewed and
permitting FECA benefits to be reduced after a beneficiary reached age
70 to account for the reduced earning capacity that may come with age
independent of any disability was removed by the Federal Employees'
Compensation Act Amendments of 1974, P.L. 93-416. In its report on the
1974 amendments, the Senate Committee on Labor and Public Welfare
provided the following justification for eliminating the reduced
benefit provision:
The Committee finds that such a review places an unnecessary burden
on both the employees receiving compensation and the Secretary.
Further, the fact that an employee reaches 70 has no bearing on his or
her entitlement to benefits and is considered discriminatory in the
Committee's opinion.\27\
Proposed Change
The Department of Labor's proposal would create a new ``Conversion
Entitlement Benefit'' for FECA beneficiaries who reach Social Security
full retirement age and have received FECA benefits for at least one
year. The Conversion Entitlement Benefit would be set at 50% of the
worker's pre-disability wage and like all FECA disability benefits
would be exempt from taxation. According to the Department of Labor,
the goal of this new benefit is to more closely align FECA benefits
after retirement age to benefits that would be paid under the federal
retirement systems and remove the often significant financial incentive
to employees to remain in the FECA program after retirement age.\28\
Under this proposal, FECA beneficiaries would retain the right to
choose between remaining in the FECA program with the reduced
Conversion Entitlement Benefit, or leaving the FECA program and
receiving their federal retirement benefits.
Comparison to Other Workers' Compensation Systems
In 39 states and under the federal Longshore and Harbor Workers'
Compensation Act, workers' compensation benefits for permanent total
disabilities are paid for the duration of disability or the life of the
worker.\29\ Thus, the FECA program is currently in line with the
practices of a majority of the workers' compensation systems in the
country.
In three states--Indiana, North Carolina,\30\ and South Carolina--
and the District of Columbia, workers' compensation benefits for
permanent total disabilities terminate after a set number of weeks of
benefit receipt. For example, in Indiana, benefits are terminated after
500 weeks. In four additional states--Florida, Montana, Tennessee, and
West Virginia--benefits terminate when the beneficiary reaches an age
provided in statute, such as age 75 in Florida. Benefits in Kansas are
terminated once a beneficiary has received a total lifetime amount of
benefits and termination in Mississippi comes either after a set number
of weeks or after a total amount of benefits has been received.
Benefits in Georgia are paid for the duration of disability only in
cases of catastrophic injuries. In other cases, such as occupational
illnesses, benefits terminate after 400 weeks.
North Dakota is the only state that converts a worker's benefit to
a lower benefit at retirement age. In North Dakota, once a worker
reaches Social Security full retirement age, his or her workers'
compensation disability benefits are terminated and replaced with an
``Additional Benefit Payable'' that ranges from 5% of the worker's
previous benefit for workers who were disabled for less than three
years to 50% of the previous benefit for workers who were disabled for
more than 30 years.\31\ The Additional Benefit Payable is payable for a
length of time equal to the length of time that the worker received
workers' compensation benefits.
endnotes
\1\ For additional information on the Department of Labor's FECA
reform proposal see Department of Labor, FY2014 Congressional Budget
Justification, Office of Workers' Compensation Programs, Overview,
February 2013, pp. 4-5; and U.S. Congress, House Committee on Education
and the Workforce, Subcommittee on Workforce Protections, Reviewing
Workers' Compensation for Federal Employees, 112th Cong., 1st sess.,
May 12, 2011, H.Hrg. 112-22 (Washington: GPO, 2011), statement of Gary
Steinberg. For an analysis of the Department of Labor's FECA reform
proposal see U.S. Government Accountability Office, Federal Employees'
Compensation Act: Analysis of Proposed Program Changes, GAO-13-108,
October 2012.
\2\ For a more complete overview of the FECA program see CRS Report
R42107, The Federal Employees' Compensation Act (FECA): Workers'
Compensation for Federal Employees, by Scott Szymendera; and U.S.
Congress, House Committee on Education and the Workforce, Subcommittee
on Workforce Protections, Reviewing Workers' Compensation for Federal
Employees, 112th Cong., 1st sess., May 12, 2011, H.Hrg. 112-22
(Washington: GPO, 2011), statement of Scott Szymendera.
\3\ The number of new non-denied FECA cases includes all new
injury, illness, and fatality cases submitted to the Department of
Labor, less any denied cases. The Department of Labor reports a total
of 115,697 new FECA cases created in FY2012 [Department of Labor,
Office of Workers' Compensation Programs, Division of Federal
Employees' Compensation: About our Program, http://www.dol.gov/owcp/
dfec/about.htm].
\4\ Department of Labor, Occupational Safety and Health
Administration, Federal Injury and Illness Statistics for Fiscal Year
2012, http://www.osha.gov/dep/fap/statistics/fedprgms--stats12--
final.html.
\5\ Department of Labor, Office of Workers' Compensation Programs,
Division of Federal Employees' Compensation: About our Program, http://
www.dol.gov/owcp/dfec/about.htm.
\6\ Certain groups, including federal jurors, Peace Corps
volunteers, and Civil Air Patrol members, are not eligible for
continuation of pay. Employees of the United States Postal Service must
satisfy a three-day waiting period before becoming eligible for
continuation of pay.
\7\ The list of FECA scheduled benefits are provided in statute at
5 U.S.C. Sec. 8107(c) and in regulation at 20 C.F.R. Sec. 10.40(a).
\8\ Currently 21 states, the District of Columbia, and the federal
Longshore and Harbor Workers' Compensation Act provide some form of a
cost-of-living adjustment to permanent total disability benefits.
\9\ The personal representative of the deceased may also be
eligible for reimbursement of certain costs associated with terminating
the deceased employee's formal relationship with the federal
government, funeral expenses, and costs associated with shipping a body
from the place of death to the employee's home. In addition, any
employee killed while working with the military in a contingency
operation is also entitled to a special gratuity payment of up to
$100,000 payable to his or her designated survivors and employees of
certain agencies such as the State Department may be eligible for
additional death gratuities administered by their agencies for deaths
that occur overseas.
\10\ U.S. Congress, House Committee on Education and the Workforce,
Subcommittee on Workforce Protections, Reviewing Workers' Compensation
for Federal Employees, 112th Cong., 1st sess., May 12, 2011, H.Hrg.
112-22 (Washington: GPO, 2011), statement of Gary Steinberg.
\11\ The Social Security full retirement age ranges from 65 for
persons born in 1937 or earlier to 67 for persons born in 1960 or
later. For additional information on the full retirement age see CRS
Report R41962, Fact Sheet: The Social Security Retirement Age, by Gary
Sidor.
\12\ Federal Employees' Compensation Act, P.L. 64-267.
\13\ U.S. Congress, House Committee on the Judiciary, Compensation
of Government Employees Suffering Injuries While on Duty, report to
accompany H.R. 15316, 64th Cong., 2nd sess., May 11, 1916, H. Rept. 64-
678 (Washington: GPO, 1916), pp. 7-9.
\14\ U.S. Congress, House Committee on Education and Labor,
Amendments to Federal Employees' Compensation Act, report to accompany
H.R. 3141, 81st Cong., 1st sess., June 6, 1949, H. Rept. 81-729
(Washington: GPO, 1949), p. 9; and U.S. Congress, Senate Labor and
Public Welfare, Amendments to Federal Employees' Compensation Act,
report to accompany H.R. 3141, 81st Cong., 1st sess., August 4, 1949,
S. Rept. 81-836 (Washington: GPO, 1949), p. 19.
\15\ At the time of this legislation, 10 states and the Territory
of Alaska provided some sort of augmented compensation to disability
benefits in cases in which workers had dependents [Department of Labor,
State Workmen's Compensation Laws as of October 1, 1948, Bulletin No.
99, Washington, DC, October 1948, p. 20].
\16\ Workers' Compensation Research Institute and International
Association of Industrial Accident Boards and Commissions, Workers'
Compensation Laws as of January 2012, Cambridge, MA, March 2012, Table
5.
\17\ For additional information on the Longshore and Harbor
Workers' Compensation Act see CRS Report R41506, The Longshore and
Harbor Workers' Compensation Act (LHWCA): Overview of Workers'
Compensation for Certain Private-Sector Maritime Workers, by Scott
Szymendera.
\18\ In Texas, most private-sector employers may opt out of the
workers' compensation system, but in doing so forfeit their protection
from civil suits for workplace injuries, illnesses, and deaths.
\19\ Information on the GS-15 salary rate taken from the website of
the Office of Personnel Management (OPM) at http://www.opm.gov/policy-
data-oversight/pay-leave/salaries-wages/2013/general-schedule/gs.pdf.
Information on average federal salary taken from the OPM FedScope
system online at http://www.fedscope.opm.gov/.
\20\ District of Columbia Department of Employment Services,
Workers' Compensation FAQ's, http://does.dc.gov/node/192372.
\21\ Mississippi Workers' Compensation Commission, Mileage, Weekly
Maximum and Lifetime Disability Rates, http://www.mwcc.state.ms.us/faq/
--rates.asp#2013.
\22\ Texas Department of Insurance, State Average Weekly Wage
(SAWW) / Maximum and Minimum Weekly Benefits, http://www.tdi.texas.gov/
wc/employee/maxminbens.html.
\23\ P.L. 108-92, enacted in 2003, increased the FERS basic annuity
from 1.0% of the individual's high-three years of average pay to 2.0%
of high-three average pay for the duration of the period when the
worker received FECA benefits. For additional information on this
provision see CRS Report RS22838, Disability Retirement for Federal
Employees, by Katelin P. Isaacs.
\24\ For additional information on FERS see CRS Report 98-810,
Federal Employees' Retirement System: Benefits and Financing, by
Katelin P. Isaacs. For additional information on the relationship
between FECA and federal retirement systems see U.S. Government
Accountability Office, Federal Employees' Compensation Act: Analysis of
Proposed Program Changes, GAO-13-108, October 2012.
\25\ U.S. Congress, House Committee on Education and Labor, Special
Subcommittee, Federal Employees' Compensation Act Amendments of 1949,
hearing on H.R. 3191 and companion bills, 81st Cong., 1st sess., April
11-13 and May 2, 1949.
\26\ Ibid., statement of John W. Gibson.
\27\ U.S. Congress, Senate Committee on Labor and Public Welfare,
Federal Employees' Compensation Act of 1970, report to accompany H.R.
13781, 93rd Cong., 2nd sess., August 8, 1974, S. Rept. 93-1081
(Washington: GPO, 1974), p. 7.
\28\ U.S. Congress, House Committee on Education and the Workforce,
Subcommittee on Workforce Protections, Reviewing Workers' Compensation
for Federal Employees, 112th Cong., 1st sess., May 12, 2011, H.Hrg.
112-22 (Washington: GPO, 2011), statement of Gary Steinberg.
\29\ Workers' Compensation Research Institute and International
Association of Industrial Accident Boards and Commissions, Workers'
Compensation Laws as of January 2012, Cambridge, MA, March 2012, Table
5.
\30\ In North Carolina benefits can be extended beyond 500 weeks if
it is determined that the worker has sustained a total loss of wage-
earning capacity.
\31\ N.D. Cent. Code Sec. 65-05-09.4. There is an exception to
this provision for workers who can prove that they are not entitled to
Social Security or any other type of retirement benefit.
______

Chairman Walberg. I thank you.
Mr. Steinberg, recognize you for your 5 minutes?

STATEMENT OF GARY STEINBERG, ACTING DIRECTOR, OFFICE OF
WORKERS' COMPENSATION PROGRAMS, U.S DEPARTMENT OF LABOR

Mr. Steinberg. Thank you, sir.
Chairman Walberg, Ranking Member Courtney, and committee
members, I appreciate the opportunity to meet with you again to
discuss the Federal Employees' Compensation Act. On behalf of
Acting Secretary Harris I would like to share a set of balanced
proposals that would enhance our ability to assist
beneficiaries to return to work, provide a more equitable array
of benefits, and generally modernize the program.
Almost 97 years ago Congress enacted FECA to provide
workers' compensation coverage to all federal employees and
their survivors for disability or death due to a work-related
injury. The faces of FECA include the postal worker who is hurt
when her mail truck is hit driving and delivering the mail, the
FBI agent who is killed in the line of duty, the VA nurse who
hurts her back while lifting a patient, and the U.S. Forest
Service firefighter who is injured while fighting a wildfire.
DOL's Office of Workers' Compensation Programs, OWCP, works
hard to administer this non-adversarial program fairly,
objectively, and efficiently. We seek to continuously improve
quality and service delivery to our customers, enhance internal
and external communications, and reduce cost to the taxpayers.
This is fundamental to the achievement of our mission to
protect the interests of workers who become injured or ill on
the job, their families, and their employers by making timely,
appropriate, and accurate decisions on claims, providing prompt
payment of benefits, and helping injured workers return to
gainful employment as early as is feasible.
We have made significant strides in disability management
that has resulted in significant reduction in the average
number of work days lost from the most serious injuries. Over
the last 10 years the average number of work days lost due to
serious injuries has declined by over 20 percent, producing an
annual savings of $53 million. Our administrative costs are
only 5 percent of the total program cost, far below the average
of all states' health insurance programs, which is over 11
percent.
To further improve FECA we have made a comprehensive set of
recommendations to Congress. I wish to highlight some today.
To help injured employees return to work we request
authority to start vocational rehabilitation activities without
waiting until the injury is deemed permanent in nature and a
mandate to develop a return-to-work plan with claimants early
in the rehabilitation process. These proposed changes will also
have a positive impact on the government's ability to achieve
the President's executive order on hiring individuals with
disabilities.
We also suggest changes to the benefit structure. For
example, the payment of schedule awards for the loss or loss of
use of a limb, one's sight or hearing, is often very
complicated and thus often delayed. We think that these awards
should be paid by DOL concurrently with wage loss compensation,
made more rapidly, and to be fair, should be calculated at a
uniform level for all federal employees. We also propose to
increase benefit levels for burial expenses and facial
disfigurement.
Under current law, the majority of injured workers receive
wage replacement at 75 percent of their salary, tax free and
COLAed. This rate is higher than the take-home pay of many
federal workers who are working each day and this can serve as
an obstacle to the department's efforts to encourage every
worker to overcome their injuries and to go back to work.
We therefore recommend shifting the benefit level for all
new claimants to 70 percent. Paying a non-retirement age
beneficiaries at a single 70 percent rate would also simplify
the process for both claimants and OWCP by eliminating the
continuing need to obtain and validate documentation regarding
dependent eligibility. A single rate would be simpler and more
equitable and would produce significant savings to the
taxpayers.
To provide equity to other federal employees we also
recommend establishing a lower conversion rate for
beneficiaries beyond Social Security retirement age which would
more closely mirror OPM retirement rates. It should be noted
that we recommend these changes be prospective in nature, not
retrospective.
My written testimony outlines other important provisions
that would streamline and improve the program.
In summary, while FECA is the model workers' compensation
system, it does have limitations that need to be addressed. The
reforms that we suggest today are not new. They have been
proposed by both current and previous administrations.
They are careful; they are balanced; they are well
researched; and they reflect good government while producing a
10-year savings of over $500 million. These changes will bring
the program into the 21st century.
Thank you again for the opportunity to meet with you today.
I will be pleased to answer any questions that you may have.
[The statement of Mr. Steinberg follows:]

Prepared Statement of Gary Steinberg, Director, Office of Workers'
Compensation Programs (Acting), U.S. Department of Labor

Chairman, Ranking Member, and Members of the Subcommittee: Thank
you for inviting me to this important hearing today. As you know, the
Department of Labor's (DOL) Office of Workers' Compensation Programs
(OWCP) administers a number of workers' compensation programs,
including the Federal Employees' Compensation Act (FECA) program, which
covers 2.7 million Federal and Postal workers and is one of the largest
self-insured workers' compensation systems in the world.
I appreciate the opportunity to discuss legislative reforms to FECA
that would enhance our ability to assist FECA beneficiaries to return
to work, provide a more equitable array of FECA benefits, and generally
modernize the program and update the statute. Almost 97 years ago, on
September 7, 1916, Congress enacted FECA to provide comprehensive
Federal workers' compensation coverage to all Federal employees and
their survivors for disability or death due to an employment injury or
illness. FECA's fundamental purpose is to provide compensation for wage
loss and medical care, facilitate return to work for employees who have
recovered from their injuries, and pay benefits to survivors. The faces
of FECA beneficiaries include the Postal worker whose mail truck is hit
while he is delivering mail, the Federal Bureau of Investigation (FBI)
agent injured or killed in the line of duty, and the Department of
Veterans Affairs nurse who hurts her back while lifting patients. All
of these employees will receive benefits provided by this Act.
Since FECA has not been significantly amended in almost 40 years,
there are areas where the statute could be improved. Thus, we have
developed a number of proposals to reform and maintain FECA as the
model workers' compensation program for the twenty-first century and
adopt best practices in State systems, while producing potential cost
savings of more than $500 million over a 10-year period on a government
wide basis. After briefly discussing the current status of the FECA
program, I am pleased to outline possible changes to the statute for
consideration.
Many of the proposals are based on the results of internal studies,
the Government Accountability Office (GAO), the DOL Inspector General,
as well as discussions with the Office of Personnel Management and
other partner and stakeholder organizations over the past 30 years.
Over the past few years, we have shared these proposed changes with
staff of this and other Congressional committees and various outside
parties, such as representatives of Federal employee unions and members
of the disability community.
FECA today
Benefits under the FECA are payable for both traumatic injuries
(injuries sustained during the course of a single work shift) and
occupational disease due to sustained injurious exposure in the
workplace. If OWCP's review of the evidence determines that a covered
employee has sustained a work-related medical condition, the FECA
program provides a wide variety of benefits, including payment for all
reasonable and necessary medical treatment; compensation to the injured
worker to replace partial or total lost wages (paid at two-thirds of
the employee's salary or at three-fourths if there is at least one
dependent); a monetary award in cases of permanent impairment of limbs
or other parts of the body; medical and vocational rehabilitation
assistance in returning to work as necessary; and benefits to survivors
in the event of a work-related death.
FECA benefits are based upon an employee's inability to earn pre-
injury wages, with no time limit on wage loss benefit duration as long
as the work-related condition or disability continues; the amount of
compensation is based upon the employee's salary up to a maximum of GS-
15 Step 10. More than 70% of FECA claimants are paid at the augmented
(three-fourths) level. As workers' compensation benefits, they are
generally tax free; long-term benefits are escalated for inflation
after the first year of receipt, however, the program is not designed
to compensate for missed career growth resulting from employment
interruptions due to injury.
FECA is a non-adversarial system administered by OWCP. While
employing agencies play a significant role in providing information to
OWCP and assisting their employees in returning to work, the
adjudication of FECA claims is exclusively within the discretion given
to the Secretary of Labor by statute and is statutorily exempt from
court review.
Claimants are provided avenues of review within OWCP through
reconsideration and hearing as well as an appellate forum, the
Employees' Compensation Appeals Board (ECAB), a quasi-judicial
appellate board within DOL, completely independent of OWCP.
FECA benefits are paid out of the Employees' Compensation Fund and
most are charged back to the employee's agency. During the 2012
chargeback year, which ended on June 30, 2012, the Fund paid more than
$2.1 billion in wage-loss compensation, impairment, and death benefits
and another $901.9 million to cover medical and rehabilitation services
and supplies. These totals include outlays for non-chargeable costs for
war risk hazards that total $54.5 million, primarily for overseas
Federal contractor coverage under the War Hazards Compensation Act
(WHCA). Benefits paid have remained relatively stable at these levels
for the past 10 years, with the exception of war risk hazard payments.
In addition, the administrative costs to manage the program have
consistently averaged a very modest 5% of total outlays.
Maintaining program integrity
OWCP actively manages the FECA program so that benefits are
properly paid. After a case is accepted as covered, OWCP monitors
medical treatment for consistency with the accepted condition--if more
than a very brief disability is involved, OWCP often assigns a nurse as
part of our early nurse intervention program to assist with the
worker's recovery and facilitate the return-to-work effort. If
disability is long-term, but the claimant can work in some capacity, a
vocational rehabilitation counselor may be assigned to the case.
Once a claim is accepted for ongoing, periodic payments, injured
workers are required to submit medical evidence to substantiate
continued disability (either annually or on a two or three year
schedule for those less likely to regain the ability to work). In those
situations where it is unlikely that a claimant may return to work due
to their work related medical condition, eligible claimants may elect
OPM disability or retirement benefits.
Those injured workers who choose to remain in the FECA program must
cooperate with OWCP-directed medical examinations and vocational
rehabilitation, accept suitable employment if offered, and annually
report earnings and employment (including volunteer work) as well as
the status of their dependents and any other government benefits. OWCP
claims staff carefully review these submissions and can require
claimants to be examined by outside medical physicians to resolve
questions on the extent of disability or appropriateness of medical
treatment such as surgery. OWCP also conducts monthly computer matches
with the Social Security Administration (SSA) to identify FECA
claimants who have died so that payments can be terminated to avoid
overpayments. OWCP is also working with the Department of Labor's
Employment and Training Administration (ETA) to provide current FECA
claimant lists to State Unemployment Agencies to help them address
their offset requirements.
In addition, OWCP has conducted program evaluation studies to
identify areas for process and policy improvements. I noted earlier
some of our case processing improvements. Based on the resulting
recommendations and our claims experience, we have also improved how
the program approaches disability management and return to work. The
program's early nurse intervention and quality case management
initiatives are particularly noteworthy as the program evolves to
reflect a renewed focus on return to work. Under the Protecting Our
Workers & Ensuring Reemployment (POWER) initiative, we have partnered
with the Occupational Safety and Health Administration (OSHA) and other
federal agencies to improve timely filing of claims and reduce the
number and severity of injuries. By speeding the average time it takes
for federal employees to return to work after an injury, OWCP saves the
government millions of dollars just in the first year of the injury;
this also helps avoid placing them on long term disability status,
which can last much longer.
OWCP continually employs a variety of strategies available within
the confines of the FECA to strengthen the program. For FY14, OWCP has
requested increased funding to further enhance FECA program integrity.
This dedicated funding will be utilized to establish an operation which
will identify areas of improper payment vulnerability, develop
strategies for preventing improper payments, and enhance our payment
recapture program to recover overpayments due to error or fraud in
compensation payments.
A history of performance
Under most circumstances FECA claims are submitted by employees to
their employing agency, which completes the agency information required
on the form and forwards the claim to OWCP. Over the past 5 years, an
average of 125,000 new injury and illness claims were filed annually
and processed by OWCP. The acceptance rate for new injury claims in
2012 was 86%. Ninety percent (90%) were submitted within program
timeliness standards of 10 working days and approximately 97% were
processed by OWCP within program timeliness standards, which vary
depending on the complexity of the injury.
Fewer than 17,000 of the accepted claims per year involve a
significant period of disability. Eighty-five percent (85%) of these
claimants return to work within the first year of injury and 91% return
to work by the end of the second year. Due in part to OWCP's efforts to
return injured employees to work, less than 2% of all new injury cases
remain on the long-term compensation rolls two years after the date of
injury. Currently, approximately 45,000 injured workers receive long
term ongoing disability benefits for partial or total wage loss, which
they receive every four weeks.
FECA reform
As I have discussed, OWCP has made significant administrative and
technical changes to improve the administration of FECA. These changes
were legally permissible within the existing statutory framework and
have had a demonstrable effect in advancing our progress. The current
FECA reform proposal embodies certain reforms that can only be gained
through statutory amendment that transforms FECA into a model twenty-
first century workers' compensation program, increasing equity and
efficiency while reducing costs.
These amendments fall within three categories:
Return to Work and Rehabilitation
Updating Benefit Structures
Modernizing and Improving FECA
Return to work and rehabilitation
The proposal that we have crafted for consideration would provide
OWCP with enhanced opportunities to facilitate rehabilitation and
return to work while simultaneously addressing several disincentives
that may adversely impact timely return to work by applying a new set
of benefit rates prospectively to new injuries and new claims for
disability occurring after enactment of the FECA amendments.
We propose additional statutory tools that would enhance OWCP's
ability to return injured workers to productive employment. While OWCP
currently has the authority under FECA to provide vocational
rehabilitation services and to direct permanently injured employees to
participate in vocational rehabilitation, our proposal removes the
permanency limitation in the statute to make clear that such services
are available to all injured workers and that participation in such an
effort is required. It is generally accepted and consistent with our
experience that the earlier the claimant is involved in a vocational
rehabilitation and a Return-to-Work program, the greater likelihood of
a successful and sustained return to work post injury.
The proposal would amend FECA to explicitly allow for vocational
rehabilitation, where appropriate, as early as six months after injury.
It provides OWCP the authority to require injured claimants unable to
return to work within six months of their injury to participate with
OWCP in creating a Return--to-Work Plan where appropriate. The Return-
to-Work Plan would generally be implemented within a two-year period.
This provision would send a strong signal to all Federal workers,
whether injured or not, that the Federal government as a model employer
is committed to doing everything it can to return employees to work as
early as possible.
Our proposal would also amend FECA to provide permanent authority
for what we call Assisted Reemployment. Assisted Reemployment is a
subsidy designed to encourage employers to choose qualified
rehabilitated workers whom they might otherwise not hire. Since
disabled Federal workers with skills transferable to jobs within the
general labor market may in some cases prove difficult to place,
Assisted Reemployment is designed to increase the number of disabled
employees who successfully return to the labor force by providing wage
reimbursement to potential employers. Recent DOL appropriations bills
gave OWCP the authority to provide up to three years of salary
reimbursement to private employers who provide suitable employment for
injured federal workers. Because most Federal employees desire
continued employment with the Federal government, our proposal to
expand this program to the Federal sector would significantly increase
its appeal and effectiveness, especially for those less likely to
return to work without additional supports. We are working closely with
OPM, DOL's Office of Disability Employment Policy (ODEP), and our
partner agencies to actively seek re-employment opportunities for
Federal workers who become disabled as a result of work-related
injuries or illnesses. These provisions would assist with that effort
and comport with and support the President's Executive Order 13548 to
increase hiring of individuals with disabilities in the Federal
government. Under this proposal, OWCP would reimburse, in part, the
salaries paid by Federal agencies that hire workers with work-related
injuries.
Return to work following an injury is often a difficult, painful
process, requiring physical, mental and emotional adjustments and
accommodations. If a workers' compensation system contains
disincentives to return to work, that difficult transition back to work
will occur more slowly, or in some cases, not at all. Where the medical
evidence of ability to work is ambiguous and returning to work would
require an employee to overcome significant physical limitations, these
disincentives will exact a high price. That high price means a more
costly program, lost productivity to the employing agency, and, for the
workers themselves, disrupted lives and diminished self-esteem.
As currently structured, FECA creates direct disincentives to
return to work in two significant ways. The first and most far-reaching
is that while the basic rate of FECA compensation, 66\2/3\%, is
comparable to most state systems, the majority of Federal employees
receive an augmented benefit, 75%, reflecting at least one dependent.
Few state systems provide any augmentation for dependents, and none
approaches the Federal level.
As outlined in GAO's 2012 report on the FECA, specifically the
``Analysis of Proposed Changes on USPS Beneficiaries,'' there is no
consensus on the appropriate wage replacement rate for workers'
compensation programs and such decisions involve balancing goals of
benefit adequacy and incentives to return to work. We therefore suggest
amending the FECA such that all claimants receive compensation at one
uniform level of 70%. This compensation adjustment would reduce
disincentives to return to work, respond to equity concerns, and
significantly simplify administration by greatly reducing documentation
requirements for claimants and eliminating potential overpayments that
can occur due to changes in dependency status. At this level,
compensation would remain quite adequate. A similar rate reduction is
also proposed in death claims.
A second significant disincentive to return to work is created by
the disparity that exists between the level of retirement benefits,
provided by the OPM, received by most Federal employees and the level
of long-term FECA benefits for retirement age FECA recipients. Under
current law, the thousands of long-term FECA beneficiaries who are over
normal retirement age have a choice between Federal retirement system
benefits and FECA benefits, but they overwhelmingly elect the latter
because FECA benefits are typically far more generous. OPM informs us
that the average Federal employee retiring optionally on an immediate
annuity under the Civil Service Retirement System will receive about
60% of their ``high-three'' average salary, most of which is taxable,
compared to a tax free 75% or 66.66% FECA benefit. The newer Federal
Employees' Retirement System is designed to provide a comparable level
of retirement replacement income from the three parts of its structure.
Because returning to work could mean giving up a FECA benefit in favor
of a lower OPM pension amount at eventual retirement, injured workers
may have an incentive to consciously or unconsciously resist
rehabilitation and, in certain cases, may adhere to the self-perception
of being ``permanently disabled.'' In any event, the considerable
difference between FECA benefits and OPM retirement benefits results in
certain FECA claimants receiving far more compensation in their post-
retirement years than if they had completed their Federal careers and
received normal retirement benefits like their colleagues. This
disparity also suggests that a statutory remedy is needed.
The Administration's proposal would provide claimants with a
``Conversion Entitlement Benefit'' upon reaching regular Social
Security retirement age (and after receiving full benefits for at least
one year) that would reduce their wage-loss benefits to 50% of their
gross salary at date of injury (with cost of living adjustments), but
would still be tax free.
As the GAO report referenced numerous times, the FECA, like all
workers' compensation programs in general, is not designed to
compensate for missed career growth due to employment interruptions due
to injury; however, this proposed conversion benefit more closely
parallels a regular retirement benefit, as opposed to a full wage-loss
benefit, so that FECA recipients are not overly advantaged in their
retirement years compared to their non-injured counterparts on OPM
retirement. An injured worker receiving this retirement level
conversion benefit would no longer be subject to several of the
sanction provisions outlined in the FECA, such as forfeiture for
failure to report earnings or the requirement to seek/accept suitable
employment or participate in vocational rehabilitation. Even at this
reduced rate, however, an injured worker would still be required to
substantiate continuing injury-related disability or face suspension of
compensation benefits.
Updating benefit structures
We also propose a number of changes to the current FECA benefit
structure. One relates to the schedule award provision, which is
designed to address the impact of impairment on an individual's life
function, such as the loss of vision, hearing, or a limb. Impairment is
permanent, assessed when an individual reaches maximum medical
improvement, and is based upon medical evidence that demonstrates a
percentage of loss of the affected member. Each member, extremity or
function is assigned a specific number of weeks of compensation and the
employee's salary is used to compute his or her entitlement to a
schedule award. This payment structure results in considerable
disparities in compensation: For example, a manager is paid far more
than a letter carrier for loss of a leg even though the impact on the
letter carrier may in reality be far more severe. In that instance, a
GS-15 would receive twice what a GS-7 receives for the same loss of
ability to get around, engage in recreational activities, etc., for
this permanent impairment.
Paying all schedule awards at the rate of 70% of $53,639
(approximate equivalent of the annual base salary of a GS 11 Step 3)
adjusted annually for inflation would certainly be more equitable.
Similarly, allowing injured workers to receive FECA schedule award
benefits in a lump sum concurrently with FECA wage loss benefits for
total or partial disability would provide a more equitable benefits
structure for claimants. The current process is complicated and
convoluted, often leaving injured workers frustrated and confused. It
also can generate substantial unnecessary administrative burdens, as
schedule award payments cannot be paid concurrently with FECA wage-loss
benefits. To avoid the concurrent receipt prohibition some eligible
claimants may elect OPM disability or retirement benefits, which they
are allowed to receive for the duration of a schedule award. When the
schedule award expires, they may elect to return to the more
advantageous FECA wage-loss benefits. While they are collecting OPM
benefits, OWCP and employing agency efforts to assist the employee in
returning to work are stymied. In addition to switching to OPM benefits
during the period of a schedule award, claimants can also switch back
and forth between benefit programs over the life of a claim. As a
result of these overly complex provisions and benefit streams,
claimants sometimes do not return to work as early or as often as they
could. By allowing concurrent receipt of these benefits, the claimant
is timely compensated for the loss to the scheduled member and the
incentive to switch back and forth between OPM and OWCP benefits for
this reason is eliminated. This allows a return-to-work or vocational
rehabilitation effort to continue uninterrupted, thereby improving the
chances of a successful return to employment. The expansion and
enhancement of this benefit is a vital part of our reform proposal that
was not addressed in the GAO's analysis. Allowing for the concurrent
receipt of and establishing a uniform pay rate for schedule awards will
serve to protect the income security of long term injured federal
workers, and can mitigate against the consequences of lost career
growth especially for those who are at lower grade levels and are
injured early in their careers.
Finally, this proposal increases benefit levels for funeral
expenses and facial disfigurement, both of which have not been
significantly updated since 1949, to bring FECA in line with increases
in other workers' compensation statutes.
Modernizing and improving FECA
Because FECA has not been amended in almost 40 years, updates are
needed to modernize and improve several provisions of the statute. One
such change was made several years ago but only applied to workers
employed by the U. S. Postal Service (USPS)--the imposition of an
upfront waiting period. In order to discourage the filing of claims for
minor injuries that resolve very quickly, state workers' compensation
programs generally impose a waiting period before an injured worker is
entitled to wage-loss compensation. Because of the way in which the
1974 amendments to FECA adding the ``Continuation of Pay'' provisions
were drafted, the waiting period under FECA for traumatic injuries was
effectively moved after the worker has received 45 days of
``Continuation of Pay,'' thus defeating the purpose of a waiting
period. The Postal Enhancement and Accountability Act of 2006 amended
the waiting period for Postal employees by placing the three-day
waiting period immediately after an employment injury; we suggest
placing the three-day waiting period immediately after an employment
injury for all covered employees.
Another longstanding concern addressed by the proposal relates to
the application of FECA subrogation provisions to claims. Workers'
compensation systems generally provide that when a work-related injury
is caused by a negligent third party the worker who seeks damages from
that third party must make an appropriate refund to the workers'
compensation system. As a result of the way in which the 1974
``Continuation of Pay'' provision was drafted, OWCP cannot include
amounts paid for Continuation of Pay in calculating the total refund to
OWCP when a recovery is received by a FECA beneficiary from a third
party. OWCP seeks authority to include these amounts.
OWCP also seeks the authority to match Social Security wage data
with FECA files. While the SSA collects employment and wage information
for workers, OWCP presently does not have authority to match that data
to identify individuals who may be working while drawing FECA benefits.
OWCP currently is required to ask each individual recipient to sign a
voluntary release to obtain such wage information. Direct authority
would allow automated screening to ensure that claimants are not
receiving salary, pay, or remuneration prohibited by the statute or
receiving an inappropriately high level of benefits.
This proposal would also increase the incentive for employing
agencies to reduce their injury and lost time rates. Currently the USPS
and other agencies not funded by appropriations must pay their ``Fair
Share'' of OWCP administrative expenses, but agencies funded by
appropriations are not required to do so. Amending FECA to allow for
administrative expenses to be paid out of the Employees' Compensation
Fund and included in the agency chargeback bill would increase Federal
agencies' incentive to reduce injuries and more actively manage return
to work when injuries do occur.
To improve access to medical care, we suggest a provision that
would increase the authority and use of Physicians' Assistants and
Nurse Practitioners. We suggest amending FECA to allow Physicians'
Assistants and Nurse Practitioners to certify disability during the
Continuation of Pay period so that case adjudication is not delayed and
treatment can be provided more rapidly. The provision allowing
Physicians' Assistants and Nurse Practitioners to certify disability
during the Continuation of Pay period would also reduce the burden of
disability certifications in war zone areas because access to a
physician may be even more limited in these circumstances.
To further address injuries sustained in a designated zone of armed
conflict, FECA should be amended to provide Continuation of Pay for
wage loss up to 135 days for such injuries. This increase from the
standard 45 days would allow additional flexibility for claims handling
in these challenging areas and is an outgrowth of a cooperative effort
with OPM, the Department of State and the Department of Defense to
address the needs of deployed civilian employees.
Conclusion
This proposal provides a fair and reasonable resolution to the
disincentives and inadequacies that have arisen within the current FECA
statute. Since any FECA reform should be prospective only, it would
apply to new injuries and new claims of disability after enactment.
Injured workers currently in receipt of disability benefits would see
no changes in their benefit level. We believe that our proposals, if
adopted in their entirety, would allow all federal employees and
federal agencies to embrace and adopt a more pro-active and progressive
attitude about return to work and disability employment, and avoid any
unfair interruption of existing benefits. Even with this prospective
approach, cost savings are estimated to be in excess of $500 million
over a 10-year period government-wide.
The FECA program is at a critical juncture. We have done our best
to keep the program current and responsive to the changing world we
live in through administrative, technological and procedural
innovations and investments. Without these statutory reforms, OWCP's
best efforts may yield some further gains. However, we cannot overcome
the fundamental disincentives in the current law and achieve the
breakthrough improvements that we know are possible within the FECA
program which will allow FECA to maintain its status as a model of
workers' compensation programs.
The federal workforce comprises dedicated, hard working women and
men who are committed to serving the public. OWCP is fully committed to
ensuring that all injured workers receive the medical care and
compensation they deserve, as well as the assistance needed to return
to work when able to do so. FECA reform will enable OWCP to achieve
those goals more effectively.
Mr. Chairman, I would be pleased to answer any questions that you
or the other members of the Committee may have.
______

Chairman Walberg. Thank you. Appreciate it.
Mr. Sherrill, we recognize you now for your 5 minutes of
testimony?

STATEMENT OF ANDREW SHERRILL, DIRECTOR OF EDUCATION, WORKFORCE
AND INCOME SECURITY, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

Mr. Sherrill. Chairman Walberg, Ranking Member Courtney,
and members of the subcommittee, I am pleased to be here today
to discuss the findings from several of GAO's recently issued
reports on the potential effects of proposed changes to benefit
levels in the FECA program.
Under the current program, total disability beneficiaries
with an eligible dependent are compensated at 75 percent of
gross wages at the time of injury, and those without are
compensated at 66.66 percent. Benefits are adjusted for
inflation and they are not taxed nor subject to age
restrictions. Some policymakers have raised questions about the
level of FECA benefits, especially compared to federal
retirement benefits.
My testimony today summarizes our findings in three areas:
first, potential effects of the proposals to compensate total
disability FECA beneficiaries at a single rate of either 70
percent or 66.66 percent; second, potential effects of the FECA
proposal to reduce FECA benefits to 50 percent of applicable
wages at full Social Security retirement age for total
disability beneficiaries; and three, how partial disability
beneficiaries might fare under the proposed changes.
Our analyses focused on individuals covered under the
Federal Employees Retirement System, or FERS, which covered
about 85 percent of the federal workforce in 2009. We conducted
simulations comparing FECA benefits to the income--either take-
home pay or retirement benefits--that a total disability
beneficiary would have had absent an injury.
Our methodology matched FECA beneficiaries to uninjured
federal workers with similar characteristics and we used actual
data on the uninjured workers' earnings and retirement
benefits. In addition, we conducted seven case studies of
partial disability beneficiaries.
Our simulations comparing FECA benefits to take-home pay
for total disability beneficiaries found that current FECA
benefits replaced about 88 percent of the 2010 take-home pay
for Postal Service beneficiaries and about 80 percent for non-
postal beneficiaries. Proposals to set initial FECA benefits at
a single compensation rate regardless of the presence of
dependents would reduce these wage replacement rates by several
percentage points.
We also found that wage replacement rates under the current
FECA program are slightly higher for beneficiaries with
dependents but that under the single rate compensation
proposals they would be higher for beneficiaries without
dependents, and the differences would be greater. This reflects
the fact that FECA benefits are not taxed, where as wages are,
allowing individuals with dependents to keep a greater portion
of their earnings and have greater take-home pay.
Our simulations comparing FECA and FERS found that under
the current FECA program the median FECA benefit package is
higher than the median 2010 FERS benefit package and that under
the proposed FECA reduction at retirement age the 2010 packages
would be roughly equal. However, the first annuitants we
analyzed had a median federal career of 16 to 18 years, which
is far less than the average of about 30 years under the older
civil service retirement system.
Recognizing that we had not captured a mature retirement
system and had likely understated future benefits of workers
with 30-year careers, we simulated a mature FERS system,
reflecting future benefits of workers with 30-year careers.
This provided us with a basis for assessing the potential
benefits of the proposed change on future FECA beneficiaries,
which is the focus. We found that in a mature FERS system the
median FECA benefit package under the proposed change would be
from 22 to 35 percent less than the median FERS retirement
package.
Partial disability beneficiaries are fundamentally
different from total disability beneficiaries, as they have
received reduced FECA benefits based on a determination of
their earning capacity. Our seven case studies of partial
disability beneficiaries show that how they might fare under
the proposed FECA changes can vary considerably based on their
individual circumstances, such as their earning capacity and
actual level of earnings.
For example, among our case studies, those beneficiaries
with high earnings capacities may elect to retire under FERS
and would likely not be affected by the proposed FECA reduction
at retirement age because their potential retirement benefits
were substantially higher than their current or proposed
reduced FECA benefit levels. In contrast, those beneficiaries
with low earning capacities had potential retirement benefits
that were lower than their current FECA benefits and the
proposed FECA reduction at retirement age would reduce their
FECA benefits.
In conclusion, FECA continues to play a vital role in
providing compensation to federal employees who are unable to
work because of injuries sustained while performing their
federal duties. Our simulations incorporated the kind of
approaches used in the literature on assessing benefit adequacy
for workers' compensation programs, such as taking account of
missed career growth. We assessed the proposed changes by
simulating the level of take-home pay or retirement benefits
FECA beneficiaries would have received if they had not been
injured, which provides a realistic basis for assessing how
beneficiaries may be affected.
However, it is important to note we did not recommend any
particular level of benefit adequacy. As policymakers assess
proposed changes to FECA benefit levels they will implicitly be
making decisions about what constitutes an adequate level of
FECA benefits before and after they reach retirement age.
Thank you very much and I would be happy to answer any
questions.
[The statement of Mr. Sherrill may be accessed at the
following Internet address:]

http://www.gao.gov/assets/660/655812.pdf

------

Chairman Walberg. Thank you for your testimony.
Dr. Seabury, recognize you now for your 5 minutes?

STATEMENT OF DR. SETH SEABURY, ASSOCIATE PROFESSOR, DEPARTMENT
OF EMERGENCY MEDICINE, KECK SCHOOL OF MEDICINE, UNIVERSITY OF
SOUTHERN CALIFORNIA

Dr. Seabury. Chairman Walberg, Ranking Member Courtney, and
members of the subcommittee, thank you for the opportunity to
meet with you today to discuss reforms to the FECA system. My
name is Seth Seabury and I am an associate professor in the
Department of Emergency Medicine and the Leonard D. Schaeffer
Center for Health Policy and Economics at the University of
Southern California.
Throughout my career I have worked on and led numerous
studies of the adequacy of workers' compensation benefits for
disabled workers. I am here today to discuss the potential
effects of two proposed changes to the FECA program: the
adoption of a single replacement rate for all workers, and the
proposed reduction in benefits for workers at retirement age.
The Labor Department argues that these will help improve
return to work and restore equity to the system. However, I
have reviewed the GAO analyses of these proposals and I believe
they raise some serious questions about how they would affect
disabled workers.
First, the GAO analysis shows the proposed shift to a
single rate would reduce benefits for most injured workers.
Perhaps surprisingly, changing the system to apply the same
rate to all workers would actually make benefits less
equitable. That is, the effective replacement rate after taxes
would be consistently higher for workers with no dependents
after the change.
An alternative approach could attain a given level of
adequacy while making benefits more equitable by targeting
post-tax as opposed to pre-tax replacement rates. This could be
done by directly targeting replacement rates based on spendable
income, as is done in some states, or a simpler change making a
replacement rate proportional to the number of dependents.
The GAO also found that reducing FECA benefits at
retirement age would lower the income for total disability
beneficiaries. There is some question over the methods they
used because the GAO estimated the long-term impact of an
injury on a worker's career growth and future earnings. They
did this even though FECA, like other workers' compensation
systems, calculates benefits using only pre-injury earnings.
But in my opinion, estimating the potential earnings over a
worker's career is the only way to get an accurate picture of
the economic impact of a disabling injury. Let me explain.
Benefit adequacy is measured by how much of the income that
someone loses because of an injury is actually replaced by
benefits. By definition, how much you lose from an injury is
the difference between what you would have made had you not
been injured and what you actually did make.
For most people, income doesn't stay the same over time.
Workers experience employment opportunities that offer higher
wages, but these opportunities can be lost or delayed by a
disabling injury.
Ignoring disruptions like these will provide potentially a
misleading account of the true economic impact of an injury.
This is important for understanding the generosity of benefits
as well as the incentives of workers.
Of course, we can't actually observe what someone would
have made if they weren't injured. This is something that we
have to estimate.
The GAO analyses compared what FECA beneficiaries actually
made to the earnings of uninjured workers who are otherwise
similar. That is, they had the same age, the similar job, et
cetera. This approach has been widely used by myself and others
to evaluate workers' compensation policy in state systems, and
the National Academy of Social Insurance declared it the
preferred approach for assessing the adequacy of disability
benefits.
Applying these methods, the GAO found that the loss in
career growth and retirement savings meant the retirement-age
FECA beneficiaries had benefits that were comparable to or
lower than what they would have received in the Federal
Employee Retirement System if they worked a full career without
getting injured. This means that reducing FECA benefits at
retirement age could significantly reduce retirement income for
most of these beneficiaries. However, it is true that some
workers might earn more under FECA, but more analysis could be
done to identify which workers would benefit more and design a
more targeted response.
These changes have been proposed at least in part to
improve return to work for disabled workers. It is true that if
reducing benefits motivated return to work we would expect the
additional income from working to offset the lower benefits.
Improving return to work is a vital policy goal, but it is
unclear whether or by how much these benefit changes that are
proposed would actually lead to improvements in return to work.
The current system already reduces benefits for workers who
are deemed to have recovered to the point that they have some
capacity for work. If this reduction is insufficient to cause
them to work it is unclear how much additional effect reducing
their benefits at retirement age would have.
In general, more evidence is needed on this issue and more
evidence is needed on the adequacy of FECA benefits for
partially disabled workers.
This concludes my testimony. I would be happy to answer any
questions.
[The statement of Dr. Seabury follows:]

Prepared Statement of Seth A. Seabury, Ph.D.,
University of Southern California

Chairman Walberg, Ranking Member Courtney and Members of the
Subcommittee on Workforce Protections of the Education and the
Workforce Committee: Thank you for the opportunity to appear before you
today. My name is Seth Seabury, and I am an Associate Professor of
Research in the Department of Emergency Medicine in the Keck School of
Medicine and the School of Pharmacy at the University of Southern
California. I am also a Fellow at the Leonard D. Schaeffer Center for
Health Policy and Economics. Prior to coming to USC, I was a senior
economist at the RAND Corporation and the Associated Director of the
RAND Center for Health and Safety in the Workplace. I have studied
policy issues surrounding the compensation of work related injuries
throughout my career. I have worked on and led a number of studies in
California that have evaluated the efficiency, equity and adequacy of
workers' compensation benefits and have influenced several reform
efforts.
I am appearing before you today to discuss the implications of
proposed changes to the Federal Employees' Compensation Act (FECA), the
system for compensating federal employees for work-related injuries. In
particular, there are two changes to FECA total and partial disability
benefits that have been proposed by the Department of Labor (DOL) that
are at issue:
A change to the benefit schedule that would set benefits
at a single rate of 70% of applicable wages at the time of injury, as
opposed to the current system that uses separate rates of 75% and 66\2/
3\% for workers with and without at least one dependent, respectively.
A mandatory reduction in benefits from the initial FECA
rate to 50% of the applicable earnings (adjusted for inflation) once
workers reach full Social Security retirement age.
To prepare for this hearing, I have reviewed the GAO report
``Federal Employees Compensation Act, Analysis of Proposed Program
Changes'' (GAO-13-108) and the two follow up reports (GAO-13-142R and
GAO-13-143R), as well as the report ``Federal Employees Compensation
Act: Benefits for Retirement-Age Beneficiaries'' (GAO-12-309R). I have
also reviewed the testimony from the Subcommittee on Workforce
Protection's May 12, 2011 hearing ``Reviewing Workers' Compensation for
Federal Employees,'' and a slide presentation created by the United
States Office of Personnel Management (OPM) titled ``Long-Term FECA
Recipients, Equitable Transition to the Retirement Years.'' My
testimony is based on my reading of these sources, a number of
additional works that I cite below, and my accumulated experience in
the area of workers' compensation.
The key points of my testimony can be summarized as follows:
The GAO reports estimate the long-term lost income that
injured workers experience as a result of their injuries, including
lost career growth, when assessing the adequacy of FECA benefits. This
approach is widely believed to provide the best measure of benefit
adequacy and is consistent with the methods that have been used in
prior work in the area.
Based on the GAO's findings, the DOL proposal makes FECA
benefits less adequate and also less equitable, in the sense that
workers without dependents will have more of their income replaced than
those that do. Making the system more equitable requires adjustments
that are designed to equalize after-tax (as opposed to pre-tax)
replacement rates.
The GAO's analysis shows that when lost career growth is
considered, most workers earn less under FECA than what their normal
retirement benefit would have been after a 30 year career had they not
been injured. Reducing benefits at retirement age would thus worsen the
adequacy of FECA benefits for most retirement-age beneficiaries.
More work is needed to understand which workers might
receive higher benefits at retirement age under FECA, and whether this
has an impact on their incentives to return to sustained employment
after an injury.
My testimony is organized as follows. I first discuss some criteria
that can be used to evaluate changes in workers' compensation benefits.
I then outline some of the challenges of accurately measuring the
economic effects of workplace injuries and some of the research that
has addressed this issue. I then discuss the two proposed changes, in
the context of these criteria, based on the GAO analysis. Finally, I
offer some concluding thoughts and recommendations.
Criteria for evaluating workers' compensation policy
The purpose of providing income replacement benefits through FECA,
as in state workers' compensation systems, is to compensate workers for
the lost income they suffer as a result of work-related injuries. While
on the surface this is a straightforward objective, there are inherent
challenges that arise in designing a system that provides these
benefits in a fair and efficient manner. As a result, there have been
many instances in state systems where public concern about how well the
system is working has prompted legislative reform. However, such
reforms often involve trading off the interests of competing agents.
Thus, to understand the tradeoffs involved in any given policy
proposal, it is important to have a clearly defined set of criteria
with which to evaluate it.
For this testimony, I refer to four separate criteria that have
been applied to evaluate changes in workers' compensation programs:
Adequacy
Equity
Affordability
Efficiency
I discuss each of these in turn. I spend the most time on benefit
adequacy, because that is the criterion that is most central to the
debate over the evaluation of the proposed FECA changes. However, the
others are also relevant, so I provide a definition and a brief
description of each.
Note that for these comments I am focusing on the application of
these criteria solely to income benefits. Workers' compensation
typically provides for other forms of benefits, such as medical care
and vocational rehabilitation services, but these are unaffected by the
two proposed changes at issue here.
Adequacy
Prior to the adoption of workers' compensation programs in the
early part of the 20th Century, compensation for work related injuries
was limited to the tort system.\1\ Injured workers were entitled to
full compensation for damages suffered as a result of their injuries,
but only in the cases where they could demonstrate negligence on the
part of employers. Like other torts, when the defendants (employers)
were held liable, workers were entitled to full compensation of all
damages suffered as a result of their injuries. This included
noneconomic and economic damages, and possibly punitive damages.
Economic damages in tort cases can cover a broad range of current and
future damages, including factors such as expected future lost wages,
medical costs and costs of attendant care or caregiving expenses.
Workers' compensation was adopted as a carve-out from the tort system
that provided no-fault compensation to injured workers. These benefits
represented a compromise in which workers received benefits with
greater certainty but only at reduced levels. Workers' compensation
benefits offered no compensation for noneconomic damages and only
partial compensation for lost wages, and none of the other economic
costs related to an injury.
Because workers' compensation benefits provide only limited
compensation, there has historically been intense interest in
monitoring the system performance to ensure that the benefits reach
minimum thresholds of compensation levels. The 1972 Report of the
National Commission on State Workmen's Compensation Laws (the National
Commission Report) provides the most comprehensive evaluation of the
design of state workers' compensation programs.\2\ The National
Commission Report primarily relied on the adequacy and equity criteria
to evaluate workers' compensation benefit programs. Benefit adequacy
refers to the extent to which the benefits that are paid replace the
income that is lost.
The adequacy of benefits is typically measured through the
replacement rate of lost income. For temporary disability benefits, the
standard for adequacy is generally held to be a replacement rate of
two-thirds replacement of lost pre-tax income or 80% of after-tax
income.\2,3\ For permanent disability benefits, there is less of a
consensus about what the target replacement rate should be, though two-
thirds of lost income is usually held up as a benchmark.\3,4\
Note the distinction between the statutory replacement rate, which
is the legislated fraction of pre-injury wages a worker receives
(usually two-thirds), and the effective replacement rate, which is the
portion of lost income that is actually replaced. For the purposes of
this testimony, I will refer to the effective replacement rate unless I
specify otherwise.
Equity
Equity refers to the idea that workers in similar conditions with
similar injuries should be treated similarly. From the standpoint of
compensating workers for lost earnings, this means that workers with
similar injuries should have similar replacement rates. The equity
criterion, as it has been applied in practice by the states, does not
require that workers necessarily receive the same dollar amounts in
compensation. For instance, higher wage workers will tend to have
greater dollar value of losses (conditional on other factors) and so
they will receive more benefits on average. Nor does it require that
everyone have exactly the same replacement rate. State systems
routinely cap the total benefits at some fixed dollar value (usually
tied to the state average weekly wage). This means that, all else
equal, higher wage workers will have lower replacement rates the more
their expected earnings exceed the statutory cap. Similarly, the
presence of benefit floors means that, all else equal, the lowest wage
workers will receive the highest replacement rates. Both of these
represent deviations from a stricter definition of equity, probably
reflecting a more general concept of perceived fairness.
Note that the estimated replacement rate of lost income can be used
to evaluate the equity of workers' compensation income benefits. That
is, workers' compensation benefits are equitable if workers with the
same expected losses have approximately the same replacement rate of
lost income.\5,6\
Affordability
The affordability criterion refers to the cost of the workers'
compensation system. An affordable system is one that all parties--
employers, workers, and the public--can afford without serious adverse
consequences.\6\ This can refer to both the actual cost of the benefits
themselves as well as the cost of administering them. The
administrative costs of workers' compensation benefits in state systems
have generally been considered quite high.\7,8\ The administrative
costs in FECA as reported by the DOL are much lower than is usually
found in state systems (administrative costs in FECA are 5%, while
administrative costs for privately insured employers in state systems
average more than three times that amount)\8\.
Note that there is often a direct conflict between making a system
more adequate and making it more affordable. Holding expected losses
constant, we make workers' compensation benefits more adequate by
increasing them, but this makes the system less affordable. However,
interventions that reduce expected losses, such as promoting the
adoption of employer-based return to work programs, can serve the dual
aim of making a system more affordable and more adequate.\9,10\
Additionally, improvements in administrative efficiency can lower the
overhead cost of delivering benefits, which makes the system more
affordable without hurting its adequacy.
Efficiency
Broadly defined, I use the term efficiency to incorporate the
indirect costs associated with workers' compensation benefits. This
includes behavioral effects such as disincentives to return to work.
For example, a workers' compensation system is more efficient if it
achieves a given level of adequacy without creating adverse work
incentives. Efficiency can also incorporate factors such as
administrative delay or the levels of disputes. Other factors such as
incentives for injury prevention--by employers and workers--can also be
included here. While not all of these are easily measured, the impact
of any given reform proposal on the efficiency of benefits could
represent a significant portion of the total social costs or benefits
of the proposal.
Measuring the economic impact of workplace injuries
Both the adequacy and equity criteria described above require some
measure of the replacement of lost income. Probably the most
challenging part of measuring income replacement is defining and
measuring ``lost income.'' A simple way to compute lost income is to
compare what someone was making at the time of injury to what they make
afterwards. However, for most people income changes over time. This can
be positive if individuals get promoted and advance in their careers,
as is most often the case with younger workers. Or wages can decline if
individuals are fired, if they cut back on hours, or if they retire, as
will be increasingly likely as workers age. In either case, simply
comparing what someone made before they were injured and what they made
after an injury provides a misleading picture about the impact of the
injury on income.
We illustrate the challenge of evaluating the impact of injuries on
lost income with Figure 1.\11\ Figure 1 illustrates the hypothetical
losses from a permanently disabling workplace injury. The solid line
represents the actual income that the worker earns from his or her job.
The dashed line represents the worker's ``potential'' earnings--the
earnings that a worker would have received in the absence of an injury.
Prior to the date of injury, the potential earnings and actual earnings
are the same. However, at the date of injury, the worker's actual
earnings decline while the potential earnings continue to increase,
reflecting the worker's increasing experience in the labor market.
At the time of injury, the worker receives no earnings for some
time while recovering from the injury. In this example, at some point,
the worker returns to work, perhaps in some modified capacity. In this
hypothetical example that is shown in the figure, the worker returns at
lower earnings than prior to injury. The worker recovers earnings over
time, as the wages converge closer to what they would have been absent
the injury. In this example, at the end of the observed period the
worker makes more than she made prior to the injury, but not as much as
she would have made if she had not been injured.
The shaded area in the figure represents the total lost income over
the period after the injury. The fraction of these losses that is
replaced by workers' compensation benefits is equal to the replacement
rate of lost income. However, the figure also highlights the challenge
of measuring lost income. Whereas wages received while the workers'
actual earnings (the solid line in Figure 1) are readily observable,
the potential earnings represented by the dashed line are unobservable
for any individual and must be estimated.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

In order to get an accurate assessment of the long-term economic
consequences of an injury, we need to compare what an individual
actually makes to what he or she would have made in the absence of an
injury. Since this is a counterfactual that is unknowable in the sense
that it cannot be directly observed, it must be estimated. Researchers
have combined data on workers' compensation claims linked to
information on earnings to estimate losses dating back to the 1960s.
This research was described more completely in the 2004 NASI report,
but I will summarize it here.\3\ The earlier studies used the pre-
injury earnings of injured workers and estimated potential earnings by
projecting expected earnings using aggregate trends in earnings.\12-15\
This approach is limited by the assumption that average earnings growth
for injured workers mirrors aggregate trends, ignoring possible
differences between injured and uninjured workers.
Starting in the late 1990s, researchers began using more advanced
empirical methods to estimate potential earnings. These studies used a
quasi-experimental design that compared the earnings of injured workers
to a sample of uninjured control subjects before and after the date of
injury. As long as the selected control workers have expected earnings
in the post-injury period that are approximately equal to the expected
earnings of injured workers, on average this method will produce
unbiased estimates of earnings losses. Past studies have primarily
relied on one of two criteria to identify control workers.\16\ The
first is to use workers who were injured but with minimal severity and
little time out of work (e.g., medical only injuries).\17-19\ The other
commonly used approach is to match injured workers to workers who were
never injured, but who worked at the same firm and had very similar
earnings to the injured workers prior to the injury.\4,20,21\
In their reports, the GAO used matching to estimate the lost
earnings of FECA beneficiaries. The GAO matched FECA beneficiaries to
observably similar federal employees who weren't injured. What the
injured workers would have made absent an injury was estimated by the
actual earnings of the injured workers' matched, uninjured controls.
Taking the difference between the average value of what matched,
uninjured workers made and what injured workers made provides an
estimate of expected wage loss for the FECA beneficiaries in the sample
(note that this approach is only valid over large enough samples, not
for a single individual).
With an estimate of earnings loss in hand, it is then possible to
assess benefit adequacy by dividing total workers' compensation
benefits by total earnings losses over some fixed period of time. This
ratio is the estimated fraction of lost income that is replaced by
workers' compensation benefits. This approach has been termed the
``wage loss'' approach to evaluating benefit adequacy. The National
Academy of Social Insurance (NASI) argued that this approach is the
preferred approach for assessing the adequacy of disability
benefits.\3\
Because the process for estimating replacement rates generally
requires linking state administrative workers' compensation benefits to
state unemployment insurance information, these estimates have only
been conducted for a comparatively small set of states. Berkowitz and
Burton (1987) were, the first to conduct such a study, and they
compared replacement rates in Wisconsin, Florida and California.\7\
Using more recent estimation techniques and data sources, a series of
studies have estimated losses in states such as California, New Mexico,
Washington, Wisconsin and Oregon. In general, replacement rates fall
well below the standard definitions of adequacy. In a comparison of
these five states, the estimated pre-tax replacement rate ranged from
29% to 46% of lost income over a 10-year period post-injury. Even
accounting for the favorable tax status of benefits, these findings
have consistently shown that benefit adequacy is a significant problem
in the states.
Proposal to reimburse workers at a single rate
Currently, FECA offers two different statutory replacement rates:
two-thirds for injured workers who have no dependents and 75% for those
who have at least one dependent. This is a departure from the standard
model of workers' compensation that has been adopted in state system,
which rarely offers differential compensation based on the number of
dependents. The DOL proposes to set compensation at a single rate of
70% of pre-tax income, regardless of the number of dependents.
To construct their replacement rate estimates, the GAO matched
injured workers to uninjured workers with similar pre-injury
characteristics. They also conducted a number of specification checks
that appear to verify that they have high quality matches. This is
important, because for the matching estimator to work well, the income
of the matched control workers must be close proxies for the expected
income for injured workers (assuming they had never been injured).
The GAO found that this proposal would reduce the after-tax
replacement of lost income by a modest amount overall (from 80% to 77%
for non-postal employees), due to the fact that a majority of employees
currently qualify for the higher rate. However, the proposed change to
a single rate also appears to have some implications for the equity of
benefits. According to the GAO, currently the system favors
beneficiaries with a dependent by a modest amount (approximately 3.5%
for the median worker). This difference is less than the approximate
7.3% difference in the statutory replacement rates because the absence
of dependents implies a higher tax rate, so workers without dependents
receive a higher effective replacement rate given a fixed statutory
rate. However, under the proposed change to a single statutory rate,
the lower tax rates of workers with a dependent imply that the change
will result in workers without a dependent having a 5.8% higher
replacement rate than workers with dependents. Thus, the reform will
change the system from being skewed towards workers with dependents to
being more skewed towards workers without.
Subsequent analyses by the GAO studied the implications of moving
to the single 70% rate for postal workers, and moving to a single rate
of two-thirds replacement of pre-tax, pre-injury wages (as proposed by
the Senate). Postal employees generally had higher replacement rates
before the change (88% before the change, reduced to 84%), but the
pattern of moving towards a system that is comparatively more generous
to workers with dependents to one that is more generous to those
without was essentially the same. The Senate proposal of moving to a
two-third replacement rate for all workers had the same impact on
benefit equity, but lowered the overall median replacement rate even
more (to 73% for non-postal employees and 80% for postal employees).
The implications of these findings for the DOL single rate policy
proposal are mixed. On the one hand, the proposal does lead to a net
decline in benefit adequacy, in terms of a lower replacement rate. The
effect is fairly modest, though it is more pronounced under the
Senate's proposed reduction to a single two-thirds rate for all
workers. It also reduces the after-tax rate below the 80% level
recommended by the National Commission Report--though the statutory
rate is higher than the standard used by NASI.
Because there is a net reduction in benefits, moving to the single
rate would produce net savings. Thus, one could attempt to justify a
decline in adequacy on the basis that it makes the system more
affordable. But there appears to be little argument for making the
changes based on equity. In fact, the GAO reports that the change
actually makes the benefits less equitable, because the current system
corrects for the differences in tax rates across the two groups. To
make the benefits more equitable would require adjusting the system
according to the after-tax replacement of lost income as opposed to the
pre-tax replacement (for example, by directly targeting replacement
rates of ``spendable'' income as is done in some states, or by
adjusting the statutory pre-tax rate proportionally to the number of
dependents).
Proposal to reduce benefits at retirement age
The second proposal suggested by the labor department is to reduce
the FECA benefit to 50% once individuals reach their full Social
Security retirement age. The DOL argues that this is necessary because
the current system provides an incentive to injured workers to avoid
returning to work. The argument for this is based on the OPM slide deck
that indicated workers would receive higher benefits under FECA than
under the Civil Service Retirement System (CSRS), a finding that was
confirmed by the GAO (GAO-12-309R). Early return to sustained
employment after an injury is something that is generally considered
good for workers and good for employers,\9\ so if the system created
significant work disincentives this would be a serious concern.
The comparison between FECA and the CSRS is of limited utility,
however, since the proposed legislative changes are prospective and the
vast majority of current federal employees (90%) are now covered by
FERS. Given that employees covered by CSRS represent a small and
shrinking share of the federal workforce, the GAO analyzed the
differences between employee compensation under FECA and FERS. One of
the key challenges of making this comparison is that the FERS system is
relatively new (covering federal employees beginning January 1, 1984),
and there are no beneficiaries who have worked a full 30-year career
covered by and retiring under FERS. Thus, the GAO conducted a
simulation that compares the FECA benefits to FERS benefits at normal
retirement age after a 30-year career. Under this simulation, FECA
benefits were approximately equal to or less than FERS benefits,
depending on what assumption was made about employee contributions to
the Thrift Savings Plan (TSP). In this case, under the reductions at
retirement proposed by DOL, workers receive less under FECA than what
they would have received after working a 30 year career and retiring
under FERS (35% less for non-postal employees and 29% less for postal
employees, assuming 10% contribution to TSP). From the GAO analysis it
appears clear that most workers who would have worked a full career and
contributed to their retirement at a reasonable level over that time
would not do better under FECA compared to FERS. This suggests that
reducing FECA benefits from their current levels would likely reduce
the adequacy of benefits for FECA recipients over retirement age.
This analysis is more complicated when considering the implications
for workers with partial disabilities. This is because workers with
partial disabilities are compensated differently under FECA. FECA
benefits for the partially disabled are designed to reflect an injured
worker's ability to work. Workers who have recovered from their injury
and are deemed to have some capacity to work receive long-term FECA
benefits based on their lost earnings capacity. The process for
determining lost earnings capacity is based on whether a worker finds
post-injury employment and whether this employment is deemed
commensurate with their ability to work. This means that the difference
between FECA and FERS benefits depends on the actual work history of
the permanent disability claimants. The GAO considered several case
studies, and in these case studies there were some workers appear to
have higher benefits under FECA than FERS, but those are also the
workers who have the lowest earning capacity and thus would be able to
save or contribute little to retirement during their working years.
More generally, most workers with partial disabilities already receive
lower benefits than they would with a total disability, even if their
circumstance was otherwise identical, and the DOL proposal would lower
these benefits even more.
As far as return to work incentives, the implications here appear
mixed. In general, this is only an issue for workers with partial
disabilities (that is, workers who are totally disabled lack the
ability to work regardless of incentives). It is true that cutting FECA
benefits at retirement age could provide these workers with additional
incentives to return to work. However, FECA benefits for workers with
partial disabilities who are deemed to have sufficient earnings
capacity are already reduced. Thus, it is unclear how much affect
further reducing benefits on retirement age would have on these
workers' labor supply decisions.
Ultimately, there appears to be a lack of sufficient evidence about
which workers might receive higher benefits from FECA under FERS, and
how much their work incentives would actually be affected by this
difference. In particular, it is unclear how adequate FECA compensation
is for partially disabled workers with different levels of perceived
loss in earnings capacity. A more detailed and analysis of the
relationship between FECA compensation, lost earnings capacity and
long-term replacement rates of lost income for partially disabled
workers should be considered.
Summary and conclusions
The GAO provides convincing evidence that, on net, shifting to a
single rate would reduce benefit adequacy while possibly reversing and
exacerbating the disparity in compensation between workers with and
without dependents. If the goal of this policy proposal is to make
compensation more equitable, some alternative approach should be
considered that focuses more on equalizing post-tax replacement rates.
The GAO also found that the adequacy of FECA benefits vary considerably
across individuals, though that is likely to be true in any
compensation system. Benefits under FECA do appear much more adequate
than those under state systems, even after the DOL change. However,
that is due in large part because state systems have generally been
found to fall considerably below standard definitions of adequacy for
permanent disability compensation.
The DOL provisions to reduce FECA benefits at retirement age would
also lead to a net reduction in the generosity of FECA. The implication
of this reduction on the adequacy of benefits depends on whether or not
the long-term impact of earnings on employment and career growth are
accounted for. Failing to account for career growth, FECA benefits
appear generous relative to FERS and a reduction would make
compensation across the two systems more equitable. However, lost
career advancement is a real consequence of disabling workplace
injuries, and once that is accounted for, the DOL reduction could
result in workers facing substantially lower income in their retirement
years than they would have experienced absent their injury. Justifying
this on the basis of eliminating inefficient work disincentives would
seem to require more evidence than is currently available about the
extent to which the current system is actually deterring permanently
disabled workers from re-entering the labor market. Further study on
this issue and on the adequacy of FECA benefits for partially disabled
workers is warranted.
In terms of the GAO analysis, one of the centers of the dispute
seems to be whether we should consider the long-term impact of injuries
on potential earnings--or career growth--when assessing different
policy proposals. In general, there is a tradeoff in workers'
compensation between benefit adequacy and the affordability and
efficiency of the system. When choosing between different policies and
balancing this tradeoff, it is important to have a full and complete
understanding of the impacts on both sides of this ledger. Most
previous work in this area has generally accepted that to fully
understand benefit adequacy it is necessary to estimate the expected
post-injury wage path of injured workers.
references
\1\ For a more detailed account of the history of workers'
compensation, including a discussion of who benefited and who lost, see
``Fishback, Price V., and Shawn Everett Kantor. The Adoption of
Workers' Compensation in the United States 1900-1930. No. w5840.
National Bureau of Economic Research, 1996.''
\2\ National Commission on State Workmen's Compensation Laws. The
Report of the National Commission on State Workmen's Compensation Laws.
Washington, DC: US Government Printing Office; 1972.
\3\ National Academy of Social Insurance. Adequacy of Earnings
Replacement in Workers' Compensation Programs. Kalamazoo, MI: W.E.
Upjohn Institute for Employment Research; 2004.
\4\ Peterson MA, Reville RT, Stern RK, Barth PS. Compensating
permanent workplace injuries: a study of the California system. Santa
Monica, CA: RAND Corporation; 1998. MR-920-ICJ.
\5\ Bhattacharya J, Neuhauser F, Reville RT, Seabury SA. Evaluating
Permanent Disability Ratings Using Empirical Data on Earnings Losses.
Journal of Risk and Insurance. 2010; 77(1):231-260.
\6\ Reville RT, Seabury SA, Neuhauser F, Burton JF, Greenberg MR.
An evaluation of California's permanent disability rating system. Santa
Monica, CA: RAND Corporation; 2005. MG-258-ICJ.
\7\ Berkowitz M, Burton Jr JF. Permanent Disability Benefits in
Workers' Compensation. Kalamazoo, MI: W.E. Upjohn Institute for
Employment Research; 1987.
\8\ Sengupta I, Reno V, Burton JF, Jr. Workers' Compensation:
Benefits, Coverage and Costs, 2009. Washington, DC: National Academy of
Social Insurance; 20011.
\9\ Seabury S, Reville R, Williamson S, et al. Workers'
Compensation Reform and Return to Work: The California Experience.
Santa Monica, CA: RAND Corporation; 2011.
\10\ McLaren CF, Reville RT, Seabury SA. How Effective are Employer
Return to Work Programs?2010. WR-745-CHSWC.
\11\ Much of this discussion is taken from Seabury et al. (2010),
which in turn builds on previous RAND studies on the topic.
\12\ Cheit EF. Injury and Recovery in the Course of Employment:
Wiley; 1961.
\13\ Johnson WG, Cullinan PR, Curington WP. The adequacy of
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Interdepartmental Workers' Compensation Task Force. 1978; 6:95-121.
\14\ Ginnold R. A follow-up study of permanent disability cases
under Wisconsin workers' compensation. Research Report of the
Interdepartmental Workers' Compensation Task Force. 1979; 6.
\15\ Berkowitz M, Burton JF. Permanent disability benefits in
workers' compensation. Kalamazoo, MI: W.E. Upjohn Institute for
Employment Research; 1987.
\16\ Either approach can work in theory, but they hinge on
different assumptions. The evidence is mixed on whether the results are
affected by different matching techniques.
\17\ Biddle J. Estimation and analysis of long term wage losses and
wage replacement rates of Washington State workers' compensation
claimants, Appendix F. In: Welch E, ed. Performance audit of the
Washington State workers' compensation system. Olympia, WA: Joint
Legislative Audit and Review Committee; 1998.
\18\ Boden LI, Galizzi M. Ecnomic consequences of workplace
injuries and illnesses: Lost earnings and benefit adequacy. American
Journal of Industrial Medicine. 1999; 36(5):487-503.
\19\ Boden LI, Galizzi M. Income losses of women and men injured at
work. Journal of Human Resources. 2003; 38(3):722.
\20\ Reville RT. The Impact of a Permanently Disabling Workplace
Injury on Labor Force Participation and Earnings. In: Haltiwanger J,
and Haltiwanger, Julia Lane, ed. The Creation and Analysis of Linked
Employer-Employee Data: Contributions to Economic Analysis. Amsterdam,
London, and New York: Elsevier Science, North-Holland; 1999.
\21\ Crichton S, Stillman S, Hyslop D. Returning to Work from
Injury: Longitudinal Evidence on Employment and Earnings. Industrial &
Labor Relations Review. 2011; 64(4):7.
______

Chairman Walberg. Thank you.
And I thank each of the panel members for your testimony.
I recognize myself for 5 minutes of questioning.
And, Mr. Steinberg, I want to start with you and ask you to
directly respond to GAO's findings and to elaborate on the
basis for the department's proposals, specifically with respect
to the proposal to set a uniform benefit rate.
Do you have any concerns with maintaining a level of equity
between individuals with and without dependents? And with
respect to the proposal to reduce benefits at retirement age,
do you have any concerns with the adequacy of benefits at
retirement age for an individual who experiences an injury
early in his or her career?
Mr. Steinberg. Thank you, sir.
Chairman Walberg. Your microphone.
Mr. Steinberg. Thank you.
We respect the work that is done by our colleagues in GAO
over the last decade. We have worked closely with them to
analyze this particular issue.
We note that their report predominantly focuses on wage
replacement rate but it doesn't address the comprehensive
package that has been proposed. And the reality is, from our
perspective, that each of the components need to be--they need
to be reviewed and they need to be looked at in a balanced way.
The wage loss change--the reductions--are only one
dimension. There are other dimensions which actually enhance
the situation for a beneficiary.
With respect to the study, as my colleague indicated, they
provided no consensus on appropriate rates, nor did they
provide specific recommendations. They didn't suggest that the
70 percent rate was inappropriate; they suggested that there
are different options. And we agree that there certainly can be
different options, but based on our analysis we believe that 70
percent is a proper rate.
They failed to respect--to address the issue of return to
work and the implications that return to work can have both in
terms of the liability to the organizations as well as to the
individual.
Lastly, they did not address the issue of the schedule
award, and the schedule award is part of our balanced proposal
that provides compensation for those individuals that have a
permanent loss of functionality. That should be viewed as part
of the comprehensive package. It is an investment, once
received, that the individual can use to prepare for their
future, and the study does not reflect that.
The study does acknowledge the fact that the reduction at
retirement level will bring the level closer to the FERS level.
Let me talk now a little bit about our process. We have
consulted extensively with OPM, with GAO, with the I.G.
community, with our partner agencies. We have looked closely at
the states, as well.
I think, as you have heard from all the panel members, that
FECA program is the most generous of all. And as Dr. Seabury
indicated, even with the changes that we propose, our rates
will still be more generous than any of the state programs.
The 70 percent level reflects a midpoint between the 66.66
and the 75 percent. Even at 70 percent it will be greater than
the vast majority of the states. And we believe that it is fair
and we do not believe that it is going to harm any of the
claimants.
With respect to the retirement level, we consulted
extensively with OPM. We studied the CSRS program. We also
studied the FERS program, which is coming to a level of
maturity. And based on our analysis, OPM confirmed the fact
that the 50 percent tax-free level that we propose equates to
the levels for CSRS and they indicated that they have designed
FERS, which is a more complicated program, to roughly come to
the same level as CSRS.
Chairman Walberg. In respect to time, let me move on.
Mr. Seabury, your testimony discusses the techniques GAO
used to estimate the missed future earnings of FECA
beneficiaries. However, as GAO notes in its report, FECA was
not designed to account for missed career growth. Your
testimony also notes that inherent unknowability is, in
predicting an individual's actual future career path.
So in your opinion, how should policymakers approach GAO's
findings, given FECA's benefits were not designed to increase
at a rate comparable to career growth?
Dr. Seabury. So FECA, like other workers' compensation
benefits, are not designed to incorporate--they are not
designed to reflect career growth in the benefit levels.
However, I don't think that that means that we shouldn't
consider that career growth when evaluating the impact of the
policy on workers.
This is true for considering the adequacy of benefits but
also for understanding workers' incentives. If I have the
capacity to work but choose not to I am missing out on that
potential career growth. So not only--by not focusing on a
career growth, not only am I making, potentially, benefits look
more adequate than they actually are, I am also potentially
making the incentive problem look worse than it actually is.
So I think that we need to incorporate these estimates of
career growth in order to best understand how the system is
affecting workers on many dimensions.
Chairman Walberg. Thank you.
My time is expired.
I recognize my friend, the ranking member, Mr. Courtney?
Mr. Courtney. Thank you, Mr. Chairman.
And, Mr. Sherrill, again, listening to Mr. Steinberg a few
minutes ago, who talked about the way DOL tried to consult with
all the different agencies--OPM, GAO, CRS, et cetera--in terms
of this retirement proposal that they have come forward with--
again, maybe they consulted with you or reviewed your report,
but again, looking at your report, when I read it it certainly,
you know, seemed to suggest that in many instances disabled
workers would clearly be worse off with the, you know, the
proposal to reduce benefits at retirement age than if they had
worked 30 years and then retired under FERS.
And again, it appears that their core objection is that GAO
should not have accounted for the lost career growth in its
comparison because workers' compensation benefits are not
adjusted to account for lost promotional opportunities. So I
just want to run through a couple questions with you, if I
could.
First, what is the relevance of accounting for lost career
growth and what is your response to DOL's position?
Mr. Sherrill. Well, it is important to account for missed--
sorry--it is important to account for missed career growth in
doing these kinds of benefit adequacy studies because that
provides the most realistic assessment and readily
understandable assessment of how people would fare under the
program compared to where they would have--what they would have
had in the absence of an injury. This is the kind of approach
that is commonly used in the literature to do that--to do these
kind of benefit adequacy studies.
Mr. Courtney. And that is the approach that you took in
your analysis.
Mr. Sherrill. That is the approach that we took.
Mr. Courtney. And is your approach consistent with OPM, in
terms of what they recommend in terms of how to analyze this?
Mr. Sherrill. When OPM did briefing slides on these
proposed changes one of the things they reiterated was that in
considering changes at retirement age it is important to look
at that in the context of what workers would have had if--had
they not been injured--what their retirement package would have
done. That is consistent with what we did.
Mr. Courtney. Okay. And in terms of outside, you know,
credible, neutral sources, you know, is the methodologies that
you used follow the recommendation of the National Academy of
Social Insurance?
Mr. Sherrill. Yes. We are consistent with the matching
methodology, taking income--missed income career growth that
they recommend.
Mr. Courtney. And in fact, I mean, DOL had previously
argued that GAO needed to account for lost promotional
opportunities when evaluating the adequacy of FECA benefits. Is
that also correct in the past?
Mr. Sherrill. That is right. We had done a 1998 report on
FECA, looking at wage replacement rates where we had not
factored it in because of limited data at that time. Labor, in
its comments, took issue with that and said that the wage
replacement rates would have been higher if we had factored in
missed promotions.
Mr. Courtney. So do you have any explanation for why the
department has changed its views?
Mr. Sherrill. I wouldn't speculate on that. I----
Mr. Courtney. Okay.
Well, Okay, Mr. Steinberg, maybe you can help us, then,
answer that question. It is just, I mean, obviously, you know,
what we just heard was that some of these other sources that
you say the department consulted with clearly have a different
approach than what you described this morning.
Mr. Steinberg. I can't speak to the position 15 years ago,
but what I can comment on is that in the GAO report that Mr.
Sherrill referenced GAO indicated that they did not believe
that promotional or career growth should be calculated in
because it was speculative in nature and, therefore, extremely
difficult to predict what the growth of an individual would be.
We have looked at all federal workers' compensation
programs, four of which we, I oversee. We also looked at all of
the state programs. None of the state programs nor the federal
programs reflect a career growth potential.
From an academic perspective it is certainly something that
can be looked at, but we don't believe that it should be nor
has it ever been part of the compensation package for a
workers' comp program.
If you look at it from a practical perspective, it is very
difficult to predict what the career path of an individual
would be. One person may be a superstar. We don't know that.
One person may be very satisfied working at a GS-7 level and
not anticipate any career growth.
Lastly, there may be an individual who is on a performance
plan and is likely going to be removed from their position. Now
calculating a career potential we believe would be speculative
and inappropriate.
Mr. Courtney. Well, except, I mean, FECA, under its present
design, is not--I mean, no one is, like, using a, you know,
inventor of Google kind of career path. I mean, this is still a
very, you know, moderate, modest system that is in place right
now.
So, you know, I mean, looking at it from a real practical
standpoint, to use your own language, I mean, we heard earlier
that, you know, somebody who is disabled at a relatively young
age--you know, that FBI worker or that firefighter that you
described--you know, who is not paying into Social Security, I
mean, their benefit level at age 65 is going to be, you know,
definitely suppressed as a result of that life-changing event.
So from their practical standpoint, you know, converting this
system to what you are proposing, I mean, really has a very
negative impact and again, really kind of takes away what, on
balance most workers can expect to have at least some step up
over time, particularly when it is at a young age when the
disability occurs.
Mr. Steinberg. I would respond to that in two ways.
One, we have a COLA. The reality is for the last 3 years
working federal employees have not received a cost-of-living
increase; yet the individuals on workers' comp have received an
increase. And we think that is extremely important and that
obviously should continue.
Never has there been a factor for career growth, again,
because we can't anticipate that.
I think to look at it from the converse, our goal is to get
people back to work just as quickly as we can. We work to get
early diagnosis, early treatment, early rehabilitation, and
then help them find the right job.
What we have found in talking with the I.G. and talking
with other partner agencies is that the increased level of the
benefit at 75 percent as well as if there was to be included a
career growth factor, then that would be a disincentive for
people going through the activities of getting healthy and
going back to work, and I think we want to avoid any
disincentives.
Chairman Walberg. The gentleman's time is expired.
And now I recognize Dr. DesJarlais for your 5 minutes?
Mr. DesJarlais. Thank you, Mr. Chairman.
Thank you all for appearing today.
Dr. Seabury, we will start with you first. Your testimony
notes that one way to make benefits more equitable between
beneficiaries with and without dependents could be to target
wage replacement rates on spendable or after-tax income as
opposed to pre-tax gross wages, as is used in the FECA program.
First, can you explain how this target would work in
practice? And then can you also elaborate on the potential
benefits and costs of this approach?
Dr. Seabury. Well, I think there are different ways you
could try to accomplish this in practice, and I would want to
refer to some of the actual details in the state systems to
give you the details on how you would actually implement a
system, but the idea is to focus on rather than looking at the
share of your pre-tax, pre-injury earnings that is replaced--
they target two-thirds of that--some states have focused on,
say, 80 percent of spendable income, so they try to evaluate
your spendable income in the pre-injury period and set a
varying benefit level to target the after-tax replacement rate.
I think in terms of the costs and benefits, that could be
potentially a more difficult system to administer so I think
that would be one of the more--part of the potential costs. The
benefit would be increased equity.
I think one of the things that was actually somewhat
surprising to me and very interesting to me about the GAO's
reports was showing how a single pre-tax replacement rate
creates this inherent inequity in the system between workers
with and without dependents, or reverses the existing one and
exacerbates it. So I thought that was interesting and so you
would be able to avoid that kind of inequity with focusing on
after-tax replacement rates.
I do think, you know, there are ways to try and implement a
system and make it simpler to administer while still trying to
attain those benefits.
Mr. DesJarlais. Thank you.
Mr. Steinberg, I note in your testimony it stresses that
the entirety of your reform proposal is intended to improve the
FECA program. Of course, the majority of the focus of today's
hearing is on the two major benefit proposals.
Are there any other proposals we should be considering that
are intended to work with the two benefit proposals or are
closely related to those proposals and serving to improve the
FECA program?
Mr. Steinberg. [Off mike.]
Mr. DesJarlais. Could you turn your microphone on?
Mr. Steinberg. That is twice now. I apologize.
This proposal has been fairly stable over the last several
years. As I indicated in my testimony, it has been provided by
previous administrations and this administration.
The general components of the proposal, which I have
described as comprehensive, broad in nature, yet not sweeping
in change, have been consistent. And again, it is addressing
multiple dimension of improving return to work, providing an
increased level of equity, and streamlining and modernizing the
program, sir.
Mr. DesJarlais. Okay. Thank you.
Mr. Szymendera, your testimony notes that additional or
augmented benefits for workers with dependents was added to
FECA in the 1940s. At that time some 10 states also provided
for a type of augmented compensation. However, your testimony
further notes that today most state provides augmented
compensation for dependents.
Can you discuss the move away from augmented compensation
for dependents at the state level?
Mr. Szymendera. Well, to be honest, CRS has not looked so
much at the history of state developments as much as we have
looked at the history of the FECA program. It was noted that,
interestingly, in 1949 when they added the--when they added the
augmented compensation, one of the reasons they said they were
doing it was to be consistent with the states. And so we went
back to the laws in place in 1949 and found only 10 states, and
none--you know, none today.
You know, as to why states have moved away from that, I
don't know. One of the things that has been cited by the
Department of Labor both here and in other forms is augmenting
compensation for dependents can be difficult because they are
changing when a child reaches 18, no longer a dependent; there
are some provisions if the child is permanently disabled him or
herself. So there are some administrative difficulties that may
be present there.
But that would be--absent any research into why those
specific states moved away, it would be--it would really be
speculation.
Mr. DesJarlais. All right, thank you.
And, Mr. Sherrill, I did have a question for you but my
time is about to expire so I am sure we will get to you.
Thank you. I will yield back.
Chairman Walberg. I thank the gentleman.
Now I recognize the gentleman from California, Mr. Miller?
Mr. Miller. Thank you, Mr. Chairman, and thank you very
much for holding this hearing.
Dr. Seabury, DOL seems to be making an argument that
somehow there is a--sort of a significant disincentive to
return to work when you compare FECA benefits with the OPM
data. Do you see this or is there--what other evidence is there
to suggest that that is either the case or it isn't the case?
Dr. Seabury. Well, it is true that FECA benefits are in
general more generous than state systems, as we have heard,
so--and there is evidence out there that increasing benefits
can have a modest effect on return to work incentives.
Mr. Miller. Do we see these people not returning to work at
a very different rate than state programs, or----
Dr. Seabury. Actually, you know, I would have to--I haven't
seen a direct comparison. My impression is that return to work
in the FECA program actually seems reasonably good but I would
have to see some more empirical evidence on that.
Mr. Miller. Has either Labor or GAO looked at this?
Has Labor looked at this?
Mr. Steinberg. Again, our findings are from observations
from our claims examiners, observations from the I.G. community
that we work with, and other partner agencies who share with us
that they do have problems--and again, we don't think that this
is a rampant issue. There are some people within the
community----
Mr. Miller. Well, if it is rampant I assume we would be all
holding a different hearing at the moment. I want to know if it
is enough evidence to base upon the conclusions that you
arrived at as to that somehow this benefit would drive people
not to return to work.
Mr. Steinberg. Yes, it can. What we have seen is that with
the benefit being higher at 75 percent and remaining that level
at retirement age, we believe that that is a disincentive to
people going back to work.
Mr. Miller. You believe that. I am just trying to find out
how you base that belief.
Mr. Steinberg. Again, that is from discussions that we have
had with our partner agencies, with the I.G. community that has
investigated particular cases and have discovered that an
individual will, if you will, will not participate in a
vocational rehabilitation program and will find other reasons
to stay on the workers' comp program because it is very
generous.
So to suggest that we have empirical analysis----
Mr. Miller. It is an element of human nature that just
expresses itself when you are injured.
Mr. Steinberg. Yes, sir.
Mr. Miller. And so what, if you take away support for their
dependents and you lower the overall benefit you will drive
them to work?
Mr. Steinberg. Well again, the proposal to reduce the
benefit is two-fold. One is a matter of equity, that in many
situations we have individuals who are on workers' comp who are
receiving more than their colleagues who are working. And then
the second factor is the disincentive, the fact that there are
certain situations where an individual would rather stay at 75
percent tax free than to go back to work. So we believe both it
is a matter of equity and fairness----
Mr. Miller. Well, let's talk about the people that decide
that is not the case and they need the 75 percent to provide
the wherewithal for their families.
Mr. Steinberg. Well again, we believe that--and as GAO has
concluded--the change from 75 percent to 70 percent will have
fairly limited impact on the majority of individuals. The study
fails to reflect the fact that many are dual-income families
and the fact that the individual is out of work but yet still
receiving in this case a 70 percent benefit is still
sufficient, and again, is still more than their colleagues and
the people who are working.
Mr. Miller. Why would we give anything to people who are
dual--families if their spouses are making a lot of money?
Wouldn't we say, ``Well, that is good enough. You don't get
anything.''
Mr. Steinberg. Again, we don't factor those types of things
into the----
Mr. Miller. But you just did.
Mr. Steinberg. I am sorry?
Mr. Miller. You just did. You make an assumption about some
are dual workers so this really won't harm them; they don't
need this. Well, let's assume the spouse is making a million
dollars a year. This is about the injured worker, isn't it?
Mr. Steinberg. This is about the injured worker but it is
also about the ability of the injured worker to----
Mr. Miller. Do we have an incomes test then--a family
income test?
Mr. Steinberg [continuing]. To have wage replacement that
is reflective of what their salary was.
Mr. Miller. Do we have an incomes test----
Mr. Steinberg. Do they have an----
Mr. Miller [continuing]. So we know how well the spouse is
doing so maybe we can pay them less?
Mr. Steinberg. We don't do that analysis, sir.
Mr. Miller. Yes, you did. You did it when you decided you
were going from 75 to 70 percent because in some cases people
won't go back to work and one of the reasons they might not go
back to work is they are in a dual-income family.
Mr. Steinberg. No, no, no. I am not----
Mr. Miller. Does it make a difference if they are in a low-
income dual-income family or a high-income dual----
Mr. Steinberg. No. I am not suggesting that that is the
reason for the reduction on the rate, sir. I am saying that
that is now the work environment. When these rates----
Mr. Miller. Well, let's go back and we will read the
testimony because I think you did suggest that that is the
reason.
Mr. Steinberg. I am sorry?
Mr. Miller. I said we will go back and read the testimony
because I think we will see that you did suggest that that is
the reason. I am just trying to find out what is based on fact
and what is based upon assumptions, and how we disallow or
allow based upon those assumptions.
Mr. Steinberg. Well again, two points. One, the based on
fact is the matter of equity with individuals who are working
who are not injured. And a matter of going from 75 percent to
70 percent is a matter of fact and a matter of equity, and that
has been--and that has been studied.
The issue of the disincentive, as you indicated, sir, is
human nature, but it is something that we have observed, and
our partner agencies have observed the fact that people are
more comfortable staying at that rate. The I.G. community has
come to--has observed that as well, sir.
Mr. Miller. I think most studies suggest that the American
worker is driven to go to work. Kind of opposite most other
countries. But anyway----
Chairman Walberg. The gentleman's time is expired, I am
afraid.
And now I recognize the distinguished chairman of the
Education and Workforce Committee, Mr. Kline?
Mr. Kline. Thank you, Mr. Chairman, for the hearing.
Thank the witnesses for attending.
As you can tell, there is some considerable interest here
in this committee on this issue. As Chairman Walberg pointed
out, we passed some legislation out of this committee and the
House in the last Congress to address some of these issues and
we were--we called for the report--the GAO report--and the
input from the distinguished folks on this panel as we move
forward.
There are other committees, certainly, in the Congress and
in the House that are looking at this issue, sometimes in
connection with other departments, Postal Service, and so
forth. So it is an issue that has to be addressed and we need
to understand it, and so I am very grateful for all of you here
and your testimony and the work you have done and the research
and in your reports as well as your testimony.
Mr. Szymendera, your testimony--and again, thank you for
your work for CRS and GAO. We depend very heavily on the work
that you guys do, so thank you for that. But your testimony
notes the choice FECA beneficiaries can make at retirement age
to remain on FECA or leave the FECA program and receive federal
retirement benefits.
What other benefits could a FECA beneficiary be eligible
for example, FERS disability, retirement, Social Security
disability? And what issues should be considered in terms of
how FECA benefits can coordinate with, mesh with these other
benefits?
Mr. Szymendera. Well, there are several benefits that a
FECA beneficiary could be eligible for. You mentioned Social
Security disability benefits. If any workers' comp beneficiary,
whether they are FECA or in a state workers' comp, is also
eligible for Social Security disability, their combined FECA
benefit plus the Social Security disability benefit cannot
exceed 80 percent of their pre-disability wage, and that is the
same for state workers' comp beneficiaries, as well. There is
an offset mandatory in the Social Security Act for people who
receive both workers' compensation and Social Security
disability insurance.
Once a FECA beneficiary reaches retirement age and they
have to make this election--do I stay on FECA or do I go to
FERS or CSRS or another--as you know, there are other smaller
federal employee retirement systems, as well--there is also to
be considered the possibility of what is going to be their
level of Social Security retirement benefits. As you know,
under the FERS system--when Congress created the FERS system,
when they moved away from CSRS, Social Security is a key
component of that system, as is the Thrift Savings Plan.
And so I think when employees make that decision they have
to look at how much their FERS annuity would be, how much they
intend to receive from Social Security, which they should be
somewhat aware of with information from the Social Security
Administration that Congress requires them to provide, and
then, of course, how much is in their TSP account, and that
would play a role. If they go to retirement age and there is,
you know--they are at the very, very low end because of all
that income, then you are looking at a program like
Supplemental Security Income, SSI, which is administered by the
Social Security Administration, which could then provide an
additional benefit--an income benefit to them, as well.
And then, of course, in other cases, as the Department of
Labor has mentioned multiple times, for example, FBI agent or
federal firefighters--they are eligible for public safety
officer benefits, which I believe is over $250,000 lump sum
from the Department of Justice; that is in addition. Several
agencies such as the State Department have annuities for
employees killed overseas; that gets added to that, as well.
So it can get a little bit complicated depending on the
circumstances of the individual employee.
Mr. Kline. Thank you. I would say it is--not that it can
get complicated, it just got complicated in listening to that.
I was going to ask for some comment from Dr. Seabury, as
well, but I see my--on the same subject, but I see the light is
rapidly moving toward red.
So thank you very much, again, to all the panelists for
your testimony and for your participation.
And I yield back the balance of my time.
Chairman Walberg. I thank the gentleman.
And I now recognize Mr. Hudson for your 5 minutes of
questioning?
Mr. Hudson. Thank you, Mr. Chairman.
And thank the panel for your testimony today.
I would like to start with Mr. Szymendera.
Could you briefly discuss the policy considerations
surrounding the treatment of benefits before and after
retirement age? Specifically, what considerations may account
for a workers' compensation system that continues benefits past
retirement age? What policy rationale may account for different
treatment of benefits at retirement age?
Mr. Szymendera. I think it ultimately really is a
fundamental question of workers' compensation that goes back,
in the case of FECA, to the beginning of the program in 1916
and the beginning of workers' compensation in the years before
that, and that is, what is the role of workers' compensation?
Is it simply year-to-year wage loss?
If that is the argument, that all workers' compensation is
supposed to do is replace year-to-year wages, then I think a
logical argument can be made that when a person reaches a
certain age--retirement age--there are no wages to replace.
They wouldn't be working otherwise. Now, that age differs for
different people. People retire at different--but we could--
Congress could set an age, as they have set a full retirement
age for Social Security. That is one argument.
If you argue that, no, workers' compensation is more than
that. It is intended to provide a benefit to a worker who was
hurt at work under the assumption that the employer has a
responsibility to provide a safe workplace, which Congress
established in 1970 with the Occupational Safety and Health
Act, for example, and this person went to work and got hurt,
irregardless of fault, it is the employer's responsibility.
And there are all sorts of costs involved in becoming
permanently disabled--not only lost wages but other costs. If
you say that the goal, then, of FECA is to replace as much as
possible all of those costs and provide for that worker who,
remember, cannot sue the employer, and if they sue a third
party has to essentially give back, under the subrogation
rules, that money to FECA, then I think it becomes harder to
make the argument logically that benefits should be cut off at
a certain point because a person remains permanently disabled
into their 60s, 70s, 80s, however long; they have lost lifetime
earning capacity; and they may have incurred other costs that
are associated with disability, not to mention other things
that would be compensated in the tort system, such as pain and
suffering.
Remember, as Department of Labor mentioned, the postal
worker in the car accident. The postal worker in the car
accident is limited under FECA to what he or she can receive
different than the private citizen in the car accident, who may
well endure tort claim, receive money for pain and suffering,
punitive damages against the offending party that would be
paid. None of that is available under workers' compensation.
And so if you feel workers' compensation is more than just
year-to-year wage loss then I think it becomes more difficult,
logically, to justify a cutoff at a certain age. This is a
debate that really goes back to the beginning of workers'
compensation and it is a debate that Congress took up in 1949
when they decided to implement a mandatory review at 70.
They didn't cut off benefits at 70 but they implemented a
mandatory review. And it is a debate that Congress revisited in
1974 when they rescinded the mandatory review.
These same arguments that I have just made and the same--
many of the same issues we are discussing today were discussed
in--if you look at the hearing record in 1949 and in 1974 and,
of course, in recent Congresses. And so it really comes down to
what Congress wants as the fundamental goals of this program,
and I think that ultimately would guide where the policy would
go in regards to benefits after retirement.
Mr. Hudson. Thank you for that.
Mr. Steinberg, just to clarify for the record, is DOL
intending to incorporate any of the GAO findings into its
proposals?
Mr. Steinberg. I am sorry, sir. We don't have a timeline
for submitting a legislative proposal. However, in terms of the
findings of the GAO study, we do not believe that we should
change the proposal that we have.
To build on my colleague's points, again, I think the
difference between our program and most of the states' programs
is that this is a lifelong benefit as long as the individual
still has that work-related injury or illness. There is no cap
either from a time dimension or from a dollars and cents
perspective.
We believe that is our obligation to protect the federal
worker, so there are no changes that we propose as a result of
the study by GAO.
Mr. Hudson. Thank you for that.
And I am interested in this discussion we have had sort of
over the incentive to return to work, and so I would like to
maybe discuss with you briefly here how the FECA program is
working to reduce injured employees' time away from work and
return employees to work. Can you explain in some detail the
program's goals and----
Chairman Walberg. The gentleman's time is expired.
Mr. Hudson. I will submit that in writing. Thank you.
Chairman Walberg. I now recognize the gentleman from
Indiana, Mr. Rokita?
Mr. Rokita. Well, I thank the chairman and I thank the
witnesses for your testimony today.
Mr. Steinberg, could you answer the congressman's question?
Mr. Steinberg. I can, and I can proudly answer that. We
have extensive focus on return to work.
I think in years past workers' compensation programs were
typically seen as a wage loss replacement program, and yes, our
program does provide that and it is a hallmark of our program
to have a very generous level. But we have spent a significant
amount of time focusing on return to work.
We have put in place a disability management program where
we have staff nurses; they work with field nurses. We try to
get to the claimant as early as we can to make sure that they
get diagnosed, they get into early treatment, and they get into
early rehabilitation.
Those are some of the proposals that I talked about in my
testimony to permit us to engage in vocational rehabilitation
before the injury is identified as permanent in nature, which
is typically 6 months. We believe that if we can begin
vocational rehabilitation and put in place a rehabilitation
return to work plan earlier in the process we have a much
higher probability of returning the individual to work.
Our statistics are terrific: 85 percent of those
individuals with serious injuries that are out of work for more
than 45 days go--85 percent go back to work within one year and
92 percent go back within 2 years. Of the approximately 120,000
cases we receive each year only about 2,000 of them go on our
periodic rolls at the end of the 2-year period, and I think to
a large extent that is because of our interventions.
Mr. Rokita. Thank you, Mr. Steinberg.
I also witnessed the spirited exchange that Congressman
Miller had with you. Do you have anything to add to that?
Mr. Steinberg. Well again, I think it is important to point
out that OWCP, the Department of Labor, we take terribly
seriously our responsibility to protect injured workers. I
think this is being unfortunately portrayed as an intent to
harm federal employees, and that certainly is not the intent.
What we have done is an analysis of the rates that we have and
the rates that the states have. We have also talked with OPM in
terms of what retirement rates should be and we believe that we
have proposed a slight reduction in rates--not major changes,
but a slight reduction in rates that provide a level of
fairness and equity between the injured worker and the non-
injured worker.
Mr. Rokita. Okay. Thank you, Mr. Steinberg.
Mr. Sherrill, is it my--am I pronouncing that right?
Thank you.
Quick question for you--maybe not so quick. Your testimony
notes that in the prior report from 1998----
Mr. Sherrill. Yes.
Mr. Rokita [continuing]. GAO analyzed the adequacy of the
FECA benefits by comparing benefits to take-home pay at the
time of injury.
Mr. Sherrill. Yes.
Mr. Rokita. The current report compares benefits to take-
home pay an employee would have had absent an injury.
Mr. Sherrill. That is right.
Mr. Rokita. First, can you briefly elaborate on the
different methodology used in each report? And then also, as we
consider policies in this area, what do you think are the
merits and drawbacks of each methodology?
Mr. Sherrill. The 1998 report basically answered the
question of to what extent do the FECA benefits support the
person in maintaining the standard of living they would have
had at the point of injury, and so it factored in wage
increases--sort of average wage increases for the federal
workforce over time--factored that into the analysis.
The work that we have done here with improved methods,
access to additional data sources, factored in what would the
person's missed career growth have been because we matched them
to a very closely matched counterpart. And so it really gave a
sense of, you know, how adequate are the FECA benefits with
respect to what they would have otherwise received in terms of
federal wages and salary.
Mr. Rokita. So an improvement, this later methodology over
the earlier one?
Mr. Sherrill. Yes. Because in the past it was--the data
offered were not available to really get a sense of how people
would really be affected and to assess the counterfactual in
the absence of being injured what would have been the case, but
now we have better data, better methods to do that kind of
analysis.
Mr. Rokita. Thank you.
And the last two witnesses, while I have some time.
Dr. Seabury, anything to add and--along the lines of the
questions that I asked--in 30 seconds?
Dr. Seabury. Yes, 30 seconds. I just would like to confirm,
I do think the approach to using the matching approach is an
improvement. I think that a distinction needs to be made
between what is used to calculate benefits versus assessing the
effect of a policy change on workers, and so I think to capture
the actual effect of the policy change on workers you need to
consider the lost career growth because that is a very real
consequence of a workplace injury that should be factored in.
And with return to work, I think the real challenge with
return to work is there is this--there is an assumption that--
or it is an unknown how much of the workers who are on long-
term disability currently have the capacity to work but aren't
choosing to because of financial incentives, and I think it is
just not clear. There is not enough evidence to say how big a
share that is.
And so I think the biggest concern with some of the policy
proposals is that the DOL proposals to get people back to work
are great, and including increased rehabilitation, but we don't
know who is--how that is going to affect the people who don't
get back after those policy changes are in----
Mr. Rokita. Thank you.
Apologies to Mr. Szymendera. My time is expired.
Chairman Walberg. I thank the gentleman.
And now I recognize the gentlelady from Oregon, Ms.
Bonamici.
Ms. Bonamici. Thank you very much, Mr. Chairman. I
apologize for not being here for the testimony but I did review
it in advance. I was in a committee markup.
I want to thank the chairman and the ranking member for
putting together this bipartisan hearing on such an important
topic. Our public servants are great assets to our country and
deserve a workers' compensation program that ensures that they
are no worse off and no better off than if they hadn't been
injured or made ill on the job.
Mr. Steinberg, I am sure you are aware that bills have been
proposed in the House to reform the Postal Service, and at
least one of those includes a provision that would take postal
workers out of FECA and instead have the Postal Service
administer its own program. On top of that, it would force
workers above retirement age into retirement benefits rather
than keeping them in FECA.
So this proposal is concerning to me, among others. What is
the administration's position on removing Postal Service
workers from FECA?
Mr. Steinberg. Well, the administration's proposal does not
propose a separate system for postal employees but recommends
system-wide reforms for all federal employees. We believe that
the proposals that we will put forward will benefit all
agencies.
I will point out that the Postal Service is about 45
percent of our customer base, so obviously they will benefit
from the changes that we are putting forward. The President's
budget does not either put forward a proposal to separate the
workers' comp program and put it with the Postal Service.
We believe that creating a separate system would be
extremely complex; it would be extremely expensive; it would be
very labor intensive; it would require a substantial and
entirely new infrastructure to be established by the Postal
Service. Much of the work would likely be contracted out as
opposed to being performed by federal employees, as it
currently is today.
We think it will be significantly more expensive. As I
indicated in my testimony, our administrative costs are 5
percent of the program.
The best of the state programs is at about 11 percent. That
is the average. And we would project that the cost of the
Postal Service doing this would be at least double the
administrative cost for us doing that.
Another concern would be that establishing a system--a
separate system could raise equity issues if benefit levels
were different or if their processes were different. Again, we
believe that our proposal will have a positive impact on the
Postal Service, and I believe the administration believes that
this is how we should move forward.
Ms. Bonamici. So I can infer, then, that the administration
opposes a separate system?
Mr. Steinberg. The administration has not proposed a
separate system----
Ms. Bonamici. That they oppose a separate system for postal
workers.
Mr. Steinberg. Again, the administration has not
specifically addressed this. This is something new that has
been discussed. I have not had conversations with the
administration specifically on that.
What I can say is that the administration supports these
changes and believes that these changes are the right way to
move forward and will benefit the----
Ms. Bonamici. Thank you.
Mr. Steinberg [continuing]. The Postal Service.
Ms. Bonamici. And you mentioned states. I know benefits
vary from state to state. Oregon, for example, provides
permanent disability for life, a maximum of $1,064 per week.
But is FECA generally consistent with the majority of
states with regard to maintaining permanent disability benefits
through retirement age without a reduction? How many other
programs provide benefits without reduction past retirement----
Mr. Steinberg. I am sorry. Could you repeat the latter part
of the question?
Ms. Bonamici. Yes. How many other programs provide benefits
without reduction past retirement age?
Mr. Steinberg. Oh. Many of the programs are actually capped
in terms of time and then capped in terms of dollars. We tend
to be the only program that continues on for the life of the
individual. So I can't provide that comparison right now.
Ms. Bonamici. Thank you. I will follow up.
And I have a question for Mr.--I hope I say your name
right--Szymendera. Was I close?
Mr. Szymendera. Yes. Szymendera, yes.
Ms. Bonamici. Szymendera.
Your testimony notes that FECA beneficiaries covered by the
Federal Employees Retirement System may not contribute to
either Social Security or the Thrift Savings Plan while
receiving FECA benefits. As a result, employees, especially
those who are permanently disabled early in their careers, may
end up with smaller Social Security benefits and low TSP
balances on retirement.
So what are the implications of putting into place a
general age-based test for FECA benefits? Would this be
inconsistent with the purpose of a compensation law that is
designed to make workers whole if they are permanently
disabled?
Mr. Szymendera. Thank you. First, if you don't mind, let
me--I can address that first question you asked the Department
of Labor, and that is currently 39 states pay benefits for the
duration of disability or the life of the worker, as does FECA,
as does the federal Longshore and Harbor Workers' Compensation
Act. One additional state pays only in catastrophic--some of
the state laws can get very complicated, but the general rule--
the general answer would be 39 states----
Ms. Bonamici. Thank you very much.
Mr. Szymendera. So FECA is consistent with the majority.
Now, as to your question--and I think it is, as I mentioned
before, it gets to this idea of what is the overall intent of
the program. FERS relies on three components. Two of those
components are Social Security and TSP. If you have a worker
injured, especially at a young age, they are not going to be
able to build up the balance in TSP, possibly, or have the
Social Security to rely on; they and so they are really going
to rely primarily only on the third, is annuity.
It gets ultimately to what is the goal of the program. If
it is just year-to-year wage loss then you say, ``Well, a
person at retirement age wouldn't be working anyway.'' If it is
we are trying to make this worker to some degree whole because
of an injury that occurred in the workplace and we believe the
employer--in this case the federal government--has a
responsibility to do that, then I think you do have to consider
the fact that you may have a worker with two of the three
components of the retirement system that may be very low TSP
balance and a low amount from Social Security.
Ms. Bonamici. Thank you very much.
I see my time has expired. Thank you, Mr. Chairman.
Chairman Walberg. Thank the gentlelady.
And again, thank you to the panel for your answers, for
your experience, and what you shared with us today.
I now recognize the ranking member for closing comments?
Mr. Courtney. Thank you, Mr. Chairman.
And the panelists, excellent testimony and I think it is
going to give us a great record as we move forward considering,
again, the possibility of a bill that hopefully will be as
bipartisan and successful in the House as last year.
And I really want to, again, salute Mr. Szymendera for the
great historical perspective that you added to this hearing.
You know, it is important, I think, to remember that worker
compensation law, which, you know, a first-year law student is
instructed was set up and there was a tradeoff. People gave up
their right to access the civil justice system, which provides,
again, a much broader array of benefits than what, again, the
firefighter or the FBI agent who is injured on duty can
collect.
And that is why, frankly, you know, looking at the
administration's proposal--which again, I think only North
Dakota is the only state that was cited in the CRS report that
converts the benefit at retirement age--in my opinion would put
the system, you know, as an outlier, to say the least. I mean,
Connecticut--I will toot my own horn here--allows for, again, a
benefit that extends beyond retirement and no conversion in
terms of the calculation of the benefit. And to me that is
consistent with that tradeoff.
So again, this hearing, I think, is going to help us really
understand better the implications of the proposal that the
department has come forward with.
GAO has informed us that DOL's proposal to cut benefits at
retirement age for totally disabled workers will leave the
median worker in the FERS system in many instances worse off
than if they had worked a full career and not been injured.
This finding applies to both executive branch workers as well
as postal workers.
GAO's findings raise troubling concerns about the merits of
DOL's proposal, as it violates a basic principle underpinning
FECA, which is to ensure that workers are made whole if they
are injured on the job. The bottom line is no one should be
better off or worse off than if they had not been injured.
And this applies to federal law enforcement injured in the
line of duty, firefighters protecting life and property, prison
guards keeping our community safer, letter carriers injured in
an accident. And as a matter of equity and the interests of
avoiding more bureaucracy, it makes little sense to remove
postal workers or any other group from FECA and create a
separate program, which again, I think hopefully is a consensus
point here this morning.
We have learned from our witnesses that GAO uses a
mainstream approach in assessing benefit adequacy. In response
to GAO's findings I would urge the Department of Labor to
reevaluate its proposal.
I am aware that some are advocating approaches that would
jettison core principles underpinning FECA and simply cut
without regards to the impact on disabled workers who must rely
on FECA as their exclusive remedy. Therefore--and I think
hopefully all of us agree--our approach to reform should always
be data-driven.
With the additional GAO data in hand I hope that we can
continue our bipartisan efforts that were launched in the last
112th Congress that includes giving DOL tools to better improve
program integrity, increasing the number of workers who will be
rehabilitated and resume work at the federal agencies, to
modernize obsolete benefits and increase the cost effectiveness
of medical delivery by utilizing physician assistants and nurse
practitioners to deliver treatment.
Mr. Chairman, in closing I would move that the committee
include a statement from the National Treasury Employees Union
and three other documents regarding GAO's assessment of the DOL
proposal be placed in the record. And again, I want to thank
you for organizing this outstanding hearing. And I yield back
the balance of my time.
[The information follows:]

Prepared Statement of Colleen M. Kelley, National President,
National Treasury Employees Union

Chairman Walberg, Ranking Member Courtney and Members of the
Subcommittee on Workforce Protections, the National Treasury Employees
Union (NTEU) appreciates the opportunity to offer this statement to the
Subcommittee as it considers the important matter of Workers'
Compensation in the federal sector. NTEU represents over 150,000
federal employees at 31 agencies. Our members perform every type of
work for the American public from Customs and Border Protection
Officers, to mailroom workers at the Treasury Department, and Food and
Drug Administration scientists working in laboratories at home or on
assignment inspecting products in India and China. These public
servants show up for work each day expecting to perform their important
duties diligently and professionally in service to their country and
then safely return home to their families. Nevertheless, some will
suffer workplace injuries that make it impossible for them to return to
work for short or long periods of time and, regrettably, in some cases
to never be able to return to work at all due to permanent injury or
even death.
Workers' Compensation insurance is a recognition of the
responsibility of employers and society to take care of those injured
in the workplace. It was our nation's first social insurance program.
Today, Workers' Compensation stands as an important protection for the
benefit of all Americans. Almost 98% of the workforce is covered by
workers' compensation insurance.
In 1916, five years after Wisconsin led the nation in passing the
first state Workers Compensation law, Congress moved to enact a program
to insure the federal government's own employees as well as railway,
longshoremen and other harbor workers. The Kern-McGillicudy Act
developed the program we now know as the Federal Employees Compensation
Act (FECA).
FECA is one of the most important programs for federal workers.
This program provides federal employees with workers' compensation
coverage for injuries and diseases sustained while performing their
duties. The program seeks to provide adequate benefits to injured
federal workers while at the same time limiting the government's
liability strictly to workers compensation payments. Payments are to be
prompt and predetermined to relieve employees and agencies from
uncertainty over the outcome of court cases and to eliminate wasteful
litigation. Efficient government is advanced by a civil service that is
expected to have the highest levels of professionalism and competency
and in turn is fairly compensated and treated with dignity and respect.
There is no greater disrespect to human dignity than to have to suffer
injury from an unsafe workplace or from employer negligence.
NTEU welcomes a review of the FECA program, while always keeping in
mind this is an issue of human dignity. We believe such a review should
be broad and comprehensive. By that, we mean that it should never start
or be rigidly limited to benefit payments. Instead the first principle
should be making the federal workplace safe by actions to move us
towards the goal of no worker coming to work with the possibility it
will be his last day on the job because of a workplace injury. NTEU has
worked with Republican and Democratic administrations on this goal and
we are ready to continue those efforts.
However, I want to state our strong opposition to insurance benefit
cuts, particularly for those employees who came to work one day ready
to serve their country but suffered a workplace injury that resulted in
them never being able to return. We are most concerned about proposals
for a forced retirement provision. An employee who is injured on the
job and unable to work receives FECA payments equal to 67% of wages at
the time of injury (a slightly higher amount if he has family
obligations). This reduction in income makes it impossible for an
injured employee to fund a retirement plan. Once workplace injured
workers are on FECA, they receive no further retirement credits or
contribution matches, nor are they able to make elective contributions
to the Thrift Savings Plan. This holds true for Social Security as well
as the federal retirement programs. Forcing a worker at retirement age
to give up regular FECA benefits and live on the income from retirement
savings put aside up until his or her worklife was interrupted by an on
the job injury would cause grave economic hardship to many disabled
employees.
NTEU would also oppose elimination of the family benefit that is
now a feature of FECA. Because FECA benefits are not taxed, the family
allowance does little more than create some equity between the after
tax income a worker with dependents and one without would have if not
injured. However, we are open to the idea of a gradation of the
benefits based on family size.
Let me close by stating that NTEU very much wants to work with this
subcommittee or any other policymaker to find ways to reduce the costs
of the FECA program. As I have said, our belief is the best way to do
so is not by reducing benefits or denying claims but by preventing the
occurrence of injuries.
NTEU is committed to a safe and healthy federal workplace where
employees are less likely to ever suffer the injuries that lead to FECA
claims. Our union has also been one of the strongest forces for
innovation in the federal workplace, often working with management on
bold new programs and sometimes dragging management forward over their
reluctance. We have received reports from our members about management
resistance or disinterest in light duty assignments, alternative
worksites, disability accommodations and other actions that could allow
FECA recipients to return to work. A change in management practices and
culture is needed. I don't expect this is something Congress can fully
legislate, but the first step is to end the myth that able bodied
workers are receiving FECA payments and accept the fact that many
injured workers would like to return to work and could do so with
opened minded and innovative agency practices. Further, NTEU is willing
to work with policymakers to improve program integrity methods. While
we have not seen much evidence that FECA beneficiaries are fraudulently
receiving other government benefits such as Social Security or
Unemployment Insurance, there could be improved safeguards to verify
this is not happening. We strongly believe these are the types of
reforms that should be explored before Congress moves to cut these
social insurance benefits to injured federal workers.
Thank you for this opportunity to present NTEU's views.
______

[GAO report, ``Federal Employees' Compensation Act:
Percentages of Take-Home Pay Replaced by Compensation
Benefits,'' excerpts from cover and pages 41-44, April 1998,
may be accessed at the following Internet address:]

http://gao.gov/assets/230/226220.pdf

------

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

FY 2012 CASES CREATED BY STATE
[Includes DC, et al]
----------------------------------------------------------------------------------------------------------------
State Cases State Cases State Cases
----------------------------------------------------------------------------------------------------------------
AK............................. 559 MD................ 4429 SC............... 1140 .............
AL............................. 1796 ME................ 613 SD............... 459 .............
AR............................. 819 MI................ 2861 TN............... 1941 .............
AZ............................. 3610 MN................ 1569 TX............... 9055 .............
CA............................. 13829 MO................ 1956 UT............... 1367 .............
CO............................. 2300 MS................ 1261 VA............... 4529 .............
CT............................. 1125 MT................ 744 VT............... 245 .............
DC............................. 558 NC................ 2835 WA............... 3854 .............
DE............................. 299 ND................ 298 WI............... 1967 .............
FL............................. 5404 NE................ 604 WV............... 718 .............
GA............................. 3880 NH................ 557 WY............... 313 .............
HI............................. 969 NJ................ 2732 AA............... 5 U.S. Armed
Forces,
America
IA............................. 941 NM................ 1279 AS............... 2 American
Samoa
ID............................. 686 NV................ 903 AE............... 286 U.S. Armed
Forces,
Europe
IL............................. 4407 NY................ 6185 AP............... 70 U.S. Armed
Forces,
Pacific
IN............................. 1706 OH................ 2917 GU............... 72 Guam
KS............................. 841 OK................ 1513 MP............... 4 Northern
Mariana
Islands
KY............................. 1292 OR................ 1685 PR............... 872 Puerto Rico
LA............................. 1465 PA................ 4601 VI............... 34 Virgin
Islands
MA............................. 2023 RI................ 374
----------------------------------------------------------------------------------------------------------------

______

Chairman Walberg. I thank the gentleman. And without
objection, those will be placed in the record.
I would concur with your statements to a great degree, as
well. I think the fact that we passed in the last Congress a
bipartisan proposal and did it on voice vote out of the chamber
was significant, and I think it was significant for many
reasons, but because it provided some updating to a law that we
felt was necessary and we could agree to.
We certainly want our federal employees to be cared for. We
certainly respect what they do and, when injured in the line of
duty, we are responsible for providing care. Just want to make
sure that that care is adequate, that it doesn't give
unnecessary incentive or additional incentive to bad actors but
also recognize that the overwhelming majority of our workforce
who are injured have legitimate needs and that those needs are
met.
The provisions that we did not include in the last bill
simply came from the fact that we didn't have a full
understanding of what was needed.
And so, Mr. Sherrill, I thank the GAO for providing the
information in a report that we requested to come to us.
I also appreciate, Mr. Steinberg, your passionate defense
of your position, of Department of Labor's position. I don't
see that as discouraging at all. I think you ought to defend
the position and I think in doing so you provided, at least for
me, some more questions, along with some appreciation for
decisions that were made.
As has been already stated, Mr. Szymendera, the history
lesson that we received was helpful, and to know for a fact
that we, with our employees, rank very well with state workers,
and I think in turn have taken many considerations related to
the private sector, as well.
In lieu of the fact that those of us who would like to see
a down-sizing of the whole federal government in many ways, and
yet not seeing that happening overnight, I think my
distinguished colleague would agree, as well, we have to take
these considerations in for our employees. And so, not knowing
with any certainty that the legislation that we offered last
term and passed here in the House, whether that will be offered
again in the form that it was, at the very least we know that
with the information gained today we can look to expand it to
add additional changes that might be necessary, might be
perceived bipartisanly, as very important to go forward with.
And so I appreciate your testimony today. I appreciate the
attention of the committee, the number of members that were
here. And I think I can safely state that this will bear some
benefit down the road.
And so, seeing that there is no further business to come
before the committee, the committee stands adjourned.
[Questions submitted for the record and their responses
follow:]

U.S. Congress,
Washington, DC, July 30, 2013.
Andrew Sherrill, Director,
Education, Workforce and Income Security Issues, Government
Accountability Office, 441 G Street, NW, Washington, DC 20548.
Dear Mr. Sherrill: Thank you for testifying at the July 10, 2013
Subcommittee on Workforce Protections hearing entitled, ``Examining the
Labor Department's Proposed Reforms to the FECA Program.'' I appreciate
your participation.
Enclosed are additional questions submitted by committee members
following the hearing. Please provide written responses no later than
August 14, 2013, for inclusion in the official hearing record.
Responses should be sent to Owen Caine of the committee staff, who can
be contacted at (202) 225-7101.
Thank you again for your contribution to the work of the committee.
Sincerely,
Tim Walberg, Chairman,
Subcommittee on Workforce Protections.
questions from congressman courtney (ct-2)
1. The Department of Labor (DOL) testified that the Federal
Employees' Compensation Act (FECA) should be amended to impose a 3-day
waiting period before the receipt of wage loss benefits. DOL contends
it was needed ``in order to discourage the filing of claims for minor
injuries that resolve very quickly.'' Currently, the waiting period
under FECA for traumatic injuries begins after the worker has received
45 days of Continuation of Pay, except for the U.S. Postal Service
workers. In 2006, Congress amended the waiting period for Postal
Service employees by placing the three-day waiting period immediately
after an employment injury (P.L. 109-435). Postal workers can either
use available sick leave vacation pay, if available, or simply go
without pay. The Committee of Education and the Workforce asked GAO to
assess this proposed change in a July 2011 letter.
a) What are GAO's findings? Based on the 6 years of experience with
the US Postal Service, is there evidence that changing the waiting
period would produce savings for non postal workers, if it were
adopted?
2. At the hearing, DOL objected to GAO's use of lost career growth
in evaluating what a worker would have earned if they had not been
injured. However, your testimony stated that in 1998 the DOL argued
that the GAO needed to account for lost promotional opportunities
(e.g., lost career growth) when evaluating the adequacy of FECA
benefits.
(a) Is it correct that DOL has reversed its position? Did they put
this in writing?
(b) Did DOL provide GAO with data or evidence to justify this
change?
(b) What is the impact on wage replacement rates from accounting
for lost career growth: would it increase or decrease the wage
replacement rate?
3. The GAO's report Federal Employees' Compensation Act: Benefits
for Retirement Age Beneficiaries (February 2012), which compared FECA
benefits with Civil Service Retirement System (CSRS ) benefits for
those who had worked various length careers. That report found that
FECA benefits were about 7% greater than CSRS retirement benefits for
an individual who worked a 30-year career.
(a) In the February 2012 report, did the GAO account for lost
career growth in the same way that it did in its subsequent reports
which looked at the Federal Employee Retirement System (FERS)?
(b) Did DOL object to GAO's use of lost career growth in that
report?
(c) To your knowledge, is the only time that DOL objected to GAO's
use of lost career growth is when GAO found that FECA benefits were on
a par with or less than the median FERS benefit package?
______

GAO,
441 G St. NW,
Washington, DC, August 14, 2013.
Hon. Tim Walberg, Chairman,
Subcommittee on Workforce Protections, Committee on Education and the
Workforce, House of Representatives.
Dear Mr. Chairman: This letter responds to your July 30, 2013
request that we address questions submitted for the record related to
our statement at the July 10, 2013 Subcommittee on Workforce
Protections hearing entitled, ``Examining the Labor Department's
Proposed Reforms to the FECA Program.'' The enclosure provides our
responses which are based on previously issued products.
If you have any questions or would like to discuss the responses,
please contact me at (202) 512-7215 or sherrilla@gao.gov.
Sincerely yours,
Andrew Sherrill, Director,
Education, Workforce, and Income Security Issues.

Enclosure.

Mr. Sherrill's Response to Questions Submitted for the Record

questions from congressman courtney (ct-2)
1. The Department of Labor (DOL) testified that the Federal
Employees' Compensation Act (FECA) should be amended to impose a 3-day
waiting period before the receipt of wage loss benefits. DOL contends
it was needed ``in order to discourage the filing of claims for minor
injuries that resolve very quickly.'' Currently, the waiting period
under FECA for traumatic injuries begins after the worker has received
45 days of Continuation of Pay, except for the U.S. Postal Service
workers. In 2006, Congress amended the waiting period for Postal
Service employees by placing the three-day waiting period immediately
after an employment injury (P.L. 109-435). Postal workers can either
use available sick leave vacation pay, if available, or simply go
without pay. The Committee of Education and the Workforce asked GAO to
assess this proposed change in a July 2011 letter.
a. What are GAO's findings? Based on the 6 years of experience with
the US Postal Service, is there evidence that changing the waiting
period would produce savings for non postal workers, if it were
adopted?

As we indicated on page 22 of our October 2012 report that analyzed
proposed FECA program changes, available data do not allow for analysis
of any related cost savings that may have resulted from the change in
the waiting period for U.S. Postal Service employees before receiving
wage loss benefits.\1\
---------------------------------------------------------------------------
\1\ GAO, Federal Employees' Compensation Act: Analysis of Proposed
Program Changes, GAO-13-108 (Washington, D.C.: October 26, 2012).

2. At the hearing, DOL objected to GAO's use of lost career growth
in evaluating what a worker would have earned if they had not been
injured. However, your testimony stated that in 1998 the DOL argued
that the GAO needed to account for lost promotional opportunities
(e.g., lost career growth) when evaluating the adequacy of FECA
benefits.
a. Is it correct that DOL has reversed its position? Did they put
this in writing?
b. Did DOL provide GAO with data or evidence to justify this
change?
c. What is the impact on wage replacement rates from accounting for
lost career growth: would it increase or decrease the wage replacement
rate?

a. In its comments on our 1998 report on percentages of take-home
pay replaced by FECA benefits, the Department of Labor (Labor)
expressed concern that we did not take account of missed promotions.
Labor wrote, in part, that it is almost certain that some percentage of
injured workers would have received promotions, thus lowering their
replacement rate.\2\
---------------------------------------------------------------------------
\2\ GAO, Federal Employees' Compensation Act: Percentages of Take-
Home Pay Replaced by Compensation Benefits, GAO/GGD-98-174 (Washington,
D.C.: August 1998).
---------------------------------------------------------------------------
We noted in our October 2012 report (GAO-13-108) that the
availability of additional data and improved methods allowed us to
present an assessment of the adequacy of benefits that included career
growth. In its oral comments on the FECA reports we issued from October
to December 2012,\3\ Labor emphasized that FECA was not designed to
account for missed career growth, which we noted in our work. In the
specific instance in which Labor provided written technical comments--
for GAO-13-143R--the comments did not pertain to the role of missed
career growth in our analysis.
---------------------------------------------------------------------------
\3\ 213 GAO-13-108; GAO, Federal Employees' Compensation Act:
Analysis of Proposed Changes on USPS Beneficiaries, GAO-13-142R
(Washington, D.C.: November 26, 2012); GAO, Federal Employees'
Compensation Act: Effects of Proposed Changes on Partial-disability
Beneficiaries Depend on Employment After Injury, GAO-13-143R
(Washington, D.C.: December 7, 2012).
---------------------------------------------------------------------------
b. Labor did not provide us with any such data or evidence.
c. We noted in our October 2012 report (GAO-13-108) that wage
replacement rates that do not account for missed career growth capture
the degree to which a beneficiary is able to maintain his or her pre-
injury standard of living, and wage replacement rates that account for
missed career growth capture the degree to which a beneficiary is able
to maintain his or her foregone standard of living. Accounting for
missed career growth results in a lower wage replacement rate, as
compared to not accounting for missed career growth.

3. The GAO's report Federal Employees' Compensation Act: Benefits
for Retirement Age Beneficiaries (February 2012), which compared FECA
benefits with Civil Service Retirement System (CSRS) benefits for those
who had worked various length careers. That report found that FECA
benefits were about 7% greater than CSRS retirement benefits for an
individual who worked a 30-year career.
a. In the February 2012 report, did the GAO account for lost career
growth in the same way that it did in its subsequent reports which
looked at the Federal Employee Retirement System (FERS)?
b. Did DOL object to GAO's use of lost career growth in that
report?
c. To your knowledge, is the only time that DOL objected to GAO's
use of lost career growth is when GAO found that FECA benefits were on
a par with or less than the median FERS benefit package?

a. In the February 2012 report, GAO accounted for missed career
growth in its comparison of FECA beneficiaries and their similar non-
injured annuitant counterparts, who were matched based on various
characteristics.\4\ The methodology was similar, but not identical, to
that used for the subsequent reports comparing FECA to FERS for full
disability beneficiaries; both methodologies took into account missed
career growth.
---------------------------------------------------------------------------
\4\ GAO, Federal Employees' Compensation Act: Benefits for
Retirement-Age Beneficiaries, GAO-12-309R (Washington, D.C.: February
6, 2012).
---------------------------------------------------------------------------
b. No. Labor's comments on our February 2012 report (GAO-12-309R)
did not raise any concerns with our use of missed career growth.
c. In its oral comments on our October 2012 report, Labor stated
that FECA was not designed to account for missed career growth. These
comments pertained to our findings related to wage replacement rates as
well as our findings related to the comparison of FECA and FERS.
______

U.S. Congress,
Washington, DC, July 30, 2013.
Gary A. Steinberg, Acting Director,
Office of Workers' Compensation Programs, U.S. Department of Labor, 200
Constitution Avenue, NW, Washington, DC 20210.
Dear Mr. Steinberg: Thank you for testifying at the July 10, 2013
Subcommittee on Workforce Protections hearing entitled, ``Examining the
Labor Department's Proposed Reforms to the FECA Program.'' I appreciate
your participation.
Enclosed are additional questions submitted by committee members
following the hearing. Please provide written responses no later than
August 14, 2013, for inclusion in the official hearing record.
Responses should be sent to Owen Caine of the committee staff, who can
be contacted at (202) 225-7101.
Thank you again for your contribution to the work of the committee.
Sincerely,
Tim Walberg, Chairman,
Subcommittee on Workforce Protections.
questions from congressman courtney (ct-2)
1. GAO's December 7, 2012 report, Federal Employees' Compensation
Act: Effects of Proposed Changes on Partial Disability Beneficiaries
Depend on Employment After Injury, found that the percentage of new
partial disability beneficiaries receiving benefits based on
constructed earnings rose from 36 percent in 2004 to 63 percent in
2011. Beginning in 2009, the percentage of new beneficiaries receiving
benefits based on constructed earnings exceeded those receiving
benefits based on actual earnings.
a. What is the percentage of partial disability cases receiving
constructed wage loss earnings 2012 (as compared with those receiving
actual wages)?
b. What changes in DOL policy or practice contributed to the rate
nearly doubling in 7 years? Please describe these new polices or
practices.
c. The U.S. Postal Service implemented a National Reassessment
Process in 2009 which resulted in light duty work being withdrawn and
the partially disabled worker being notified that there is no work
available. To what extent has this U.S.P.S. policy contributed to the
increase in the number of cases where partial disability benefits are
based on constructed earnings as opposed to actual earnings?
2. Your testimony stated that ``fewer than 17,000 of the accepted
claims per year involve a significant period of disability. Eighty-five
percent (85%) of these claimants return to work within the first year
of injury and 91% return to work by the end of the second year.'' How
does this return to work rate compare with state workers' compensation
and the Longshore and Harbor Workers Act?
3. GAO's report Federal Employees' Compensation Act: Case Examples
Illustrate Vulnerabilities That Could Result in Improper Payments or
Overlapping Benefits (April 2013) identified cases where claimants were
receiving overlapping Unemployment Insurance (UI) and FECA benefits.
While overlap is permissible in some cases, in others the state needs
to apply an offset against UI benefits. GAO recommended that DOL assess
cost effective ways to share data with states such as the National
Directory of New Hires.
(a) What steps is DOL taking to implement this GAO recommendation?
(b) What other tools or authorities does the DOL need to improve
program integrity?
______

Mr. Steinberg's Response to Questions Submitted for the Record

Dear Chairman Walberg: Thank you for the opportunity to testify
before the subcommittee during your hearing ``Examining the Labor
Department's Proposed Reforms to the FECA Program.'' I have received
the committee's additional questions and appreciate the opportunity to
provide additional information.

1. GAO's December 7, 2012 report, Federal Employees' Compensation
Act: Effects of Proposed Changes on Partial Disability Beneficiaries
Depend on Employment After Injury, found that the percentage of new
partial disability beneficiaries receiving benefits based on
constructed earnings rose from 36 percent in 2004 to 63 percent in
2011. Beginning in 2009, the percentage of new beneficiaries receiving
benefits based on constructed earnings exceeded those receiving
benefits based on actual earnings.
(a) What is the percentage of partial disability cases receiving
constructed wage loss earnings 2012 (as compared with those receiving
actual wages)?
answer
The Department of Labor's (DOL) Office of Workers' Compensation
Programs (OWCP) issued 793 loss of wage earning capacity decisions in
2004 and 716 in 2012. Of these, approximately 35 percent of the
decisions issued in 2004 were based on constructed earnings and
approximately 66 percent of the decisions issued in 2012 were based on
constructed earnings.

(b) What changes in DOL policy or practice contributed to the rate
nearly doubling in 7 years? Please describe these new policies or
practices.
answer
Under 5 U.S.C. Sec. 8115, FECA requires a proportional reduction
of compensation for those claimants who are only partially disabled;
this reduction is accomplished through the use of their actual earnings
or the use of a constructed position that fairly and reasonably
represents that employee's earning capacity. Any constructed position
which forms the basis of a wage earning capacity determination must be
one that the claimant is vocationally and medically qualified to
perform and that position must be found reasonably available in the
employee's commuting area. Thus, some employees who in previous years
might have been reemployed by their agencies are now found to be only
partially disabled. Ifthere are positions that are reasonably available
in their commuting area that they can perform, they are subject to DOL
determining that they are only partially disabled based upon a
constructed position.
While DOL cannot quantify the extent to which any specific changes
in policy or practice may have caused or contributed to the finding
cited in the GAO study 13-143R, it appears that a number of internal
and external factors may have influenced this finding. OWCP's
disability management process, under which substantial efforts are made
to return every worker to gainful employment (including both early
intervention strategies such as field nurse services and vocational
rehabilitation services), is much more robust than it was in 2004.
OWCP's case management processes have been automated and improved
substantially in the last several years. Finally, it is also clear that
some employing agencies within the Federal government--particularly the
United States Postal Service--currently have less ability to create new
positions for workers who have suffered a disability and are unable to
return to their previous positions, but retain their ability to earn a
wage in a different position.

(c) The U.S. Postal Service implemented a National Reassessment
Process in 2009 which resulted in light duty work being withdawn and
the partially disabled worker being notified that there is no work
available. To what extent has this U.S.P.S. policy contributed to the
increase in the number of cases where partial disability benefits are
based on constructed earnings as opposed to actual earnings?

answer
For the same periods listed above, approximately 24 percent of the
decisions issued on Postal claims in 2004 were based on constructed
earnings, compared to approximately 78 percent of those issued in 2012.
The increase in constructed wage loss claims is higher than the overall
average change in similar OWCP determinations for all other agencies.
It is possible that the change in policy by the USPS was a contributing
factor in this disparity. However the USPS has notified OWCP that the
NRP ended on January 31, 2011. Because of this, the policy will not be
a factor moving forward.

2. Your testimony stated that ``fewer than 17,000 of the accepted
claims per year involve a significant period of disability. Eighty-five
percent (85%) of these claimants return to work within the first year
of injury and 91% return to work by the end of the second year.'' How
does this return to work rate compare with state workers' compensation
and the Longshore and Harbor Workers Act?
answer
OWCP does not have jurisdiction over state programs and does not
collect data on state workers' compensation programs to compare with
our own return to work success. Additionally, since the Longshore and
Harbor Workers' Compensation Act, 33 U.S.C. Sec. Sec. 901--950
primarily involves the provision of benefits by private insurers, OWCP
does not currently track return to work outcomes for these claimants.

3. GAO's report Federal Employees' Compensation Act: Case Examples
Illustrate Vulnerabilities That Could Result in Improper Payments or
Overlapping Benefits (April 2013) identified cases where claimants were
receiving overlapping Unemployment Insurance (UI) and FECA benefits.
While overlap is permissible in some cases, in others the state needs
to apply an offset against UI benefits. GAO recommended that DOL assess
cost effective ways to share data with states such as the National
Directory of New Hires.
(a) What steps is DOL taking to implement this GAO recommendation?
answer
OWCP has met with the Department of Labor's Employment and Training
Administration, Office of Unemployment Insurance. That office already
has a data sharing platform with the states and OWCP is working with
them to share FECA program data with those states where offset of FECA
is required. This will be done utilizing the existing infrastructure.

(b) What other tools or authorities does the DOL need to improve
program integrity?
answer
OWCP employs a variety of strategies available within the FECA to
strengthen the program, including internal and external audits. For
Fiscal Year 2014, OWCP has requested $3.6 million to further enhance
FECA program integrity. This dedicated funding would be utilized to
establish an operation which will further assist in identifying areas
of improper payment vulnerability, developing strategies for preventing
improper payments, and enhancing our payment recapture program to
recover overpayments due to error or fraud in compensation payments. In
addition, our legislative proposal seeks authority to obtain Social
Security earnings information without having to obtain a release from
the claimant.
Thank you again for the opportunity to provide additional
information regarding the FECA program.
______

[Whereupon, at 11:23 a.m., the subcommittee was adjourned.]