THERE ARE obscure but important issues in Washington, and then there’s the reform of worker compensation for federal employees — where the importance-to-obscurity ratio is especially high. Kudos to President Obama for repeatedly tackling the issue in his budget proposals, including his most recent one, and to Rep. Tim Walberg (R-Mich.), chairman of the House subcommittee on workforce protections, for holding a recent hearing on the president’s ideas, in preparation for possible legislation in this Congress.
The federal government spent $2.8 billion compensating employees, including U.S. Postal Service workers, who make up by far the largest group of workers’ comp claimants, for work-related illness and injury in the year ending June 30, 2014 (the most recent year for which data exist). Unquestionably, this is a vital government responsibility, but the law governing federal workers’ comp has not been fundamentally revised in four decades — and there is mounting evidence, presented most recently in a report from the Postal Service’s inspector general, that the program operates much less efficiently than it could or should.
The first problem is that, unlike most state systems, the federal system pays the majority of claimants who have at least one dependent substantially more in disability compensation than those without dependents; these tax-free benefits in many cases exceed a worker’s take-home pay, creating a disincentive to return to work. The second, related problem is that for many long-term disabled workers, workers’ comp payments exceed their expected pension benefits, so many continue on the workers’ comp rolls long after retirement age.
Such an incentive structure stimulates fraud; the Postal Service inspector general’s report says its special agents frustrated nearly $290 million worth of attempted cheating in 2012 and 2013. Still, reimbursements to the federal workers’ comp fund for postal workers’ claims remain a huge cost item for the financially strapped USPS: $1.3 billion in the year ending June 30, 2013. Between 2008 and 2013, postal employment fell by roughly 150,000, but workers’ comp costs rose by 35 percent.
In short, reforming federal workers’ comp should be thought of as part of the broader effort to restore the Postal Service’s financial sustainability. To eliminate the program’s perverse incentives, the Obama administration has proposed paying all claimants at the same rate and replacing post-retirement-age workers’ comp benefits with a payment equivalent to what a worker’s pension would have provided. The changes would affect only future employee claims, yet would still save $360 million over the next decade. Most of that would accrue to the Postal Service, whose per-employee workers’ comp costs were $1.16 per hour in fiscal 2013, in contrast with 73 cents in comparable private-sector firms.
Changes to federal workers’ comp have been introduced in each congressional session since 2011 but have foundered amid opposition from postal unions. In other words, tackling this issue is not only unglamorous but also thankless. Here’s hoping that with both House Republicans and the Obama administration pulling in the right direction, Congress will finally crown reform efforts with success.