Don’t panic–but don’t take your benefits for granted either. During a time of economic upheaval, change can occur that did not seem possible previously.
Federal employee benefits are relatively generous compared to what many private sector employees receive. Whenever someone makes that statement, there are always numerous comments from readers who know someone who works for a private company and who has better benefits. No doubt, that is true. But, when the unemployment rate appears to be headed to 10% or more, companies are declaring bankruptcy, the stock market is tumbling, and the government debt is going to be in the trillions (financed largely from the sale of Treasury bonds to China and numerous other foreign countries), it is possible that Congress and/or the president may not be as sympathetic to the argument that federal employees do not have benefits that are sufficiently generous.
With that in mind, The Congressional Budget Office (CBO) has a few ways to reduce the rapidly ballooning federal debt. Volume One of the CBO suggestions are in the area of health care.
A number of readers have commented recently they don’t mind having a 2% pay raise in 2010–but want assurance that their health benefit premiums won’t be going up. But, if the CBO recommendations should gain traction in the form of new legislation, you may not like the outcome.
Not all of the options would save money but would still have an impact on the federal employee workforce and retirees.
For example, one proposal that is discussed by the CBO, and has been discussed in the media during the presidential election, is to open up the FEHB to all uninsured Americans.This option would allow individuals and private firms not affiliated with the federal government to purchase coverage through the FEHB program. Unlike federal employees, who receive contributions from their employer, individual purchasers in this new insurance market would be responsible for the full cost of the premium, and individuals whose employer purchased coverage through an FEHB plan would be responsible for any costs in excess of their employer’s contribution.
But, since the government pays the bulk of the insurance premium for federal employees as a benefit of working for Uncle Sam, how would a person who does not have insurance be able to afford the premium–especially if unemployed? Presumably, we would worry about that later.
There would be a separate pool of people apart from the federal workforce. People coming into the program are likely to have higher than average health risks which could lead to higher premiums.
It isn’t clear how this would impact the services currently available to the federal workforce. One possibility not mentioned in the CBO report is that there may be a decline in the quality of service as a large number of new people start to use the FEHB–even if they are in a separate pool. For those of us who have occasionally had to work with insurance providers, and experienced slow service and difficulty getting answers to questions, we can reasonably anticipate slower service and more difficulty getting answers to questions should this option be implemented. (Disclosure: I am a participant in the FEHB program.)
One option would save the federal government about $6.3 billion between 2010-2014 and save $33.1 billion between 2010 and 2019. A few billion may not seem like much when the deficit is in the trillions but, presumably, cutting federal expenses has to start somewhere.
Here is how this option would work. Currently, the Federal Employee Health Benefits Program (FEHB) costs Uncle Sam about $27 billion each year. Policyholders pay at least 25% of the cost of the insurance premium. Federal retirees pay the same amount as active federal employees. The federal government picks up the portion of the premium (roughly 75%) that the employee does not pay.
So, how about a voucher system to save money?
Under this plan, those eligible for the FEHB would be offered a voucher worth $4300 toward the premiums for the cost of health insurance or $9900 toward the cost of a family health insurance plan. The amount of the voucher would be indexed to inflation rather than to the cost of any increase in the cost of health insurance plans.
The extra amount this would cost an individual would vary widely. But, since the purpose is to save billions in cost to the government, by transferring the cost to the individual, you can probably do some quick math and figure out how much your insurance would increase.
The CBO says that this option would increase the incentive to switch to a lower-cost health plan as participants would save money. And, because enrollees would pay nothing for plans that cost the face value of the voucher, insurers would have a greater incentive to offer lower-cost plans that approached or matched the value of the voucher.
One drawback to the plan, states the CBO, is that enrollees would pay more for their health insurance over time than they are currently paying because the premium cost would go up more than the cost of the federal government’s contribution to health insurance. And, in the case of current retirees or employees who have been working for the government for some time, it would be a reduction in benefits that were already earned.
Basing Retirees Health Insurance On Length of Service
Upon retirement, federal employees are currently allowed to continue receiving benefits from the Federal Employees Health Benefits (FEHB) program if they have participated in the program during their last five years of service and are eligible to receive a pension immediately.
Not surprisingly, more than 80 percent of new retirees elect to continue receiving federally funded health benefits. For those retirees over age 65, FEHB benefits are coordinated with Medicare benefits; under that policy, FEHB plans typically pay amounts not covered by Medicare.
The Congressional Budget Office estimates that in 2009, the government will pay almost $12 billion in premiums for roughly two million federal retirees plus their dependents and survivors.
One option for cutting down on this expense is to reduce the amount of money paid by the government for employees with a short federal career. In recent years, about 14 percent of the more than 80,000 employees who retire from federal service annually and opt to continue in the FEHB program have fewer than 20 years of service. Under this option, the government’s share of premium costs for new retirees only—those retiring on January 1, 2010, or later—would be cut by 2 percentage points for every year of service less than 20 years. In the case of a retiree with 15 years of service, for example, the government’s contribution would decline from 72 percent of the weighted average premium to 62 percent.
This option would reduce net spending for government contributions to the FEHB program by an estimated $1.1 billion between 2010–2019 says the CBO.
2009 is shaping up to be an interesting year for the federal workforce. No one can reliably predict what will finally pass but, by January 2, 2010, there are likely to be changes to the federal benefits package. In the long run, more of the changes will likely benefit the federal workforce but keep a close eye on the ones that may have an impact on your financial situation.
