Federal Workers’ Compensation Incompetence

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A recent report from the U.S. Postal Service’s inspector general found that workers’ compensation costs for postal employees are unnecessarily high. The reasons according to the audit are stale federal laws and bureaucratic ineptitude at the USPS and the Department of Labor.

The DOL administers workers’ compensation claims for federal employees – including postal employees – under the Federal Employees’ Compensation Act (FECA). Workers’ compensation costs the USPS over a $1 billion a year and it pays the DOL millions of dollars in administrative fees. According to the audit, “the Postal Service’s average workers’ compensation cost per employee workhour was 95 cents compared to the private sector range of 42 to 67 cents.” The inspector general estimates that the USPS could conservatively save $335 million a year if it kept its workers’ compensation costs in line with the private sector.

That’s the insurmountable problem: the government isn’t a private sector business. The latter has to control its costs and please its customers. In contrast, the federal government obtains its revenues through coercion and force, and its ability to spend is only limited by how much it can confiscate and borrow.

A couple of examples from the audit illustrate the difference:

When claimants’ conditions are expected to be long-term or permanent, settlements and buyouts are commonly used by the private sector to reduce workers’ compensation costs and long-term liabilities. For example, benchmarking results revealed that one company settled 906 of 5,400 active workers’ compensation cases. FECA does not allow settling of workers’ compensation cases except for those that involve third-party liability.

The audit uncovered a postal employee receiving workers’ compensation benefits who was 99 years old.

Benchmarking results and our analysis showed that a majority of TPAs [third-party administrators] and private companies require claimants to use their networks of selected physicians. TPAs select physicians who have experience in handling workers’ compensation cases…In addition to cost savings, some of the benefits TPAs and the private sector have realized from using selected physicians include timely communication, trusted physician assessments, and improved claims management. Currently, FECA allows claimants to choose their own physicians. As a result, the Postal Service could be exposed to a higher risk of fraud and increased workers’ compensation costs.

Then there’s the bureaucratic ineptitude:

The DOL is not always responsive to our reports of investigations for fraudulent workers’ compensation claims. Specifically, our agents stated that it is difficult to work with the DOL and that DOL officials are reluctant to provide needed information during investigations. Additionally, the DOL does not always take timely or appropriate action when our agents provide documentation demonstrating fraud or that a claimant is not entitled to workers’ compensation benefits as evidenced below.

Amazingly, the DOL’s workers’ compensation acceptance rate is more than double that of the Social Security Administration’s acceptance rate for Social Security Disability Insurance claims – and the SSA has its own problems. From the audit:

Specifically, the DOL’s average 5-year acceptance rate for new claims was 85 percent compared to the SSA’s 40 percent acceptance rate for SSDI. With FECA, medical evidence is required to prove the claimant has a work-related injury or disease and the claimant receives benefits prior to claim approval. Alternatively, the SSA requires medical evidence to establish that the claimant is expected to be totally disabled for at least 12 months and the claimant does not receive benefits prior to claim approval.

As for the USPS, which is supposed to ensure claimants have properly completed claims and other medical forms and correspondence, it’s not doing too hot either:

…69 percent of the case files we reviewed (103 of 150) for the Chicago, Philadelphia, and Seattle Districts did not contain consistent and relevant claims forms, medical documentation, or correspondence…We found that responsible HRM personnel and supervisors in the three districts we reviewed did not have sufficient training for handling workers’ compensation cases.

Reining in the USPS’s workers’ compensation costs won’t solve its financial problems. But the issue provides further evidence that the federal government is no longer up to the task of running its mail business. For more on that topic, see this Cato essay on the U.S. Postal Service.