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Obama Budget Limits Impact on Feds/Opening Volley In Fight to Defend Benefits
By Dan Adcock
Legislative Director
April 2011

The fiscal year 2012 budget submitted by President Obama to Congress in February recommends freezing federal civilian salaries for the second year in a row and cutting nondefense discretionary spending by $400 billion. Other plans to reduce federal civilian retirement and health benefits suggested in December 2010 by the president’s bipartisan National Commission on Fiscal Responsibility and Reform were not included in Obama’s 2012 budget.

“America’s federal work force understands the importance of fiscal responsibility – federal employees are already doing their part to reduce the deficit by submitting to a two-year pay freeze. The president’s deficit-reduction proposals will have consequences for all of us, but at least his budget does not include the Fiscal Commission’s most harmful proposals to federal workers and annuitants. We must be clear that this is the president’s opening volley in the budget fight with Congress, where almost everything will be on the table, including the earned retirement, pay and health benefits of federal employees, retirees and survivors,” said NARFE President Joseph A. Beaudoin.

Congressional Response

Presidential budgets do not have the force of law. Members of Congress may approve, reject or change any of the president’s recommendations. The House Republican leadership swiftly denounced President Obama’s budget, and Democratic leaders in the Senate gave it a warmer reception.

Congress will respond to the president’s budget with its own budget plan – the Concurrent Resolution on the Budget — the annual roadmap that Congress uses to direct its decisions about spending and taxes. The budget resolution can instruct the committees of the House and Senate to cut spending in entitlement programs, such as Social Security, Medicare, Medicaid, and federal civilian and military retirement, and may even suggest specific policies to achieve the cuts.

While budget resolutions do not have the force of law (they require agreement only between the House and Senate and not the president’s signature), congressional action is bound by the blueprints. The congressional budget is enacted through the approval of appropriations measures and budget reconciliation legislation, which will be considered this spring, summer and fall. The Budget Act requires Congress to complete action on the budget resolution by April 15.

Federal Employees’ Compensation Act (FECA)

The president’s budget would require that the Federal Employees’ Compensation Act (FECA) benefits of future participants be replaced at retirement age by annuities paid through the federal retirement system. (See article on a FECA bill introduced by Sen. Susan M. Collins, R-ME, p. 14.)

FECA authorizes the Labor Department’s Office of Workers’ Compensation Programs to pay benefits to federal employees for work-related illnesses and injuries. The income FECA beneficiaries receive is intended to replace wages they lost because they can no longer work. In exchange for these benefits, FECA participants forfeit their right to sue the government for their work-related injuries.

“Although current FECA beneficiaries may not be affected, NARFE is concerned that the benefits of future recipients could be unfairly reduced under the proposal to move them from workers’ compensation into the retirement system,” said Beaudoin.

Containing Drug Prices

Most Federal Employees Health Benefits Program (FEHBP) plans contract with pharmaceutical benefit managers (PBMs) to negotiate discounts on prescription drugs with manufacturers. While PBMs help to contain FEHBP drug costs, their leverage to negotiate discounts is limited because they are spread out among the more than 200 different plans that are offered through the FEHBP.  

In response, the president’s budget recommends a proposal first made by NARFE in 2001 to take prescription drug benefits out of the existing FEHBP benefit structure and offer coverage for medication as a separate stand-alone benefit, available to all FEHBP enrollees. However, there would be no separate premiums for prescription drug coverage, and the cost would continue to be included in FEHBP plan rates. This proposal is modeled after the pharmacy benefit currently offered through the Defense Department’s TRICARE-For-Life program. Although the budget does not offer additional details on the change, it is assumed that the Office of Personnel Management (OPM) would negotiate a single PBM contract or enter into an arrangement with TRICARE to administer the program.  

“While further review of the plan details are needed, NARFE supports the concept of better leveraging the nine million enrollees in the FEHBP to control skyrocketing prescription drug prices,” said Beaudoin. In addition, NARFE has long supported proposals that would allow FEHBP plans to buy prescription drugs for enrollees at the discount mandated by the Federal Supply Schedule.

Automating the Calculation of Annuities

NARFE was pleased that the administration’s budget reaffirmed the government’s commitment to modernization of the retirement system, an initiative that, once implemented, would shorten the average time it takes to authorize Civil Service Retirement System or Federal Employees Retirement System annuity payments.

Overall, “RetireEZ,” or Retirement System Modernization, initiated by OPM in 2005, has accelerated the time OPM takes to calculate annuity payments by replacing an antiquated paper-based processing system with electronic personnel records and an automated system. However, the project hit a major snag in May 2008 when OPM instructed a contractor to suspend work on flawed computer software that would have calculated annuities. The shortcoming did not affect annuities calculated and paid in 2008 or since then.

More recently, higher-than-anticipated retirements from the U.S. Postal Service seem to have overwhelmed retirement annuity processing.

“NARFE continues to support OPM’s efforts to shorten the time to process full annuity payments, and we will work with the agency to overcome any remaining obstacles,” Beaudoin said.

Legislative Counsel Alan Lopatin contributed to this article.

National Active and Retired Federal Employees Association
NARFE (National Active and Retired Federal Employees Association)
606 N. Washington St., Alexandria, VA 22314, Phone: (703) 838-7760, Fax: (703) 838-7785.

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