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Federal Eye
Posted at 12:51 PM ET, 08/02/2011

Retirement, health insurance commonly targeted

If the special congressional budget-cutting committee to be created by the debt ceiling bill turns its sights on federal employee benefits, as employee organizations are concerned that it will, history suggests that the retirement and health insurance programs could be the primary targets.


Former U.S. senator Alan Simpson, left, and former White House chief of staff Erskine Bowles on Capitol Hill on July 13 (ALEX BRANDON/ASSOCIATED PRESS)

The two big-ticket programs have been examined repeatedly for potential changes to reduce government spending that meanwhile would reduce the value of those benefits for employees and retirees.

The debt ceiling agreement calls for creation of a “super committee” of 12 lawmakers, evenly split between the political parties, to find savings in government spending beyond those achieved by a series of caps on agency budgets. It would make recommendations by Nov. 23, with congressional voting by Dec. 23.

The most recent special study group examining federal spending, the National Commission on Fiscal Responsibility and Reform, singled out federal retirement and health insurance among other potential targets of savings and revenue increases. The report last December from that group, also known as the Simpson-Bowles Commission, recommended, for example, changing the way enrollees and the government share the costs of Federal Employees Health Benefits program coverage.

Rather than sharing costs on a percentage basis that results in the government paying about 70 percent of the cost of whichever plan an enrollee chooses, the commission recommended setting the government share at a fixed dollar amount, which would increase at an annual rate that presumably would be below inflation in health-care costs.

The Congressional Budget Office has raised that idea in several reports over the years, though using a somewhat different formula. CBO this year estimated that switching to a voucher-type system would reduce the government’s FEHB cost for active employees by $42 billion over 10 years and its cost for retirees by $31 billion over that time, including both executive branch and postal employees.

The commission also suggested, but did not explicitly recommend, several potential changes in retirement benefits:

●One would increase the employee payroll deduction to equal the government contribution to the retirement fund, which would cause employees to pay about 5 percent more toward their retirement than they do today. Among the proposals is to require a full increase only for employees hired after a certain date, with a lesser increase for current employees, possibly phased in over several years.

●The possibility of changing the way benefits for new retirees are calculated, by using the employee’s highest five consecutive years of salary in the formula, as opposed to the current highest three. In an earlier report, CBO estimated that changing to high-5 would save the government, through lower benefits to retirees, $4.4 billion over 10 years.

● Changing the consumer price index measure used to set cost-of-living adjustments in numerous programs, including federal retirement. Using the so-called chained CPI, which reflects changes in consumer behavior as prices change, would provide for less generous benefits. CBO estimated 10-year savings of $24 billion in civil service and military pensions and veterans’ benefits.

Other Simpson-Bowles ideas: A three-year federal pay freeze, selling excess federal property and cutting spending for government travel, printing and vehicles.

Many of the commission’s ideas have been adopted in other proposals, including a House-passed budget outline and a plan drafted by Sen. Tom Coburn (R-Okla.).

None of the proposals has been enacted, but employee unions and other groups are concerned that the new supercommittee will provide a vehicle for them to advance. Those organizations have been lobbying against such ideas during the year, and they say they will continue those efforts.

Other federal benefits have drawn less attention during budget-cutting reviews, in part because they cost much less than retirement and health insurance. For example, the government makes no contribution toward long-term care insurance or dental and vision insurance for its employees and retirees, and makes only a partial contribution toward life insurance.

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By  |  12:51 PM ET, 08/02/2011

 
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