HR8731-119

What This Bill Does

The Federal Employee Short-Term Disability Insurance Act of 2026 adds a new chapter 88 to title 5 of the U.S. Code for non-work-related short-term disability insurance. The Director of the Office of Personnel Management must establish and administer a program making insurance coverage available to eligible federal employees, including officers and employees of the United States Postal Service and Postal Regulatory Commission.

The coverage is for injuries or disabilities not covered by federal workers' compensation, leave to care for or arrange care for a family member including the birth of a child, and leave to make arrangements to become a foster parent or adopt a child. Coverage is unavailable if the employee's injury or disability is caused by willful misconduct, an intentional self-inflicted or other-inflicted injury, or intoxication. Insurance contracts must be fully insured, whether through reinsurance or another method.

OPM may contract with one or more disability insurance carriers without following competitive-bidding statutes, but must award contracts based on contractor qualifications, price, and reasonable competition. Each contract must specify benefits, premiums, enrollment periods, eligibility procedures, dispute-resolution procedures, carrier duties to pay covered benefits, and contract terms lasting at least three and not more than seven years. Contracts may renew automatically for one year unless OPM or the carrier gives at least 180 days' notice.

OPM may set reasonable minimum standards for benefit plans. Benefits must offset other benefits received for the same disability or leave, including workers' compensation and disability retirement income. Contracts may not exclude preexisting conditions or charge more, deny coverage, or drop coverage because of a preexisting condition. Benefits may last up to 12 months per qualifying instance and equal the lesser of 70 percent of the employee's annual pay excluding bonuses or 70 percent of the maximum GS-15 basic pay rate. Employees choose a waiting period starting on day 8, 31, 91, or 181, and shorter waiting periods come with higher premiums.

Employees who enroll pay 100 percent of premiums through payroll withholding. Participating carriers must keep separate accounting records for program funds. The Employees' Life Insurance Fund may cover implementation costs before the first contract term, but the carrier must reimburse those costs, including lost investment income. The bill also creates a Non-Work Related Disability Insurance Administrative Account in that fund, financed by periodic carrier contributions, to cover OPM administrative expenses after the program begins.

The bill preempts State, territorial, tribal, and local laws on the nature, provision, or extent of coverage or benefits under program contracts. It bars those governments from taxing or charging premiums paid for chapter 88 policies, while preserving broad business taxes on carrier net income or profit. State, territorial, tribal, and local subrogation or reimbursement laws apply only if adopted by OPM. Carriers and federal agencies must provide reports and records needed by OPM, OPM must conduct periodic competitiveness reviews, and federal district courts share jurisdiction with the Court of Federal Claims for some claims against the United States after required administrative remedies are exhausted. Cost accounting standards under title 41 do not apply to chapter 88 insurance contracts.

Who Benefits and How

Federal employees benefit from access to voluntary short-term disability coverage for non-work injuries, qualifying family care, birth, adoption, and foster-parent arrangements. Postal Service employees and Postal Regulatory Commission employees benefit because the bill expressly includes them in the eligible employee definition. Employees with preexisting conditions benefit because carriers may not exclude, price up, deny, or drop coverage based on those conditions. Disability insurance carriers benefit from OPM contract opportunities and premium revenue. OPM benefits from authority to standardize contracts and preempt conflicting local insurance rules.

Who Bears the Burden and How

Enrolled federal employees bear the full premium cost through payroll withholding. The Office of Personnel Management bears duties to create the program, contract with carriers, set minimum benefit standards, manage dispute-resolution terms, coordinate payroll systems, issue regulations, administer the fund account, review plans for competitiveness, and define service-credit effects while an employee is receiving benefits. Participating carriers bear contract, claim-payment, dispute-resolution, accounting, reimbursement, administrative-account contribution, reporting, and enrollment-education duties. Federal agencies bear recordkeeping, certification, and reporting duties. State insurance regulators, tribal governments, territorial governments, and local governments bear reduced authority over covered policy terms, premium taxes or fees, and subrogation or reimbursement rules.

Key Provisions

• Establishes a new chapter 88 short-term disability insurance program for eligible federal, Postal Service, and Postal Regulatory Commission employees.
• Covers non-workers-compensation disabilities, family caregiving, birth-related leave, adoption arrangements, and foster-parent arrangements while excluding willful misconduct, intentional injury, and intoxication cases.
• Authorizes OPM to contract with one or more fully insured disability insurance carriers based on qualifications, price, and reasonable competition.
• Sets benefit rules including no preexisting-condition exclusions, return-to-work incentives, up to 12 months of benefits, a 70 percent pay replacement formula, and employee-selected waiting periods.
• Requires enrollees to pay 100 percent of premiums through payroll withholding and requires carriers to fund OPM administrative costs.
• Preempts State, territorial, tribal, and local coverage rules, premium taxes or fees, and subrogation or reimbursement laws unless OPM adopts the rule.
• Requires carrier and agency reports, OPM competitiveness reviews, federal court jurisdiction after administrative exhaustion, OPM implementation regulations, carrier enrollment education, and a cost-accounting-standards exemption.