NARFE ISSUE BRIEFS and FACT SHEETS. Toolkit

Transcription

1 NARFE ISSUE BRIEFS and FACT SHEETS Toolkit In this toolkit, you will Learn about NARFE s legislative priorities and general facts regarding the federal community. Every document in this guide was created to be given to members of Congress and/or their staff in meetings. The information in these documents can also be used when writing letters and making calls to members of Congress, or for your personal use to provide a general understanding of our issues. These documents were created to be shared far and wide.

2 AMERICA S FEDERAL FAMILY AT A GLANCE

3 FEDERAL EMPLOYEE DEFICIT REDUCTION CONTRIBUTIONS

4 FEDERAL EMPLOYEE DEFICIT REDUCTION Federal employee pay scales were frozen in 2010 by the President (and supported by Congress) for two years (P.L ). Congress froze salaries a third year as part of the FY13 funding package (P.L ). As such, federal employees did not receive a pay raise in 2011, 2012, or Over ten years, the three-year freeze will save $98 billion. As part of the deal to extend the payroll tax holiday and unemployment insurance (P.L ), future federal employees will pay more for their retirement benefits, without any corresponding increase in benefits. Employees hired in 2013 pay 2.3% more than those hired before January 1, This provision, at a savings of $15 billion over 10 years, was used to offset the cost of extending unemployment insurance. In 2013, over 750,000 federal employees were furloughed as a result of sequestration. This cost federal employees over $1 billion in lost wages in 2013 alone. Retirement contributions from future federal employees were increased again in the Murray-Ryan budget agreement, which laid out a budget framework for FY14 and FY15 (P.L ). Employees hired in 2014 and, presumably, beyond, will now pay 3.6% more for their retirement than those hired before January 1, 2013, without any corresponding increase in benefits. This saves $6 billion over 10 years. CONTRIBUTIONS

5 ASSESSING THE PRIVATE VERSUS PUBLIC SECTOR PAY DEBATE Over the years, there has been much discussion as to who makes more money employees in the public or the private sector. But it s not as simple as more or less overall any study must compare similar types of jobs and similar types of employees. Many politicians, think tanks, and even the government have weighed in. Here s what they ve had to say, which indicates this debate will continue for some time. According to the 2013 Federal Salary Council (FSC) annual report, federal employees are paid 35.4 percent less than their private-sector counterparts, based on data collected by the Bureau of Labor Statistics (BLS). The FSC calculation is based on Bureau of Labor Statistics data, which is more comprehensive and accurate, as it uses a job comparison methodology that measures data from job matches in the public and private sector. The results show a widening pay gap that needs to be addressed, especially as federal salary rates were frozen for three years. A January 2012 report from the Congressional Budget Office (CBO) found that when benefits are weighed, America s most educated and experienced federal workers earn about 18 percent less in total compensation than they would if they worked in the private sector. The report also found that federal workers with less experience and education earned slightly more than their counterparts in the private sector. As such, the report opposes across-the-board changes in pay or benefits for federal employees. Additionally, the study suffers from a few shortcomings: While the CBO study controls for occupation, general education and years of work experience, it does not take into account level of job responsibility, specialized training and length of tenure with an employer, all of which employers take into account when determining pay. Federal jobs often involve high levels of responsibility and require specialized training or a high-security clearance. The study also only uses data through Over the following three years, federal pay scales were frozen while private-sector wages increased. The study controls for certain factors, such as age, race and gender, that, legally, are irrelevant for the purposes of determining pay. An August 2013 article published by the Cato Institute alleges the average federal civilian worker now earns 74 percent more in wages and benefits than the average worker in the U.S. private sector. This conclusion is based on grossly misleading analysis due to use of inapt data and inappropriate comparisons. Cato relies on data for the total compensation of federal civilian employees that include catch-up payments from the government to the Civil Service Retirement and Disability Fund (CSRDF) for previously accrued liabilities, as well as payments for benefits to those already retired. Including payment to those already retired is problematic for several reasons: o Most retirees are covered by the now defunct, older Civil Service Retirement System (CSRS), which provides a substantially greater defined-benefit annuity than under the newer Federal Employees Retirement System (FERS), which covers most current employees;

6 ASSESSING THE PRIVATE VERSUS PUBLIC SECTOR PAY DEBATE o Even if the benefit systems for current employees and current retirees were the same, the annual value of benefits paid to all retirees is not the same as the annual value of payments made by the government to the CSRDF to fund adequately the future benefits of current employees. o Retirees who were covered by CSRS did not accrue Social Security benefits for their civil service. Thus, part of the benefit is in lieu of Social Security benefits, which CATO did not factor into its private-sector compensation totals. The Cato analysis fails to take into account any of the important differences in occupation, skill level, age and education that determine salaries. Notably, it fails to consider the following: o Federal civilian workers have higher levels of education: 44.3 percent of federal employees hold bachelor s degrees, versus just 18.7 percent in the private sector. o The federal government has a higher proportion of white-collar jobs. Today, blue-collar workers make up less than 10 percent of the federal workforce. Similarly, 44 percent of the federal workforce consists of professionals and managers, compared to only 32 percent in the private sector. o The average age of employees in the federal workforce is 45, while the average age in the private sector is 40; and o Federal employees have more on-the-job experience than the average private-sector employee, with 60 percent of federal employees having served their nation for more than 15 years.

7 LEGISLATIVE PRIORITIES IN THE 114 TH CONGRESS The National Active and Retired Federal Employees Association (NARFE), one of America s oldest and largest associations, was founded in 1921 with the mission of protecting the earned rights and benefits of America s current and retired federal workers. As the largest federal employee/retiree organization with nearly 240,000 members, NARFE represents the interests of the five million federal annuitants and employees, and their spouses and survivors. - Improve and protect the affordability of and choice provided by the Federal Employees Health Benefits Program (FEHBP) Oppose proposals that would force employees and retirees to pay an increasing share of health insurance premiums. Ensure that proposals intended to increase Medicare utilization protect retirees not enrolled in Medicare from unfair premium increases. NARFE opposes proposals requiring Medicare enrollment as a condition of continued FEHBP enrollment for current retirees. Support efforts to reduce the cost of prescription drug coverage, including FEHBP participation in the Medicare Part D Employer Group Waiver Plan program. - Support fair and full cost-of-living adjustments (COLAs) to federal retirement annuities Oppose reductions in COLAs to federal retirement annuities and Social Security benefits, including a switch to the Chained CPI for purposes of calculating COLAs. Support proposals to improve the accuracy of calculating COLAs for federal annuitants, including a switch to the CPI-E, which measures prices experienced by Americans age 62 and older. - Support compensation and staffing levels necessary for an effective federal workforce a. Support annual pay raises in-line with private-sector pay increases in order to close the gap between public- and private-sector pay, which now stands at 35 percent. b. Oppose pay cuts in the form of further increased retirement contributions without a corresponding benefit increase. c. Oppose arbitrary across-the-board cuts to the size of the federal workforce. - Additional priorities: Postal Reform. Support postal reform legislation that relieves the United States Postal Service (USPS) of its burdensome prefunding requirement for future retiree health care costs, and maintains service standards such as 6-day and to-the-door delivery without undermining important employee benefits, such as workers compensation, retiree health benefits and annuities. Paid Parental Leave. Support six weeks of paid parental leave for federal employees in connection with the birth or adoption of a child. Personnel Management Policy. Support reasonable reforms to personnel management systems that would improve performance and efficiency without undermining important employee protections that ensure fair treatment and a professional, nonpolitical civil service. FECA. Oppose arbitrary reductions in federal workers compensation benefits at retirement age. Support improvements to the program integrity of the federal workers compensation program. Retirement Processing. Support adequate funding for and continued oversight of the processing of federal retirement annuity applications, including incremental modernizations of the information technology systems used to maintain records and process claims. Combat Zone Tax Parity. Support a revision of tax laws to exempt the pay of civilian federal employees serving in zones of armed conflict from federal income taxes in a manner similar to that of their uniformed counterparts. Locality Pay. Support providing equity to federal employees who retired from service in Alaska, Hawaii or other non-foreign areas by recalculating their annuities to include a measure of locality pay without this, their annuities do not reflect an appropriate percentage of their final salaries. Data. Support a requirement that the Office of Personnel Management (OPM) publish data on where federal employees live, by congressional district.

8 NARFE OPPOSITION TO THE CHAINED CPI Cost-of-living adjustments (COLAs) to federal civilian and military retirement annuities, as well as Social Security benefits, veterans benefits and disability benefits, are determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is computed by the Bureau of Labor Statistics (BLS) at the Department of Labor (DOL). The President s Budget for Fiscal Year 2014 included a proposal to use the Chained Consumer Price Index for All Urban Consumers (Chained CPI-U) instead of the CPI-W as a way to reduce deficits and improve Social Security solvency. It was not included in the President s FY15 or FY16 budgets. Regardless, the proposal has garnered support among many congressional Republicans, and was part of the Simpson-Bowles Fiscal Commission report. Unsurprisingly, the change received serious consideration in budget negotiations between the White House and congressional Republicans in The Chained CPI Is Not a Better Measure of Inflation Proponents of the Chained CPI claim it provides a better measure of inflation by taking into account how consumers substitute one item when the price of another item increases; for example, by switching from steak to chicken when the price of steak rises. While this type of substitution may hold true for those still in the workforce, seniors, as a result of living on a fixed income, often find this substitution impractical, as they are already purchasing lower-priced goods. More importantly, neither the Chained CPI nor the current CPI-W accurately reflects changes in consumer prices experienced by seniors who rely on the measures to adjust their incomes appropriately. Notably, while health care accounts for about 12 percent of spending for those age 62 and older, it accounts for only 5 percent of spending for the general population, and it is that 5 percent that is measured by the Chained CPI. Meanwhile, health care costs continue to rise faster than other goods. When you measure costs experienced by Americans age 62 and older, as the BLS does when calculating an experimental price index for elderly consumers, the CPI-E, inflation is actually greater than what the CPI-W reflects, a clear sign that switching to the Chained CPI is a move in the wrong direction. Additionally, unlike the current CPI-W, which is calculated and available for use almost immediately by the Bureau of Labor Statistics, the Chained CPI requires data on changing purchasing patterns and takes two years to finalize. This delay will lower seniors purchasing power at a time goods likely are rising in price. The Chained CPI Cuts Earned, Promised Benefits Using the Chained CPI instead of the CPI-W would reduce COLAs by an estimated 0.3 percent per year. Because this difference would compound over time, it would result in estimated yearly benefits 3 percent lower after 10 years, 6.2 percent lower after 20 years and 9.4 percent lower after 30 years. Federal retirees under the Civil Service Retirement System (CSRS), which does not provide Social Security benefits, often rely solely on their federal annuity as their source of income. Therefore, a switch to the Chained CPI would have a particularly acute impact on their retirement benefits. The median CSRS annuity is $34,500 annually. By using the Chained CPI, someone earning that annuity would lose, in total actual dollars, an estimated:

9 NARFE OPPOSITION TO THE CHAINED CPI $6,753 after 10 years; $31,307 after 20 years; $84,508 after 30 years; and, if lucky enough to enjoy a long life, $182,376 after 40 years. Federal employees covered by the Federal Employees Retirement System (FERS) would be hit twice by the switch: through their federal pensions and their Social Security benefit. Additionally, FERS retirees do not receive full inflation if inflation is greater than 2 percent. With a median annuity of only $11,424 per year, FERS retirees would lose an estimated: $2,236 after 10 years; $10,367 after 20 years; $27,983 after 30 years; and, if lucky enough to enjoy a long life, $60,390 after 40 years. The Chained CPI Hurts the Most Vulnerable Using the Chained CPI as an inflation measure would decrease benefits for low-income seniors and the disabled, including disabled veterans, while simultaneously increasing taxes on lower- and middle-income taxpayers. Current seniors would be hit the hardest by a switch to the Chained CPI they are likely to have fewer sources of income, are unable to return to work given their age and have higher medical expenses. The average Social Security benefit is $15,000 annually, which is, by itself, a low income. For seniors who rely solely on their Social Security benefits, every dollar of their income reduced by the Chained CPI may be a vital one. While some proponents of the Chained CPI have coupled their support for it with an increase in benefits for the poorest elderly, such as those receiving Supplemental Security Income (SSI), it is difficult to see where you draw the line, when the average Social Security benefit is already so low. Individuals receiving veterans benefits or disability benefits (SSI) would be hit particularly hard by a switch to the Chained CPI. Because many of these individuals rely on benefits for a longer period of time, the compounding effect from reduced COLAs caused by a switch to the Chained CPI would take a more substantial toll on their total benefits. Finally, using the Chained CPI to adjust tax brackets would increase taxes on lower- and middle-income workers, making it harder to save more for retirement. According to a Joint Committee on Taxation report, after 10 years, the tax liability for those with incomes between $10,000 and $20,000 would increase by 14.5 percent, and by 3.5 percent for incomes between $20,000 and $30,000, while those with incomes of $1 million and above would see an increase of only 0.1 percent. Simply, the Chained CPI hits our nation s most vulnerable twice. The impact of these combined changes would fall hardest on those who live the longest, as their savings dwindle, and on those whose sole source of retirement income is from their government benefit, including Social Security and civilian and military retirement annuities.

10 U.S. POSTAL REFORM IN THE 114 TH CONGRESS In the last two Congresses, there has been strong consensus on the need for legislative reforms affecting the United States Postal Service (USPS). Although significant effort has been made towards that end, no reforms have been enacted due to multiple divergent views on the path forward. NARFE expects legislative efforts on postal reform to continue in the 114 th Congress. This issue brief presents background information and NARFE s position on key issues. Background Prefunding Requirement & USPS Finances In the first quarter of FY15, USPS made a $1.1 billion operating profit. However, due to an unnecessary and extraordinary congressional mandate to prefund future retiree health benefits, USPS incurred a $754 million net loss, on paper. USPS has not made a prefunding payment to the U.S. Treasury, nor been forced to, since Even though USPS has not made these payments, the liability remains current on its balance sheet. This liability is driving cost-cutting strategies at USPS, and prohibiting investments that could expand business and save money over the long term, despite the fact that USPS is incurring operating profits. The annual prefunding payments (over the 10-year budget window of fiscal years 2007 to 2016) ranging from $5.4 to $5.8 billion by USPS into the Retiree Health Benefits Fund were mandated by the Postal Accountability and Enhancement Act of This scheme was designed to allow USPS a refund for $27 billion in overpayments for its share of former veterans retirement benefits without creating a budget cost for the bill. No other federal agency or private-sector company fully prefunds its retiree health benefits. Declining Service Standards In major part due to the unnecessary prefunding burden, USPS has engaged in cost-cutting strategies to try to balance its books. Since 2012, USPS has reduced delivery standards, resulting in increased delivery time across the country, according to the Government Accountability Office (GAO R). Top-level USPS management continues to push forward with plans to shrink USPS infrastructure in line with reduced delivery standards. Notably, USPS plans to close 82 mail processing plants in 2015, which would prevent overnight local delivery. Summary of Views on Specific Issues and Legislation The following summarizes NARFE s position on postal reform issues, including issues such as reductions in workers compensation benefits for all federal employees, that have been included in past postal reform proposals. Mandatory Medicare Enrollment for Postal Retirees NARFE opposes requiring postal retirees to enroll in Medicare Part B in order to continue receiving full health benefits coverage through the Federal Employees Health Benefits Program (FEHBP), or any newly created Postal Service Health Benefits Program. This provision, which was part of Section 104 of the committee-approved version of S (113 th Congress), would increase total health insurance premiums paid by postal retirees, who should not be subject to any new requirements to retain their earned health benefits. Arbitrary Reductions in Federal Employee Workers Compensation Benefits NARFE opposes proposals such as Title V of S (113 th Congress), which would: (i) reduce the basic federal workers compensation benefit by percent for workers at or above retirement age; and (ii) eliminate the supplemental benefit for injured workers with children or other dependents.

11 U.S. POSTAL REFORM IN THE 114 TH CONGRESS The Federal Employees Compensation Act (FECA) provides basic compensation to federal and postal employees disabled by work-related injuries and illnesses. For example, FECA provides compensation to an FBI agent shot on the job. In exchange for their reasonable benefits, FECA recipients lose their right to sue the government. While compensation is modest, it never will be able to reverse the permanent damage from a debilitating injury or illness. Arbitrary reductions to injured workers compensation for the entire federal workforce have no place in a controversial postal reform bill. Elimination of Retirement Benefits NARFE opposes proposals such as section 102 of S (113 th Congress), which would allow the United States Postal Service to bargain with postal unions to eliminate the Federal Employees Retirement System (FERS) defined-benefit annuity for new employees, taking away the guarantee of a major element of their retirement package. Six-Day Delivery NARFE supports maintaining six days of mail delivery throughout the United States. This modest delivery standard, or a more demanding one, has existed since at least Toward that end, NARFE supports H. Res. 12 (114 th Congress), in support of six-day delivery, and continuing to mandate six-day delivery through the appropriations process. To-the-Door Delivery NARFE supports maintaining curbside and to-the-door delivery, opposing a transition to cluster box delivery. This is of particular concern to NARFE members, as most of them are retired and some may not have the ability to walk several blocks to retrieve their mail, and they shouldn t have to. Toward this end, NARFE supports H. Res. 28 (114 th Congress), in support of to-the-door delivery. Maintaining Service Standards NARFE supports efforts to preserve high service and delivery standards. Lowering the quality of service is not the way to improve the USPS business model. Toward this end, NARFE supports H. Res. 54 (114 th Congress), in support of restoring service standards, and H.R. 784 (114 th Congress), requiring USPS to maintain service standards. Legislation in the 113 th Congress NARFE supported H.R. 630 (introduced by Rep. Peter DeFazio, D-OR) and S. 316 (introduced by Sen. Bernard Sanders, I-VT) as means of alleviating the USPS fiscal concerns. Importantly, both eliminate USPS burdensome and extraordinary prefunding requirement for retiree health benefits. NARFE opposed S (introduced by Sen. Tom Carper, D-DE) due to its requirement that postal retirees enroll in Medicare as a condition of continuing receipt of retiree health benefits, as well as its draconian reductions in federal workers compensation benefits that have no place in a postal reform bill, and its elimination of the guarantee of retirement benefits for new employees. NARFE also opposed H.R (introduced by Rep. Darrell Issa, R-CA) due to its radical overhaul of USPS, which would threaten the ability of the agency to operate and fulfill its mission of universal service to the American public.

12 FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM The Federal Employees Health Benefits Program (FEHBP), created by the Federal Employees Health Benefits Act of 1959 (P.L ), has been in existence for more than 50 years. Since its inception, it has provided private health insurance coverage to federal employees, annuitants and their dependents. Covering about eight million enrollees, it is the largest employer-sponsored health insurance program in the nation. Basic Structure 1 The general model of FEHBP has not changed since it was created its central mechanism is to provide enrollees choice among competing health plans offered by private insurers within broad federal guidelines established by statute and the Office of Personnel Management (OPM). The federal government and the employee or annuitant have always shared the cost of the premium. Currently, costs are shared pursuant to the Fair Share formula, explained below. FEHBP participation is voluntary. Enrollees can elect coverage in an approved plan for either individual or family coverage. FEHBP offers enrollees choices among nationally available fee-for-service plans and locally available plans. Many plans in FEHBP offer a standard option, a high option, and/or a high-deductible plan. The number of plans available to an enrollee varies according to where the enrollee resides, but most enrollees typically can choose from among six to 15 different plans, including several national plans. Premiums and costsharing requirements vary according to plan, though the government s contribution to premiums has limited variance. Fair Share Formula The government s employer contribution for participants health insurance premiums is determined by the Fair Share formula, which results in the government providing a contribution equal to 72 percent of the weighted average of all plan premiums, and capping the government contribution at 75 percent of any plan s total premium. This formula was intended to maintain a consistent level of government contributions, as a percentage of total program costs, regardless of which health plan an enrollee elects. Under the Fair Share formula, in any given year, employees must pay more for higher cost plans, in both actual dollars and as a percentage of the premiums. In so doing, the formula ensures that employees the insurance consumers bear the entire additional (or marginal) cost of plans whose costs exceed the average. This arrangement enlists consumer choice and mobility in keeping premiums down. At the same time, the Fair Share formula ensures that the government contribution increases as the cost of medical care increases, and prevents employees purchasing an average cost plan from bearing a continually higher share of premiums. In some instances, higher cost plans have more comprehensive coverage and better provider access than lower cost options. As a result, individuals with greater health care needs tend to remain in higher cost plans, while healthier individuals tend to choose lower cost options. As higher-cost options lose healthier enrollees and keep less healthy ones, higher claims for these plans cause premiums to rise. Such a system can precipitate a race to the bottom, or what economists call adverse selection, where workers and annuitants are limited to plans with less coverage and smaller provider networks. However, the Fair Share formula s 75 percent cap on the government contribution toward any premium provides an important check against this race to the bottom. 1 See Mach, Annie L. & Cornell, Ada S., Laws Affecting the Federal Employees Health Benefits Program, Congressional Research Service, February 13, or John Hatton, Deputy Legislative Director, at jhatton@narfe.org

13 FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM Absent the cap, the enrollee share of FEHBP premiums could be zero if enrollees select the lowest cost plans, giving enrollees a premium-free option. Historical Data on Premiums Premiums rose by 3.2 percent, on average, in 2015, 3.7 percent in 2014, 3.4 percent in 2013, 3.8 percent in 2012 and 7.2 percent in But these increases have been below the national average increase in health care premiums for large employers (6.5 percent in 2015, 6.7 percent in 2014, 3.3 percent in 2013, 4.9 percent in 2012 and 8.5 percent in 2011). 2 Since 1999, when the Fair Share formula was instituted, premiums have increased an average of 7.36 percent per year. Over just the past 10 years, the average increase has been 5.05 percent. 3 These numbers track closely with private-sector health insurance premium increases. 4 The average government (employer) contribution of 72 percent of the total premium is just 1 percent higher than the average private-sector employer contribution for family coverage, and 10 percent lower than the average private-sector employer contribution for single coverage. 5 Model Program FEHBP is widely considered a model health insurance program by health insurance experts and members of Congress from both parties. By ensuring consumer choices and promoting competition while providing adequate premium support and maintaining protections against diminishing coverage, the program is able to keep prices down for enrollees, their dependents and taxpayers while providing quality coverage for health care expenses. Its framework of competing private insurers has been the model for both the Romney/Ryan proposal for Medicare reform as well as the state-based exchanges created pursuant to the Affordable Care Act. In fact, every major Medicare reform proposal of the last 20 years has been based on the FEHBP model. FEDVIP Pursuant to the Federal Employee Dental and Vision Benefits Enhancement Act of 2004, OPM makes available dental and vision plans to federal and postal employees and annuitants, and eligible family members. Enrollees pay for the full cost of coverage, but premiums are withheld from the salary of federal and postal employees on a pre-tax basis. Also, because the program is available on a group basis, enrollees are afforded competitive premiums and have no pre-existing condition limitations for enrollment. Self only, self plus one, and self and family options are available. 2 See Society of Human Resource Management webpages: Employers Adjust Health Benefits in 2015, available at: Table on Health Insurance Premiums through 2014, available at: citing Aon Hewitt. 3 Data on FEHBP premiums provided by the Office of Personnel Management. 4 Compare Kaiser Family Foundation, 2014 Employer Health Benefits Survey, Exhibit 1.11, available at: 5 See Kaiser Family Foundation, 2014 Employer Health Benefits Survey, Exhibit 6.1, available at: or John Hatton, Deputy Legislative Director, at jhatton@narfe.org

14 FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM Self Plus One Pursuant to the Bipartisan Budget Act of 2013, P.L , beginning in 2016, FEHBP participants will have the option to enroll in self plus one coverage, in addition to either self only, or self and family coverage. OPM projects this will provide a lower cost option for couples without dependent children, including retirees. Medicare Part D Employer Payment In response to concerns that employers would react to the creation of the Medicare Part D prescription drug benefit by reducing or eliminating their own retiree drug coverage, the authors of the Medicare Modernization Act of 2003 (MMA) added a provision that would make employers eligible to receive a payment if they provided their retired workers with a prescription drug benefit that was at least as generous as the new Medicare Part D program. At NARFE s urging, then-rep. Nancy Johnson (R-CT) included language in the MMA that clarified that the federal government as an employer would be eligible for the payment. At no point during the consideration of MMA did the Bush administration oppose including the federal government among the eligible employers. While Office of Personnel Management (OPM) and Centers for Medicare and Medicaid Services (CMS) staff made preparations in 2004 to receive the employer payment on behalf of FEHBP, under what was suggested to be direction from the White House, OPM announced in the April 2005 call letter to FEHBP insurance carriers that the Office would not apply for the payment. As a consequence of this action, the U.S. Postal Service was also prevented from accessing the employer subsidy. NARFE advocates for OPM to apply for the employer payment on behalf of FEHBP. Alternatively, NARFE advocates for Congress to require OPM to apply for the payment. NARFE s Position on Legislative Proposals Increasing the Employee Share of Premiums NARFE opposes proposals that shift the shared burden of premium costs in FEHBP from the employer to the enrollees. In December 2010, the Simpson-Bowles Fiscal Commission recommended that annual growth in the government share of FEHBP premiums be limited to the gross domestic product (GDP), plus 1 percent. Currently, the government share is set as a percentage 72 percent on average of the total premium. Because health care inflation has been outpacing the growth in GDP, the Simpson-Bowles proposal would cause enrollees to pay a greater percentage of health insurance premiums. Based on Congressional Budget Office estimates of GDP growth and historical FEHBP premium increases, NARFE estimates enrollees share of premiums would shift from 28 percent on average to 52 percent on average after 10 years, for an average cost to enrollees of $16,623 for self only coverage, and $36,987 for self and family coverage. While the proposal has not received significant attention from Congress since the Fiscal Commission released its report, NARFE remains vigilant in its opposition to the proposal. Mandatory Medicare Enrollment for Retirees NARFE opposes requiring federal and postal retirees to enroll in Medicare Part B in order to continue receiving full health benefits coverage through the Federal Employees Health Benefits Program (FEHBP). The committee-approved version of postal reform legislation in the 113 th Congress, S. 1486, included a provision that would have imposed that requirement for postal retirees. It would increase total health insurance premiums paid by postal retirees, who should not be subject to any new requirements to retain their earned health benefits. or John Hatton, Deputy Legislative Director, at jhatton@narfe.org

15 Expanding FEHBP Coverage FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM NARFE opposes proposals that would alter the risk pool of covered beneficiaries upon which premiums are based in a way that would increase average costs of coverage. NARFE takes no position on H.R. 138, Access to Insurance for All America ns Act, because it would create separate risk pools for federal and non-federal participants. H.R. 138 would repeal the Affordable Care Act and establish a national health program administered by the OPM to offer FEHBP plans to individuals who are not federal employees or retirees. dependent children, including retirees. or John Hatton, Deputy Legislative Director, at jhatton@narfe.org

16 STATEHOOD FOR THE DISTRICT OF COLUMBIA Statehood for the District of Columbia For the past 215 years, American citizens living in the District of Columbia, including federal employees and annuitants, have not had the right to self-government enjoyed by those living in the 50 states. District of Columbia residents do not have any voting representation in either the United States House of Representatives or the United States Senate. Yet Congress maintains the power to amend or deny funding (paid by local taxes) or even overturn laws passed by the local elected government of Washington, DC. This is an offense to the basic principles upon which the nation was founded. Furthermore, this offense denies hundreds of thousands of active and retired federal employees their basic right to self-governance and democratic representation. According to the Office of Personnel Management, there are 158,664 active federal employees working in the District, many of whom live there; and 43,660 District of Columbia residents are federal annuitants. Another 5,179 postal employees work in the District, according to the Postal Regulatory Commission. Statehood would ensure that all District of Columbia residents, including federal employees and annuitants like all other Americans are represented by two senators and a representative to Congress. Legislation Statehood only requires a simple majority vote in each house of Congress and the President's signature. 6 All states are admitted on an equal footing, and it is the only form of self-government that Congress cannot amend or take away. Toward this end, NARFE supports H.R. 317, the New Columbia Admissions Act, introduced by Del. Eleanor Holmes Norton (D-DC). 6 U.S. Const., Art. IV, 3. or John Hatton, Deputy Legislative Director, at jhatton@narfe.org

17 THE SOCIAL SECURITY GOVERNMENT PENSION OFFSET Legislation was enacted in 1977 to prevent government retirees from collecting both a government annuity based on their own work in non-social Security covered employment and Social Security benefits based on their spouse s work record. The new law became effective with government employees who were first eligible to retire in December The law provides that two-thirds of the government annuity offsets whatever Social Security benefits would be payable to the retired government worker as a spouse (wife, husband, widow, widower). For example, a spouse who receives a civil service annuity of $900 a month based on his/her own earnings, applies for a Social Security widow(er) s benefit of $500. Two-thirds of his/her annuity, or $600, totally offsets the Social Security widow(er) s benefit; therefore, he/she receives no widow(er) s benefit from Social Security. There are approximately 615,000 beneficiaries currently affected by the GPO. In addition to Civil Service Retirement System (CSRS) annuitants, the GPO affects thousands of state and municipal retirees, as well as teachers and police whose work is not covered by Social Security. Of those affected by GPO, 44 percent are widows or widowers, and 81 percent are women. The GPO does not apply to survivor annuitants who are not government retirees themselves. There are other exceptions. They are as follows: Anyone eligible for a government annuity before December 1982, and who meets the 1977 law requirements (a divorced woman s marriage must have lasted 20 years; a husband or widower must have been receiving one-half support from the wife). Anyone who is receiving only a federal survivor annuity and not their own federal retiree annuity. Neither the survivor annuitant s own Social Security nor the widow s benefit from the husband s Social Security is affected. Anyone eligible for a government annuity before July 1, 1983, and who received onehalf support from the male or female spouse. Federal Employees Retirement System (FERS) employees and annuitants, and former Civil Service Retirement System (CSRS) annuitants who transferred to FERS. Former CSRS employees rehired beginning January 1, 1984, following a separation of one year or more. Effective January 1, 1995, the GPO does not apply to military reserve pensions. Anyone over the age of 65, still working for the federal government. The GPO will not become effective until the person retires and begins to receive a CSRS annuity. LEGISLATIVE HISTORY NARFE is a leader in the effort to repeal or amend the Social Security Government Pension Offset, as well as the Windfall Elimination Provision (WEP). There have been various bills offered over the years. On February 13, 2015, Rep. Rodney Davis, R-IL, introduced H.R. 973, legislation to fully repeal both the WEP and the GPO. NARFE also supports legislation that would offer partial repeal.

18 THE SOCIAL SECURITY GOVERNMENT PENSION OFFSET Social Security actuaries have determined that the enactment of the combined GPO/WEP repeal proposal would increase the Old Age, Survivors and Disability Insurance (OASDI) fund s longrange actuarial deficit by an estimated 0.11 percent of taxable payroll, while repeal of the WEP alone would increase the OASDI long-range actuarial deficit by 0.05 percent of taxable payroll. NARFE, along with its allies in the Coalition to Afford Retirement Equity (CARE), maintains that any debate on reform of the Social Security Act must include correction of the inequities imposed on Social Security beneficiaries by the WEP and the GPO. NARFE founded the CARE Coalition in 1994 in order to bring together all of the various public-sector employee and retiree organizations federal, state and local in their legislative fight against the Social Security offsets.

19 THE SOCIAL SECURITY WINDFALL ELIMINATION PROVISION The Social Security Amendments of 1983 included the Windfall Elimination Provision (WEP) which greatly reduces the Social Security benefit of a retired or disabled worker who also receives a government annuity based on his/her own earnings. It applies to anyone who becomes 62 (or disabled) after 1985 and becomes eligible for his/her government annuity after Both must occur after Congress provided for a five-year phase-in on the reduction so that the maximum effect would not be felt until The end result is a modified Social Security formula to calculate a benefit amount, resulting in a lower Social Security benefit than the retiree would otherwise receive. There are one and a half million beneficiaries currently affected by the WEP. Of these individuals, 62 percent are men. In 2000, 3.5 percent of WEP-affected individuals had incomes below the poverty line. In 2013, affected individuals can lose up to $ per month in Social Security benefits from the WEP ($4,746 per year). In addition to Civil Service Retirement System (CSRS) federal annuitants, the WEP affects thousands of state and municipal retirees, as well as teachers and police whose work is not covered by Social Security. Federal Employees Retirement System (FERS) annuitants can only be affected by the WEP if they transferred from CSRS and have a CSRS component to their annuities. There are several exceptions to the Windfall Elimination Provision. They are as follows: Anyone eligible to retire before January 1, 1986, or who became age 62 or disabled before Anyone who has 30 or more years of substantial earnings under Social Security. Anyone who is a federal survivor annuitant. The survivor annuitant s own Social Security is not affected. Anyone whose only pension from non-covered employment is based on Railroad Retirement-covered work. An individual whose pension is based only on non-covered employment before Any federal worker first hired after December 31, 1983, or a federal worker performing service January 1, 1984, who became mandatorily covered under Social Security on January 1, Anyone employed after December 31, 1983, by a nonprofit organization that became mandatorily covered under Social Security on that date. Anyone over age 65, still working for the federal government. The WEP does not become effective until the person retires and begins to receive an annuity. LEGISLATIVE HISTORY NARFE is a leader in the effort to repeal or amend the Social Security Windfall Elimination Provision (WEP), as well as the Government Pension Offset (GPO). There have been various

20 THE SOCIAL SECURITY WINDFALL ELIMINATION PROVISION bills offered over the years. On February 13, 2015, Rep. Rodney Davis, R-IL, introduced H.R. 973, legislation to fully repeal both the WEP and the GPO. NARFE also supports efforts to partially repeal the GPO and WEP. Social Security actuaries have determined that the enactment of the combined GPO/WEP repeal proposal would increase the Old Age, Survivors and Disability Insurance (OASDI) fund s longrange actuarial deficit by an estimated 0.11 percent of taxable payroll, while repeal of the WEP alone would increase the OASDI long-range actuarial deficit by 0.05 percent of taxable payroll. NARFE, along with its allies in the Coalition to Afford Retirement Equity (CARE), maintains that any debate on reform of the Social Security Act must include correction of the inequities imposed on Social Security beneficiaries by the WEP (and the GPO). NARFE founded the CARE Coalition in 1994 in order to bring together all of the various public-sector employee and retiree organizations federal, state and local in their legislative fight against the Social Security offsets.

21 2016 MEDICARE PART B PREMIUM INCREASES RESULTING FROM THE HOLD HARMLESS PROVISION According to the 2015 Medicare Trustees Report, about 30 percent of Medicare Part B beneficiaries will shoulder the full cost of the 2016 premium increase, resulting in a premium increase of 52 percent from $ to $ per month. 7 This group includes federal retirees covered by the Civil Service Retirement System (CSRS) and excluded from Social Security coverage. This issue brief explains why this may occur, and what administrative and legislative actions can be taken to prevent it Medicare Premiums The 2015 Medicare Trustees Report projects Part B premiums will increase in 2016, primarily due to higher than expected utilization of outpatient (Part B) services. Without the effect of the hold harmless provision (explained below), Medicare Part B premiums would be expected to increase from $ per month to $ per month. But if there is no cost-of-living adjustment (COLA), premiums are expected to increase to $ per month for the 30 percent of enrollees who are not held harmless. The Hold Harmless Provision Pursuant to 42 U.S.C. 1395r(f) the so-called hold harmless provision the dollar increase in the Medicare Part B premium is limited to the dollar increase in an individual s Social Security benefit from the annual cost-of-living adjustment. This provision applies to most beneficiaries whose Medicare Part B premiums are deducted directly from their Social Security checks. Consumer price index figures from July, August and September (reported in the succeeding month) will determine whether there is a Social Security COLA. The relative July consumer price index figure stood 0.19 percent below the level needed to trigger a COLA. Even if there is a small COLA, it may not be enough to cover projected increases in Medicare Part B premiums anyway. If there is no COLA, the hold harmless provision will apply to an estimated 70 percent of Medicare beneficiaries in 2016, meaning their Part B premium will remain stable at $ The remaining 30 percent will be forced to shoulder the full premium increase. Premium Cost-Shifting Effect Pursuant to 42 U.S.C. 1395r(a)(1), the Secretary of Health and Human Services ( the Secretary ) estimates a monthly actuarial rate for enrollees ages 65 and older based on the projected benefits and administrative costs payable from the trust fund for the upcoming calendar year. This 7 The Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2015 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, (July 2015), available at: Reports/ReportsTrustFunds/Downloads/TR2015.pdf (p. 84).

22 2016 MEDICARE PART B PREMIUM INCREASES RESULTING FROM THE HOLD HARMLESS PROVISION subsection also directs the Secretary to include an appropriate amount for a contingency margin. Pursuant to 42 U.S.C. 1395r(a)(3), the standard monthly premium is half of the monthly actuarial rate (or 25 percent of Part B costs, including the contingency margin). That monthly premium is then reduced pursuant to the hold harmless provision (or increased due to late-enrollment penalties or for individuals with high incomes). The Administration interprets these sections to allow the Secretary to take into account the lost premium income resulting from the application of the hold harmless provision when setting the contingency margin. In this way, the lost premium income spirals back up to the determination of the monthly actuarial rate, which determines the standard monthly premium. While it appears the Administration believes it has some flexibility to set a lower contingency margin and thus a lower monthly premium it does not appear it believes it has the ability to prevent those who are not held harmless from shouldering a disproportionate burden of premium costs. Who Is Not Held Harmless? Enrollees who would not be held harmless, and thus would be forced to pay more, include federal retirees covered by the Civil Service Retirement System who do not receive Social Security (or do not receive large enough Social Security payments to pay Part B premiums from their Social Security checks). This group also would include state government employees not covered by Social Security. Other adults and people with disabilities affected by the projected premium increase include new Medicare enrollees in 2016 (2.8 million); individuals not collecting Social Security benefits or only collecting minimal Social Security benefits, including the previously mentioned federal retirees covered under CSRS with insufficient private-sector earnings (1.6 million); and beneficiaries already paying higher, income-related premiums (3.1 million). Nine million beneficiaries dually eligible for Medicare and Medicaid also are subject to the higher premiums, but state Medicaid programs will bear this cost. Solutions This same problem arose for 2010 and 2011 premiums to a less severe, but still significant, degree (in terms of the increase in premiums). Legislation to fix the problem, H.R. 3631, the Medicare Premium Fairness Act (111 th Congress) passed the House by a vote of 406 to 18 in September 2009, but never got a vote in the Senate in time. 8 The legislation would have extended 8 The legislation was scored by the Congressional Budget Office (CBO) for $2.8 billion.

23 2016 MEDICARE PART B PREMIUM INCREASES RESULTING FROM THE HOLD HARMLESS PROVISION the effect of the hold harmless provision no premium increase to those for whom the hold harmless provision did not apply. However, because the legislation was not passed into law, federal retirees and millions of others were forced to bear a disproportionate cost of the premiums in 2010 and NARFE urges Congress to advance a similar proposal to prevent or mitigate the sizable Part B premium increases projected by the Trustees in NARFE also believes that the Medicare statute does not require the Administration to take into account the lost premium income resulting from the hold harmless provision to effect the calculation of the monthly actuarial rate, and consequently, the standard monthly premium. We urge the Administration to reevaluate its stance on this issue.