Bill on retiree health insurance premiums re-emerges

Legislation introduced Friday in the House would allow retired military and civilian federal workers to pay their monthly health care premiums with pre-tax dollars.

The bill (H.R. 1110), introduced by Rep. Tom Davis, R-Va., also would enable active-duty military personnel to use what he called a pre-tax rebate to pay for the supplemental insurance most purchase to cover gaps in TRICARE, the Defense Department's health insurance program.

"We're talking about a modest amount of money, but to those on a fixed income, this could have a real impact," Davis said. "This measure is not a cure-all for our nation's complicated health care woes, but it will make health insurance more affordable. And I am proud we are ready to take this step to right this wrong for federal and military employees."

Specifically, the bill would let retirees subtract the amount they pay for health insurance premiums from the income they report to the Internal Revenue Service, resulting in a lower taxable income.

Though a section of the Internal Revenue Code enables employees in the public and private sectors to pay for health insurance with pre-tax dollars, it does not authorize employers to make this so-called "premium conversion" benefit available to retirees.

Passage of the legislation would result in average savings of $820 per year for federal annuitants, according to government estimates. "With health care premiums increasing by double digits and cost-of-living adjustments for annuitants climbing by only 2 percent per year, this legislation would help balance the books for federal and military retirees," Davis said.

The measure received praise from the National Active and Retired Federal Employees Association and the Military Coalition, which is made up of 35 organizations representing military personnel and veterans.

"More than just retirees should care about this legislation," said NARFE President Margaret Baptiste. "Imagine the shock of a newly retired federal employee when she receives her first annuity check and learns that the federal government no longer uses pre-tax compensation to pay her share of health insurance premiums."

The bill, initially introduced in the 106th Congress, has received strong bipartisan support. The Government Reform Committee unanimously approved it in the 109th Congress, but it stalled in the Ways and Means Committee because it was overshadowed by the president's top two domestic priorities: strengthening Social Security and improving the tax code. This session, however, nearly half the members of the Ways and Means Committee have signed on as original co-sponsors of the bill.