Recent GAO Reports on the Federal Employees' Compensation Act (Testimony,
09/30/97, GAO/T-GGD-97-187).

GAO discussed the Federal Employees' Compensation Act (FECA) oversight,
focusing on: (1) the recovery of continuation of pay (COP) benefits in
cases where third parties were liable for injuries; (2) selected
comparisons of FECA provisions with provisions of other federal and
state workers' compensation laws; and (3) issues associated with
changing benefits for older FECA beneficiaries.

GAO noted that: (1) the federal government's workers' compensation
program is authorized under the Federal Employees' Compensation Act
(FECA); (2) this program, which is administered by the Department of
Labor, provides employees suffering from work-related injuries and
occupational diseases with various types of benefits, depending on the
nature and extent of the injury and their ability to return to work; (3)
GAO recommended that FECA be amended to allow the government to obtain
refunds of COP benefits when injured employees recover damages from
liable third parties; (4) injured employees are to continue to receive
their regular pay for up to 45 days when they are absent from work for
traumatic injuries; (5) because of interpretations of FECA by the
Employees' Compensation Appeals Board and a federal court, the
government no longer has a legal basis to obtain refunds of injured
employees' COP benefits in third-party injury cases; (6) in effect,
these employees receive a double recovery of income for their first 45
days of absence from work due to injury; (7) although the formula for
calculating benefits under FECA was similar to most other laws, FECA's
authorized maximum weekly benefit amount was greater; (8) unlike most
states, FECA provides claimants with a spouse or a dependent with an
additional benefit of 8 1/3 percent of salary; (9) under other workers'
compensation laws, employees must be out of work for a 3- to 7-day
waiting period before they can receive wage-loss benefits; (10) under
FECA, the 3-day waiting period is preceded by a period of 45 days in
which employees with traumatic injuries continue to receive their
regular pay; (11) GAO's August 1996 report provided information on: (a)
selected characteristics of individuals on FECA's long-term rolls; (b)
views of proponents and opponents of changing FECA benefits for older
beneficiaries; and (c) questions and issues that Congress might consider
if crafting benefit changes; and (12) of the $1.28 billion in
compensation benefits paid in 1995, about $611 million was paid to
beneficiaries on the long-term rolls who were age 55 and older.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-GGD-97-187
     TITLE:  Recent GAO Reports on the Federal Employees' Compensation 
             Act
      DATE:  09/30/97
   SUBJECT:  Workers compensation
             Refunds to government
             Comparative analysis
             Elderly persons
             Federal employees
             Compensation claims
             Labor law
             Federal employee disability programs
IDENTIFIER:  Federal Employees Compensation Program
             
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Cover
================================================================ COVER


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

For Release on Delivery
Expected at
10:00 a.m., EST
Tuesday
Sept.  30, 1997

RECENT GAO REPORTS ON THE FEDERAL
EMPLOYEES' COMPENSATION ACT

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

GAO/T-GGD-97-187

GAO/GGD-97-187T


(410191)


Abbreviations
=============================================================== ABBREV

  COP - Continuation of Pay
  ECAB - Employees' Compensation Appeals Board
  FECA - Federal Employees' Compensation Act
  FERS - Federal Employees' Retirement System
  GAO - General Accounting Office
  OWCP - Office of Workers' Compensation Programs
  U.S.C.  - United States Code

RECENT GAO REPORTS ON THE FEDERAL
EMPLOYEES' COMPENSATION ACT
====================================================== Chapter Summary

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

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

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

GAO's August 1996 report provided information on (1) selected
characteristics of individuals on FECA's long-term rolls, 2) views of
proponents and opponents of changing FECA benefits for older
beneficiaries, and (3) questions and issues that Congress might
consider if crafting benefit changes.  Of the $1.28 billion in
compensation benefits paid in 1995, about $611 million was paid to
beneficiaries on the long-term rolls who were age 55 and older. 


RECENT GAO REPORTS ON THE FEDERAL
EMPLOYEES' COMPENSATION ACT
==================================================== Chapter Statement

Dear Mr.  Chairman and Members of the Committee: 

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

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


   BACKGROUND
-------------------------------------------------- Chapter Statement:1

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

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

According to Labor's Office of Workers' Compensation Programs (OWCP),
in fiscal year 1996, OWCP used the equivalent of 902 full-time staff
in administering FECA.  In addition, the agencies for whom injured
employees worked also used their staff to assist OWCP in managing
claims.  In fiscal year 1996, about 175,000 workers' compensation
cases were created and 20,400 wage-loss claims were filed.  For many
employees whose injuries were not serious, the only FECA benefits
that were paid were those that covered medical expenses. 


   RECOVERY OF COP BENEFITS IN
   THIRD-PARTY CASES
-------------------------------------------------- Chapter Statement:2

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

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

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

In a June 1985 decision, ECAB held that OWCP could not recover COP
benefits when employees receive damages from responsible third
parties, even though employees could in effect obtain double
recoveries for work-related injuries.  ECAB stated that FECA
specifically provided that COP was not compensation, and FECA only
required refunds of compensation benefits in third-party cases.\2 In
August 1985, the U.S.  Court of Appeals for the Ninth Circuit held
that FECA established the government's exclusive remedy for
reimbursement from any damages that federal employees might recover
from third parties and that no common law remedy, such as equitable
subrogation,\3 was available.\4

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

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

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


--------------------
\1 Federal Employees' Compensation Act:  Redefining Continuation of
Pay Could Result in Additional Refunds to the Government
(GAO/GGD-95-135, June 8, 1995). 

\2 Paul L.  Dion, 36 ECAB 656 (1985). 

\3 Equitable subrogation is a legal theory, developed in common law
courts, which allows one person to acquire the rights of another
person to bring a claim against a third party. 

\4 Janakes v.  U.S.  Postal Service, 768 F.2d 1091 (9th Cir.  1985). 


   SELECTED COMPARISONS OF FEDERAL
   AND STATE WORKERS' COMPENSATION
   LAWS
-------------------------------------------------- Chapter Statement:3

In April 1996, we issued another report on FECA to Senators Cochran
and Lieberman.\5 In this report, we compared monetary and other
significant benefits authorized by FECA with those authorized under
the Longshore and Harbor Workers' Compensation Act (the Longshore
Act) and state workers' compensation laws. 

In general, FECA provided the same types of benefits to injured
federal workers as those provided to injured workers covered under
other federal and state workers' compensation laws.  The principal
workers' compensation benefits paid under all of these laws were for
wage loss and medical care.  We identified three principal ways in
which FECA benefits differed from those of other workers'
compensation laws.  In each of these cases, benefits available under
FECA could be greater than those under the other workers'
compensation laws. 

First, although the formula for calculating benefits under FECA was
similar to the formulas of most other laws (66-2/3 percent of
salary), FECA's authorized maximum weekly benefit amount was greater. 
Under FECA, in 1995 the maximum weekly compensation benefit could not
exceed $1,274 (75 percent of the maximum base pay of a GS-15, step 10
employee).  The maximum weekly benefit under the Longshore Act was
$761.  State maximums ranged from $253 to $817.  According to OWCP,
as of September 30, 1995, less than 1 percent of the beneficiaries on
the long-term compensation rolls\6 actually received compensation
benefits based on the authorized maximum benefit amount. 

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

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

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

  -- Because FECA's maximum authorized benefit amount exceeded those
     of the other workers' compensation programs, income replacement
     rates for higher-paid federal employees could exceed 100
     percent.  For example, a married federal employee living in
     Virginia earning $60,000 annually who is injured on the job
     would be eligible to receive nontaxable FECA benefits of
     $45,000.  For income replacement rate comparison purposes, this
     employee's take-home pay\7 would be $43,407 ($60,000 less
     deductions for (1) FERS benefits ($5,070), (2) state income
     taxes ($2,813), and (3) federal income taxes ($8,710).  The
     income replacement rate (FECA benefits divided by take-home pay)
     in this case would be nearly 104 percent. 

  -- For some injured federal workers, schedule awards for the
     permanent loss, or loss of use, of specific body parts could be
     higher than the awards under other workers' compensation
     programs because of the higher maximum weekly benefit amount
     authorized by FECA. 

  -- In 1995, the maximum burial allowance authorized under FECA was
     $800.  This benefit was lower than all but one state's maximum
     burial allowance. 

  -- Under FECA and in 25 states, injured employees may choose their
     physicians.  In other states, employees or their employers may
     select physicians from state workers' compensation agency
     approved lists of physicians. 


--------------------
\5 Workers' Compensation:  Selected Comparisons of Federal and State
Laws (GAO/GGD-96-76, Apr.  3, 1996). 

\6 Injured workers on the long-term (or periodic) rolls are those
with permanent disabilities or with injuries that have lasted or are
expected to last for prolonged periods (over 1 year). 

\7 Actual take-home pay could be different. 


   ISSUES ASSOCIATED WITH CHANGING
   COMPENSATION BENEFITS FOR OLDER
   BENEFICIARIES
-------------------------------------------------- Chapter Statement:4

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

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

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

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

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

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

  -- What type of changed benefits would be provided?  Converting
     beneficiaries from FECA to retirement benefits or providing
     beneficiaries with a FECA annuity are the two main options
     proposed in the past.  One proposal for a FECA annuity would
     reduce FECA benefits by one-third when beneficiaries were 2
     years beyond their retirement eligibility date. 

  -- How would benefits be computed?  Converting from FECA to
     retirement benefits might involve adjustments to retirement
     benefits based on factors such as credit for time on FECA rolls
     and increases in an employee's salary base since the time of
     injury.  Calculating a separate FECA annuity would be relatively
     simple. 

  -- Which FECA beneficiaries would be affected?  That is, would
     change affect all beneficiaries, including those who do not
     participate in a federal retirement plan (e.g., Peace Corps
     volunteers)?  Would change only affect workers injured after the
     effective date of change or would it also affect beneficiaries
     who are currently receiving compensation benefits? 

  -- What criteria would initiate changed benefits?  Would age or
     retirement eligibility alone trigger the change, or would
     secondary criteria need to be considered to protect some
     employees from economic adversity? 

  -- How would other benefits be treated?  The administration of
     benefits, such as medical benefits and survivor annuities, may
     need clarification. 

  -- How would benefits be funded?  If beneficiaries were converted
     from FECA to retirement benefits, alternatives for funding these
     benefits may have to be developed. 


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


------------------------------------------------ Chapter Statement:4.1

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


*** End of document. ***