B-212728 August 27, 1984

B-212728 August 27, 1984

1. With the possible exception of the salary offset provisions codified at 5 U.S.C. 5514, the Debt Collection Act of 1982 applies to recovery of debts arising from nonpayment of health insurance premiums. 2. The agency must take aggressive action to recover debts owed by former employees and should evaluate all of the collection methods authorized by the Debt Collection Act of 1982. Consideration should not be limited to administrative offset from the Civil Service Retirement and Disability Fund. 3. Contrary to FPM Letter 890-30, debts arising from nonpayment of health insurance premiums are appropriate for consideration for waiver pursuant to 5 U.S.C. 5584. 4. The inability to collect a debt within a reasonable time is not a basis for termination of collection efforts where future collection is possible.

Mr. Thomas F. Neitzey Chief, Office of Payroll Project Management PM:SO:O Internal Revenue Service Department of the Treasury 1111 Constitution Avenue, N.W. Washington, D.C. 20224

Dear Mr. Neitzey:

This is in response to the letter of Mr. Jerry Rabe, dated August 11, 1983 (your reference PM:HR:S) requesting a ruling on certain questions regarding collection of debts incurred by seasonal employees who retained health insurance coverage while in nonpay status. Since your questions are general and no specific accounts receivable were presented for review, we are responding by letter rather than by decision. After reviewing the following information, if you require specific guidance on individual accounts or categories of accounts, you may resubmit the matter.

The revised regulations of the Office of Personnel Management (OPM) requiring employees to pay their share of health insurance premiums when they are in a nonpay status became effective in August 1982. /1/ Shortly afterward, on October 25, 1982, Congress enacted the Debt Collection Act of 1982 which made some fundamental changes in the Government's debt collection authority. /2/ The answers to your questions concerning recovery of debts arising from nonpayment of health insurance premiums require consideration of certain sections of that Act, and the recently amended Federal Claims Collection Standards which have been revised to reflect the changes made by the Act. /3/

Coverage of the Debt Collection Act of 1982

We first note that your questions relate only to employees in nonpay status or to former employees. Therefore, we are not addressing the issue of whether the new salary offset procedures enacted by the 1982 Act apply to salary offsets to recover debts arising from nonpayment of health insurance premiums. See 5 U.S.C. Sec. 5514, as amended; and 5 C.F.R. Sec. 550.1102-550.1106, 49 Fed. Reg. 27470-27475 (July 3, 1984).

We are aware of no specific statute which would govern collection methods other than salary offset for debts due to nonpayment of health insurance premiums. Therefore, the Debt Collection Act of 1982 and the standards which implement it apply to recovery of such debts when the debtor is in nonpay status, has resigned or been discharged, or is deceased. Accordingly, before writing off your health insurance receivable balances, you should evaluate the feasibility of all of the collection methods and techniques made available by the Act. Consideration should not be limited to administrative offset from the Civil Service Retirement and Disability Fund.

Agencies have long been required to take aggressive action to collect all claims of the United States. 4 C.F.R. Sec. 102.1. Moreover, since the enactment of the Debt Collection Act of 1982, the Comptroller General has provided notice that in the future, requests for relief from liability of accountable officers may be denied unless there is adequate evidence that diligent collection action has been or is being pursued. Compliance with the Standards must be demonstrated. 62 Comp.Gen. 476 (1983).

Procedural Requirements

The first step in complying with the requirement to take aggressive action to collect these debts is to comply with the new procedures designed to afford debtors the required degree of due process. Generally, for recovery of debts by methods other than salary offset, the agency should provide the debtor with three progressively stronger written demands for payment issued at not more than 30-days intervals. The written demand should advise the debtor of the basis of the debt, the amount, and whatever rights the debtor may have to seek review. See 4 C.F.R. Sec. 102.2. The demand also should inform the debtor of the date by which payment is to be made and the applicable standards for assessing interest, penalties, and costs. 4 C.F.R. Sec. 102.2(b) and 102.13. Where administrative offset is contemplated, the debtor should be advised that the right to review includes the opportunity to inspect and copy agency records pertaining to the debt, the opportunity to enter into a written agreement to repay the debt, and the opportunity to obtain review within the agency. See in particular, 4 C.F.R. Secs. 102.3(b) (2) and (5), 102.3(c), and 102.4(b)(2).

We note that the suggested "Notice of Intent to Recover Past-Due Health Benefit Premiums," reprinted as attachment 7 to FPM Letter 890-30, August 5, 1982, does not comply with all of the above procedural requirements. Accordingly, if you have not already done so, action should be taken to send debtors demands for payment which comply with these new requirements. The Act requires proper notice before use of authorized collection methods.

If you are having difficulty locating a debtor please note that agencies may now request a debtor's mailing address from the records of the Internal Revenue Service. 4 C.F.R. Secs. 102.18.

Collection Methods to Evaluate

The main purpose of the Debt Collection Act of 1982 is to improve the Government's debt collection procedures by facilitating the use of private sector collection tools and techniques. S. Rep. No. 378, 97th Cong. 2d Sess. (1982). Toward this end, the Act requires agencies to assess interest, penalties (late charges) and costs except where waiver is required or permitted, or where statutory exceptions apply. See, 31 U.S.C. Sec. 3717 (1982) and 4 C.F.R. Sec. 102.13. The intent of these provisions is to generate an incentive for the debtor to make timely payments. S. Rep. No. 378, supra, at page 17. We point out that the provisions relating to interest, penalties and costs are mandatory. Agencies are required to assess these charges unless a debt falls within a statutory exception or waiver is permitted or required.

A second collection technique which should be considered for delinquent health insurance receivable accounts is reporting the debts to private credit bureaus. The availability of delinquency information to private sector credit grantors may induce debtors to pay their obligations to the Government, since, if they do not, they may find that other credit is unavailable. S. Rep. No. 378, supra, at page 8. See 31 U.S.C. Sec. 3711(f) (1982) and 4 C.F.R. Sec. 102.5 for the requirements which apply to such disclosures. .

A third collection tool which should be evaluated is contracting with private debt collection services. The terms and conditions required in a contract between the head of an agency and a collection service are set forth at 31 U.S.C. Sec. 3718 (1982) and 4 C.F.R. Sec. 102.6.

The fourth collection method is administrative offset from the individual's account in the Civil Service Retirement and Disability Fund. It is apparent from your submission that the agency has already considered this method. However, in light of the Debt Collection Act, you should review actions taken to be certain you are in compliance with the due process procedural requirements discussed above. See 4 C.F.R. Sec. 102.4.

Please note that the Debt Collection Act imposes a 10-year statute of limitations on collection by administrative offset. 31 U.S.C. Sec. 3716(c)(1) (1982). Therefore, the agency must provide the debtor all required procedural protections and make the request for offset to OPM prior to expiration of the 10-year statutory period. 4 C.F.R. Secs. 102.3(b)(3) and 102.4(c). See also the discussion in the Supplementary Information at 49 Fed. Reg. 8891-8892.

OPM's regulations governing administrative offset from the Retirement Fund are set forth at 5 C.F.R. Secs. 831.1801-831.1807 (1984). We are advised that OPM is currently working on proposed revisions to these regulations in light of the Debt Collection Act and the revised Standards. In the interim, if you have any questions concerning OPM's procedures you should contact OPM. We have no jurisdiction to review their regulations relating to offsets from the Retirement Fund.

As noted above, the agency should not rely solely on administrative offset from the Retirement Fund to collect these debts. It is very likely in the circumstances of this case, that former employees could indefinitely delay or avoid repayment by not requesting payment from the Retirement Fund. Therefore, other collection methods should be aggressively pursued.

A fifth collection method would be available if a former employee were reemployed with another agency or is or becomes a member of the military establishment or the Coast Guard. The agency should take the steps necessary to insure collection by salary offset in that event. See 4 C.F.R. Sec. 102.8.

Waiver

We note that FPM Letter 890-30, Attachment 3 at page 6 states that the authority of the agencies to waive overpayments of up to $500 pursuant to 5 U.S.C. Sec. 5584 is not applicable to debts arising from nonpayment of health insurance premiums. This statement is incorrect. While waiver of overpayments relating to health insurance premiums is frequently denied because the employee had actual or constructive knowledge of the overpayment, such debts are appropriate for consideration for a waiver pursuant to 5 U.S.C. Sec. 5584. See, for example, Simon B. Guedea, B-189385, August 10, 1977; and Michael J. McLafferty, B-197632, August 6, 1980.

Accordingly, an agency may use its authority to waive overpayments up to $500 pursuant to 5 U.S.C. Sec. 5584 for debts relating to nonpayment of health insurance premiums under the appropriate circumstances. In cases where the amount involved is over $500, and waiver may be appropriate, the matter should be forwarded to the Comptroller General for consideration.

Compromise, Suspension or Termination

The criteria governing when an agency may compromise a claim, or suspend or terminate collection action are set forth at Parts 103 and 104 of the enclosed Standards. Since individual debts from nonpayment of health insurance premiums are relatively small, but the total amount of the debts outstanding with the agency is quite large, we direct your attention to 4 C.F.R. Sec. 103.4. As pointed out therein, although the cost of collecting any one debt may exceed the amount of the debt, over the long term it may be cost effective to vigorously pursue the collection of a small claim as a demonstration to other debtors.

After aggressive action to collect a debt the agency may terminate those debts which meet the criteria in the Standards. Only claims which exceed $20,000 must be referred to the Department of Justice for disposition. 4 C.F.R. Sec. 104.1.

It is no longer necessary to routinely refer all uncollectable claims to GAO. The agency may compromise, suspend or terminate collection action on claims not in excess of $20,000 on its own authority, in accordance with Parts 103 and 104. However, if you are in doubt as to the propriety of a proposed compromise, suspension or termination, you should refer the matter to GAO for resolution and instruction. 4 C.F.R. Sec. 105.1(c). See also the discussion of Part 105 in the Supplementary Information, 49 Fed. Reg. at page 8895.

You specifically ask what collection procedures must be followed before a debt is terminated. As apparent from the above, the agency should evaluate all the collection methods available and take aggressive action to use those which appear practicable prior to considering compromise, suspension, or termination. If such aggressive action is pursued, debts can often be collected. It should not be necessary ordinarily to carry a debt on agency records for 10 years or 15 years. In answer to your second question, however, there is no definite time limit beyond which a debt may be terminated simply because it is old.

The inability to collect a debt within a reasonable time is not in itself an acceptable basis for termination of collection efforts. As long as future collection is possible, a record of the debt should be maintained. However, the agency can maintain a separate administrative record of older debts and need not retain them in its accounting system. See GAO, Policy and Procedures Manual for Guidance of Federal Agencies, tit. 4, Sec. 70.6.

As discussed above, where future collection is possible through administrative offset the agency must initiate offset proceedings prior to the expiration of the 10-year statute of limitations for administrative offset. As applied to your situation, this means that the agency must afford the debtor the required due process protections discussed above and take the steps necessary to flag the debtor's retirement account at OPM prior to expiration of the 10-year period.

Deceased Debtors

The criteria for terminating collection of a claim of a deceased debtor are the same as those which apply to other debtors. See 4 C.F.R. Part 104. If the debt is not appropriate for termination under the Standards, collection efforts should be initiated against the debtor's estate.

In the past, debts of deceased persons were routinely referred to GAO for collection. Under the new standards, GAO will no longer handle such matters. The agency should now work directly with the Department of Justice or the U.S. Attorney to recover such debts.

Where termination is not appropriate under the Standards, the agency should first attempt to identify or locate the representative of the debtor's estate, and serve that person with a notice of the claim against the estate. A sample letter to the executor, administrator, or other person representing the estate is enclosed for your information. This will put the person on notice that they may be personally liable if they dispose of the assests of the estate without regard to the priorities of the United States. Next, the agency should attempt to determine if the estate is sufficient to liquidate the debt. If so, the matter may be referred to the U.S. Attorney. A sample letter is enclosed. This letter and the sample letter to the executor will require some revisions for use by your agency.

If it becomes necessary to file a proof of claim, the agency should prepare such a document and forward it to the U.S. Attorney. A sample proof of claim used by GAO is enclosed. As apparent, it will require substantial revisions. If you have questions regarding the form of the proof of claim or any aspect of this procedure, you should consult with the U.S. Attorney.

We note that the minimum amount of a debt referred to Justice or the U.S. Attorney for litigation is $600. 4 C.F.R. Sec. 105.4. Presumably, debts from nonpayment of health insurance premiums will be under that amount. However, filing a notice of claim and a proof of claim are fairly routine procedures which do not ordinarily involve litigation. Presumably, therefore, the $600 minimum does not apply to such matters. If you have questions in this regard they should be directed to the U.S. Attorney.

That concludes our discussion of the questions you raised. If you have any further questions, you may contact Ms. Lyn Thatch of my staff at 275-6410.

Sincerely yours,

Robert L. Higgins Assistant General Counsel

Enclosures

1. 5 C.F.R. Part 890, 47 Fed. Reg. 30961-63, July 16, 1982, reprinted as Attachment 1 to FPM Ltr. 890-30, August 5, 1982.

2. The Debt Collection Act of 1982, Public Law 97-365, October 25, 1982, 96 Stat. 1749-1758, amended the Federal Claims Collection Act of 1966 which had been codified at 31 U.S.C. Sec. 952 (1970). On September 13, 1982, a general codification of Title 31 was enacted and the old 31 U.S.C. Sec. 952 was recodified at 31 U.S.C. Sec. 3711. Public Law 97-258, 96 Stat. 877, 971. In order to conform the Debt Collection Act of 1982 to the recodification of Title 31, Public Law 97-452, January 12, 1983, 96 Stat. 2467-2480, was enacted. References herein will be to the Act as recodified, where applicable.

3. 4 C.F.R. Parts 101-105. The amended Standards are published at 49 Fed. Reg. 8889-8905, March 9, 1984. A copy is enclosed for your convenience.