Wednesday, August 31, 2011

FECA Shortfall Answer in West Virginia Model?

As the federal government's largest single employer with more than 560,000 employees, the US Postal Service (USPS) as you might imagine has a large workers' compensation bill, and a disproportionate impact on the federal work comp system.

So much so that its possible default on a pending payment to the US Labor Department could affect benefits for all injured federal workers.

The USPS makes "chargeback" payments to the Labor Department's Office of Workers' Compensation Programs (OWCP) to cover the costs of injured workers' benefits under the Federal Employees' Compensation Act (FECA). The chargebacks are assessed to each participating agency based on that agency's share of claims costs.

The USPS is responsible for 40% of all FECA benefits paid in a given year.

Currently it is projected that the USPS is in the red by $5.6 billion and could run out of cash in October without supplemental income from the government. This includes not making its $1.2 billion chargeback payment to OWCP on October 15.

According to Brian V. Kennedy, assistant labor secretary for Congressional and Intergovernmental Affairs, in an Aug. 1 letter to U.S. Rep. Darrel E. Issa, R-Calif., chairman of the U.S. House Committee on Government Oversight and Reform, "If USPS fails to make its Oct. 15, 2011, chargeback payment, but all other federal agencies participating in the FECA program paid their obligations to the fund, OWCP estimates that there would not be enough money in the fund to pay any benefits during the last four months of the fiscal year."

The federal fiscal year runs from Oct. 1 to Sept. 30, which means the default could occur as soon next June.

There are several "reform" plans floating in Congress to "fix" FECA, generally tampering with cash benefits paid to federal injured workers - this is contrary to the trend in state governments where reforms tend to focus on the cost of medical care.

This is because, unlike most states, FECA's indemnity benefits far exceed the cost of providing medical care.

According to Congressional testimony, FECA paid out $1.88 billion in wage-loss compensation, impairment and death benefits during the fiscal year ended June 30, 2010, and $898.1 million to cover medical treatment, rehabilitation and the cost of supplies.

FECA gives injured federal workers with at least one dependent 75% of their gross salary at the time of injury, while claimants with no dependents receive 66 2/3% of gross salary, tax free and paid for life if employees opt to receive workers' compensation benefits instead of federal retirement. Retirement benefits are taxed.

Federal labor unions oppose tinkering with this nice perquisite, but it is obvious from the numbers that this is not a sustainable program, and has not been for some time.

Perhaps the model for fixing this mess is just a few hundred miles away from D.C. in the state of West Virginia, which faced a similar issue with its program just a few years ago before privatizing its system in 2005 when faced with a $3.2 billion shortfall. Since conversion to a competitive market place the state has seen a 40% reduction in the cost of its system, infusion of about 160 carriers, and significant shrinkage of its "Old Fund" liabilities.

FECA and the USPS can be fixed if Congress has the political will to do so.

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