NARFE ISSUE BRIEFS and FACT SHEETS · America’s most educated and experienced federal workers earn about 18 percent less in total compensation than they would if they worked in

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.

NARFE

ISSUE BRIEFS

and

FACT SHEETS

Toolkit

AMERICA’S FEDERAL FAMILY AT A GLANCE

For more information, please contact Jessica Klement, Legislative Director, at [email protected],

or John Hatton, Deputy Legislative Director, at [email protected].

mailto:[email protected]


FEDERAL EMPLOYEE DEFICIT REDUCTION

CONTRIBUTIONS





FEDERAL EMPLOYEE DEFICIT REDUCTION

CONTRIBUTIONS



Federal employee pay scales were

frozen in 2010 by the President (and

supported by Congress) for two years

(P.L.112-10). Congress froze salaries a

third year as part of the FY13 funding

package (P.L. 113-6). As such, federal

employees did not receive a pay raise

in 2011, 2012, or 2013. 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. 112-96), 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,

2013. 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. 113-67).

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.



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 2010. 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;

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.



LEGISLATIVE PRIORITIES IN THE

114TH

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.



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 2013.

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:



NARFE OPPOSITION

TO THE CHAINED CPI



$6,753 after 10 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:



$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.



U.S. POSTAL REFORM IN THE 114TH

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 114th

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

2010. 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 2006. 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-14-828R). 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. 1486 (113th

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. 1486 (113th

Congress), which would: (i) reduce the basic

federal workers’ compensation benefit by 25-33 percent for workers at or above retirement age; and (ii)

eliminate the supplemental benefit for injured workers with children or other dependents.



U.S. POSTAL REFORM IN THE 114TH

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. 1486 (113th

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 1888. Toward that end, NARFE supports H.

Res. 12 (114th

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 (114th

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 (114th

Congress), in support of restoring service standards, and H.R. 784 (114th

Congress), requiring USPS to

maintain service standards.

Legislation in the 113th

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. 1486 (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. 2748 (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.



FEDERAL EMPLOYEES

HEALTH BENEFITS PROGRAM


or John Hatton, Deputy Legislative Director, at [email protected]

The Federal Employees Health Benefits Program (FEHBP), created by the Federal Employees Health

Benefits Act of 1959 (P.L. 86-382), 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 Structure1

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 cost-

sharing 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, 2013.



FEDERAL EMPLOYEES




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 2011. 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:

http://www.shrm.org/hrdisciplines/benefits/articles/pages/2015-health-benefits.aspx; Table on Health Insurance Premiums through

2014, available at: http://www.shrm.org/hrdisciplines/benefits/articles/pages/employee-health-costs-2014.aspx, 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: http://kff.org/health-

costs/report/2014-employer-health-benefits-survey/view/exhibits/. 5 See Kaiser Family Foundation, 2014 Employer Health Benefits Survey, Exhibit 6.1, available at: http://kff.org/health-

costs/report/2014-employer-health-benefits-survey/view/exhibits/



http://www.shrm.org/hrdisciplines/benefits/articles/pages/2015-health-benefits.aspx

http://www.shrm.org/hrdisciplines/benefits/articles/pages/employee-health-costs-2014.aspx

http://kff.org/health-costs/report/2014-employer-health-benefits-survey/view/exhibits/




FEDERAL EMPLOYEES




Self Plus One

Pursuant to the Bipartisan Budget Act of 2013, P.L. 113-67, 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 113th

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.



FEDERAL EMPLOYEES




Expanding FEHBP Coverage

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.



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.



THE SOCIAL SECURITY GOVERNMENT PENSION OFFSET

For more information, please contact Jessica Klement, Legislative Director, at [email protected], or John Hatton, Deputy Legislative Director, at [email protected].

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 1982. 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 one-

half 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.



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 long-

range 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.



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 1985. Both

must occur after 1985. Congress provided for a five-year phase-in on the reduction so that the

maximum effect would not be felt until 1990. 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 $395.50 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 1986.

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 1957.

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, 1984.

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



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 long-

range 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.



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 $104.90 to $159.30 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.

2016 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 $104.90 per month to $120.70 per month. But if there is no cost-of-living

adjustment (COLA), premiums are expected to increase to $159.30 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 $104.90.

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: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-

Reports/ReportsTrustFunds/Downloads/TR2015.pdf (p. 84).



https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2015.pdf

https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2015.pdf



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 (111th

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.





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 2011. NARFE urges

Congress to advance a similar proposal to prevent or mitigate the sizable Part B premium

increases projected by the Trustees in 2016.

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.



Documents

NARFE ISSUE BRIEFS and FACT SHEETS · America’s most educated and experienced federal workers earn about 18 percent less in total compensation than they would if they worked in