Blog

A bill that would convert federal employees on workers’ compensation to the appropriate retirement system when they reach retirement age would result in a loss of income for many of those employees, witnesses at a Senate subcommittee hearing said Tuesday.

Under the 1916 Federal Employees’ Compensation Act, employees disabled as a result of an injury on the job can receive 66 2/3 percent — or 75 percent for those with dependents — of their basic salary tax-free, plus medical-related expenses. The 66 2/3 percent rate is comparable to most state systems, but many federal recipients, including those past retirement age, receive the 75 percent compensation rate.

The 2011 Federal Employees’ Compensation Reform Act (S. 261), introduced earlier this year by Sen. Susan Collins, R-Maine, would move FECA recipients into either the Civil Service Retirement System or the Federal Employees Retirement System when they become eligible, providing benefits only for employment before the worker’s injury. Critics say former FECA recipients would lose money as a result of that provision and the computation would not take into account the employee’s loss in higher wages and promotions due to the on-the-job injury. In addition, the legislation would apply only to CSRS and FERS employees. FECA recipients do not receive or make contributions to the Thrift Savings Plan or Social Security while they are receiving workers’ comp, another complication to conversion, opponents argue.

Collins, ranking member of the full committee, has complained that the FECA program has no time limits or caps on payments, and can result in a retirement income as much as 27 percent higher than what federal workers receive under the Civil Service Retirement System. “These FECA benefits are supposed to tide over employees who are injured and make sure they receive income while they recuperate pending their return to work. It is not intended to be a secondary, and more generous, retirement system,” E.R. Anderson, press secretary for committee Republicans, wrote in an email. “The question isn’t who is losing money,” Anderson said. “It is: Why are some getting a more generous formula when they have no intention of returning to work?”

At an April hearing, witnesses told House lawmakers that the workers’ compensation program is too generous and should be reformed so that employees receive fewer benefits and return to work faster. There is no age limit to receiving FECA benefits. At the U.S. Postal Service, for instance, more than 2,000 employees currently receiving federal workers’ compensation are 70 years or older.

Witnesses before the Senate panel acknowledged that the program, which hasn’t been updated in nearly 40 years, needs reform. The Labor Department, which administers FECA, is recommending a uniform compensation rate of 70 percent for all claimants. “A single rate would be simpler and more equitable,” said Gary Steinberg, acting director of the department’s Office of Workers’ Compensation. Steinberg also said Labor is proposing a “conversion entitlement benefit” for FECA recipients when they reach Social Security retirement age that would reduce their wage-loss benefits to 50 percent of their gross salary at the time of injury, but keep it tax-free.

Earlier this month, Rep. John Kline, R-Minn., introduced legislation that would streamline FECA’s claims process, update the benefits available to government employees and improve accountability for federal agencies. It would not address retirement issues as Collins’ bill does.

Griffin also said OPM would need more staff and resources to handle the administrative changes that would result from shifting FECA recipients into CSRS and FERS. “It would create a fair amount of difficulty and a great amount of resources to implement,” she said.

FECA provides basic compensation and medical rehabilitation for government workers who are hurt on the job and benefits for surviving dependents in cases of work-related deaths. It covers 2.7 million federal employees and postal workers and from July 1, 2009, to June 30, 2010, paid out $2.78 billion in benefits.

As a result of the diligent efforts of the Empire State Harness Horsemen’s Alliance, consisting of the Harness Horse Association of Central New York, Vernon, New York, the Monticello Harness Horsemen’s Association, Monticello, New York, the Saratoga Harness Horsepersons Association, Saratoga Springs, New York, the Standardbred Owners Association, Inc. of New York, Yonkers, New York and the Western Harness Horsemen’s Association, Buffalo/Batavia, New York, the following result has been secured for the benefit of all New York State horsemen, including our T-bred counterparts.

As Joe Faraldo , spokesperson for the Alliance added, “The Harness Associations have been working on this reform for over two years and this new underwriting directive is meant to end the practice of adding the payments made to independent contractors – harness drivers, blacksmiths, and veterinarians – as part of the premium that our owners and trainers were paying to secure the required Worker’s Compensation coverage.”

The following is the text of a Memo dated July 26, 2011 from the New York State Insurance Fund:

TO: ALL UNDERWRITING PERSONNEL ___________________________________________ Re: Harness Drivers, Blacksmiths and Veterinarians ____________________________________________

As a result of the recent WCB decision involving a harness driver, underwriting procedures regarding certain types of individuals associated with these businesses have been amended. Also, underwriting has decided to also change its position regarding blacksmiths and veterinarians.

Effectively immediately, underwriters should no longer make premium charges for harness drivers on the policies of owners or race tracks. Based on the ruling, the WCB found the harness driver to be an independent contractor and not entitled to workers’ compensation benefits.

In addition, effective immediately, payment made by trainers and owners to veterinarians and blacksmiths should not be picked up as payroll. Veterinarians and blacksmiths are to be considered independent contractors unless they work exclusively for one operation and are considered to be a member of the operation’s staff.

This applies to both harness and thoroughbred racing.

Underwriters should be reminded to follow these instructions until further notified. The UPM chapter 46 should be updated shortly.

Many employers think that being self-insured is only for large, thriving organizations. Not so, says Joe Berardo, CEO of MagnaCare, a company that manages health plans for employers in New York and New Jersey. He believes it can work well for companies with as few as 15 employees.

What’s changed for employers since the Affordable Care Act (ACA)? Although the ACA has not yet done much of anything to reduce healthcare costs, it does increase the benefits of self-funding, says Berardo. There are two reasons for this: First, under healthcare reform, plans can no longer cap medical benefits beyond a certain level. Self-insured companies faced with this barrier can call on stop-loss carriers, whereas the carriers for fully insured organizations absorb those losses—and then charge the employer more the following year.

Second, most fully insured organizations pay brokers’ fees, which became very difficult under ACA beginning in January 2011. ACA requires specific medical-loss ratios: For group plans, 80 cents of every premium dollar must be spent on medical expenses rather than administrative costs, while for individual plans, the ratio is higher—85 cents of every dollar. So what happens to those brokers’ commissions? Especially when, Berardo notes, brokers were pretty much guaranteed an annual raise as healthcare costs went up every year. If the commissions are part of the administrative component of the premium, they eat into the profits of a fully insured plan.

There are more advantages to self-funding. One might call those two ACA changes “sticks” in the sense that they goad companies to self-insure. But, Berardo advises, there are also “carrots” in the mix. Here’s a big one: In years when premiums exceed medical costs for plan participants, the self-funded organization can keep the difference. By contrast, the carrier for a fully insured plan would retain the extra funds as additional profit.

Another big advantage, from Berardo’s point of view, is that the company managing a self-funded plan can gather patient-specific information and put it to work for effective disease management and wellness. A plan management company like MagnaCare tracks patients with chronic diseases to monitor their medication refills, periodic tests, and visits to their primary care providers.

Let’s say an employee is diabetic. He or she is reordering medication at the appropriate intervals but is not keeping up with blood-glucose testing. The plan manager contacts the employee’s primary care physician to alert the doctor that more frequent testing is needed. Medical interventions like those can help keep patients out of hospitals and avoid further deterioration in their conditions. This method also keeps the employer out of the loop, so that it avoids knowing about the private health information of its employees.