President’s Budget Plan Reaffirms HSAs, Proposal Backs Retirement Modernization
Monday, April 2, 2007
Assistant Legislative Director
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President Bush’s fiscal year 2008 budget recommendations submitted to Congress on February 5 would continue to modernize the federal retirement claims process system, but would also expand controversial Health Savings Accounts in the Federal Employees Health Benefits Program (FEHBP) and reduce the share the government pays toward the FEHBP premiums of certain future federal retirees.
The administration did not suggest any changes or reductions in federal annuity cost-of-living adjustments.
Budget Is Not Law
Presidential budgets are suggestions to the House and Senate on federal spending and tax policy and do not have the force of law. Members of Congress may approve, reject or change any of the president’s recommendations.
Congress responds to the president’s budget in its own annual budget resolution. The budget resolution is the annual “roadmap” or “blueprint” that Congress uses to direct its decisions about spending and taxes. It sets limits or caps on the amount that can be spent on the day-to-day operation of government, called discretionary spending. In addition, the budget resolution can instruct authorizing committees to cut spending in entitlement programs, like federal retirement, and may even suggest specific policies to achieve such reductions. While budget resolutions do not have the force of law and the president does not sign them, congressional action is influenced, if not bound, by the concurrent resolutions. The federal budget is enacted through the approval of appropriations and budget reconciliation legislation that will be considered this spring, summer and fall. (See p. 13 for a list of the members of the House and Senate Budget Committees.)
Expanding HSAs
The administration’s budget would allow Blue Cross/Blue Shield (BC/BS) to offer Health Savings Accounts (HSAs) in the FEHBP. This would give a jump-start to this controversial option, which relatively few federal workers and annuitants have joined.
In fact, the federal law that authorizes the FEHBP stipulates that one government-wide “Service Benefit Plan” offers two levels of benefits. BC/BS is the Service Benefit Plan. The budget recommends that the FEHBP law be amended to allow the Service Benefit Plan to offer three, instead of two, benefit levels, which would enable BC/BS to offer an HSA.
BC/BS’s current health plans are the largest and most popular in the FEHBP. As a result, the insurance carrier’s brand loyalty and considerable marketing resources could significantly increase HSA enrollment in FEHBP if it decided, and were allowed, to offer such an option.
What’s new about this recycled proposal is that, in addition to BC/BS, the administration says that the “Indemnity Benefit Plan” should provide HSAs as a system-wide option.
Despite being named in the law that authorizes the FEHBP, the Indemnity plan has not been available since the Aetna insurance company left the program in 1990. Legislation would be necessary to enable the long-dormant plan to offer HSAs. The entry of a second large insurance carrier with an HSA option available to most enrollees could also boost participation in HSAs.
“NARFE opposes HSAs because they could increase premiums for comprehensive plans, since relatively healthy enrollees with higher incomes could be siphoned off into HSAs,” said NARFE President Margaret L. Baptiste. Such concerns were confirmed by a January 2006 report of the nonpartisan Government Accountability Office (GAO), which found that HSAs tended to attract younger and wealthier FEHBP enrollees.
Making Some Retirees Pay More
In addition, the administration proposes reducing the government/employer share of FEHBP premiums for new retirees with less than 10 years of federal service. NARFE questioned why the administration would make such a proposal when the government is attempting to recruit the very mid-career professional who might be penalized by this plan. “It was common, among my generation, to work for a single employer for an entire 30-year career,” Baptiste said. “Few workers do that any more. We fear the administration’s plan may discourage some of the best and brightest talent from considering federal service, and it sets a bad precedent.”
The House Republican Study Committee (RSC) made a similar, but further reaching, proposal in September 2005 to require future federal retirees with less than 30 years of service to pay a higher share of their health plan premiums.
Equity for Part-Timers
The president’s budget includes a previously offered proposal to resolve the inequity in the interpretation of a 1986 budget law that unfairly reduces the retirement annuities of certain Civil Service Retirement System employees who work part time in the latter years of their careers. The reduction occurs when actual part-time wages—instead of full-time equivalency salaries—are used to calculate the employee’s highest three years of salary. Federal annuities are set by the multiplication of the highest three years of salary, times years of service, times an accrual rate.
The FY 2008 budget would correct the inequity by using the full-time equivalent salary to compute the annuities of future retirees who work part time. Unfortunately, the administration opposes fixing the inequity for current retirees whose annuities were lowered.
“Allowing employees to work part time is a proven and successful management tool, but any plan to fix this problem should include relief for retirees whose annuities have been unjustly reduced,” Baptiste said.
NARFE will support legislation Rep. Jim Moran (D-VA) plans to reintroduce that would apply the president’s proposal to include and correct the annuities of currently affected retirees and survivors, as well as those yet to retire.
The administration’s budget is silent on the plight of certain Department of Veterans Affairs nurses whose annuities were also unfairly reduced by their part-time service. Rep. Tammy Baldwin (D-WI) has previously sponsored legislation that would guarantee that all retired VA nurses who worked part time receive the full retirement credit they were promised. The Association will again support her bill when it is reintroduced.
The president’s budget includes two NARFE-supported proposals to allow federal workers to contribute bonuses to the Thrift Savings Plan (TSP) and to allow the Office of Personnel Management to continue its ongoing commitment to speeding up the processing of full annuity payments to new retirees and survivors.
Medicare Means Testing
Medicare legislation enacted in 2003 marked the first time in the program’s history that more affluent beneficiaries were required to pay a higher premium for outpatient services, which most beneficiaries know as “Part B.” The administration’s budget proposes to take the surcharge one step further by calling for legislation that would end the indexing of the income thresholds that are used to determine which participants pay a higher Part B premium.
Starting this year, individuals with incomes higher than $80,000 a year and couples with more than $160,000 pay a higher Part B premium than beneficiaries with incomes under those amounts. In 2008, such thresholds will increase by general inflation as measured by the Consumer Price Index. Currently, about 3 percent of Medicare participants are affected by means testing. However, many more would pay higher Part B premiums if the income thresholds are not adjusted for inflation, as suggested in the president’s budget.
In addition, the administration proposes that premiums under the Medicare Part D prescription drug program, first offered in 2006, should, like Part B, be means tested. Few federal annuitants participate in Part D since the drug coverage they receive through their FEHBP plan is more comprehensive than the new Medicare program.
NARFE has historically opposed all forms of means testing in Medicare and has warned for years that a growing number of beneficiaries could be affected if Congress lowered the means-testing thresholds.
Senate Budget Committee
Committee Chair, Sen. Kent Conrad (D-ND)
Democrats (11):
Sen. Patty Murray (WA)
Sen. Ron Wyden (OR)
Sen. Russ Feingold (WI)
Sen. Robert Byrd (WV)
Sen. Bill Nelson (FL)
Sen. Debbie Stabenow (MI)
Sen. Robert Menendez (NJ)
Sen. Benjamin Cardin (MD)
Sen. Frank Lautenberg (NJ)
Sen. Sheldon Whitehouse (RI)
Independents:
Sen. Bernard Sanders (VT)
Ranking Member, Sen. Judd Gregg (R-NH)
Republicans (11):
Sens. Pete Domenici (NM)
Sen. Charles Grassley (IA)
Sen. Wayne Allard (CO)
Sen. Michael Enzi (WY)
Sen. Jeff Sessions (AL)
Sen. Jim Bunning (KY)
Sen. Mike Crapo (ID)
Sen. John Ensign (NV)
Sen. John Cornyn (TX)
Sen. Lindsey Graham (SC)
House Budget Committee
Committee Chair, Rep. John M. Spratt (D-SC-5th)
Democrats (21):
Rep. Rosa DeLauro (CT-3rd)
Rep. Chet Edwards (TX-17th)
Rep. Jim Cooper (TN-5th)
Rep. Thomas Allen (ME-1st)
Rep. Allyson Schwartz (PA-13th)
Rep. Marcy Kaptur (OH-9th)
Rep. Xavier Becerra (CA-31st)
Rep. Lloyd Doggett (TX-25th)
Rep. Earl Blumenauer (OR-3rd)
Rep. Marion Berry (AR-1st)
Rep. F. Allen Boyd (FL-2nd)
Rep. James McGovern (MA-3rd)
Rep. Betty Sutton (OH-13th)
Rep. Robert Andrews (NJ-1st)
Rep. Bobby Scott (VA-3rd)
Rep. Bob Etheridge (NC-2nd)
Rep. Darlene Hooley (OR-5th)
Rep. Brian Baird (WA-3rd)
Rep. Dennis Moore (KS-3rd)
Rep. Tim Bishop (NY-1st)
Ranking Member, Rep. Paul D. Ryan (R-WI-1st)
Republicans (17):
Rep. Jo Bonner (AL-1st)
Rep. Scott Garrett (NJ-5th)
Rep. J. Gresham Barrett (SC-3rd)
Rep. Thaddeus McCotter (MI-11th)
Rep. Mario Diaz-Balart (FL-25th)
Rep. Jeb Hensarling (TX-5th)
Rep. Dan Lungren (CA-3rd)
Rep. Mike Simpson (ID-2nd)
Rep. Patrick McHenry (NC-10th)
Rep. Connie Mack (FL-14th)
Rep. Mike Conaway (TX-11th)
Rep. John Campbell (CA-48th)
Rep. Patrick Tiberi (OH-12th)
Rep. Jon Porter (NV-3rd)
Rep. Rodney Alexander (LA-5th)
Rep. Adrian Smith (NE-3rd)
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