How Not to Control Workers’ Comp Costs

The GAO tears apart the federal workers' comp program, which made more than $7 million in overpayments in 2006.

Two years ago, the Department of Labor amassed $13.3 million worth of inaccurate payments for federal employees in workers’ compensation — and since then, it has done little to stop such discrepancies from happening again, according to the Government Accountability Office.

In a recent report, the GAO calls on the DoL’s Office of Workers’ Compensation Programs to better manage its data and controls so as not to miss out on opportunities to prevent its most costly mistakes.

In fiscal-year 2006, the DoL office sent out $7.1 million in overpayments and underpaid workers by $6.2 million, the GAO says. “Claimants may not receive all of the compensation to which they are entitled, and program dollars may be spent on ineligible claimants, threatening the overall integrity of the program,” wrote Daniel Bertoni, director of education, workforce, and income-security issues for the GAO, in a letter sent to several congressional committees.

Some of those payments were issued to people who have died: according to the GAO, about 17 percent of overpayments were sent to either deceased workers or employees who had returned to work and were no longer eligible to receive workers’ comp. The GAO found instances where the DoL had received notice about these status changes, but said the systems in place are not adequate to always stop payments expediently.

For example, the DoL deposited $130,000 worth of monthly payments over two and a half years to a deceased widow who had been entitled to her husband’s workers’ comp benefits. In another example from the GAO report, a postal worker’s cousin fraudulently withdrew workers’ comp funds from a dead relative’s bank account for more than a year after the payments should have stopped.

In its defense, the DoL says it has improved its methods of checking its data against federal death records. In addition, the agency notes that it considers paying out workers’ claims more of a priority than making sure those payments are made accurately. “It is the mission of the [Federal Employees' Compensation Act] program to promptly pay wage loss and medical benefits to injured federal employees in an effort to minimize hardship,” wrote Victoria Lipnic, the DoL’s assistant secretary for employment standards, in an eight-page letter defending the workers’ comp program’s inner workings to the GAO.

Still, she acknowledged, “accurate payments based on verified, complete, and accurate data are essential.” She also pointed out that the GAO’s estimated improper payments amount to less than 0.75 percent of the more than $1.8 billion in workers’ comp payments made in 2006. In fact, the DoL estimates its 2006 rate of improper payments to be even lower, at 0.04 percent.

Despite the disagreement over exact numbers, the GAO insists the DoL has let its strategy for preventing, finding, and recovering improper payments fall too far behind its methods of meeting workers’ claims speedily. The GAO believes that attitude could lead to more problems. “The risk of improper payments increases when agencies’ goals and performance measures do not strike an appropriate balance between service delivery and the need to ensure payment accuracy,” wrote Bertoni.

Part of the issue, the GAO says, is the DoL’s reliance on claimants for keeping the agency up-to-date. The department has no verification system for checking a worker’s earnings statements, mainly because it cannot access earnings databases kept by the agencies whose workers it serves, such as the U.S. Postal Service and Departments of the Army and the Navy. (The DoL is working on improving its system that the other agencies access to check that recent payments and relevant data are correct.) Plus, its examiners do not check those earnings statements against the Social Security Administration’s wage records. The department does do monthly checks against data records, but that has not prevented payments to deceased workers from going out.

Another issue is inaccurate payment amounts according to the GAO, about 15 percent of overpayments were the result of claims examiners making calculation errors. In one instance, a worker who was underpaid for four years because the DoL was wrongly deducting premiums for health insurance from the payments was later reimbursed — twice — and received more than $14,000 over what was due.

The agency also does not do internal assessments of its payment accuracy over any given time, or whether it has improved. “Without accurate data on improper payment risks, [the DoL's workers' comp office] cannot target its resources toward preventing or reducing the errors that are the most prevalent or costly, nor can it monitor the effectiveness of its efforts to prevent such errors,” contended Bertoni.

For its part, the workers’ comp office says it does have controls and processes to prevent improper payments, and notes that it is subject to annual audits of its internal controls by its inspector general. Indeed, Lipnic said, the DoL is working on improving the accuracy of the workers’ comp payments. “We believe we have effective systems in place and enhancements being developed to ensure an even higher degree of payment accuracy,” she wrote.

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