Low-Hanging Benefits

As President Obama looks for ways to make good on his promise to slice the deficit in half by the end of his term, the Congressional Budget Office's biennial report examining options for reducing federal spending could take on a new prominence. And that could be bad for government workers and retirees.

Federal health and retiree benefits are once again among the areas congressional analysts have examined for potential cuts.

Here are some possibilities CBO looked at in its latest "Budget Options" report:

• Adopt a voucher plan for the Federal Employees Health Benefits Program. Currently, the government pays 72 percent of the average premium of plans participating in FEHBP, but no more than 75 percent of any single plan's premium. CBO recommends replacing that with a flat fee. Under its plan, the government would offer a voucher to cover the first $4,300 of an individual's premium, or the first $9,900 of a family's premium. The government's contribution would rise annually at the rate of inflation. CBO estimates that premiums would increase three times faster than inflation and the government would save $13 billion over five years. Such a change also would create incentives for federal employees to switch to lower cost plans and for providers to hold down premiums, according to CBO.
• Base federal retirees' health benefits on length of service. The government's share of FEHBP premiums for federal employees who retire in 2010 or later would be cut by 2 percentage points for every year of service less than 20 years. For a retiree with 15 years of service, for example, the government's contribution would decline from 72 percent of the average premium to 62 percent. About 14 percent of employees who retire from federal service and opt to continue FEHBP coverage have fewer than 20 years of service, CBO estimates. Reducing the government's contribution to FEHBP premiums for such retirees could save $1.1 billion over 10 years, according to the report.
• Subsidize Medicare Part B premiums for federal retirees. The government would begin subsidizing Medicare Part B premiums for federal retirees who currently pay for the coverage. In return, FEHBP health plans would reduce their coverage of Medicare cost-sharing by an equivalent amount. CBO's rationale is that exposing FEHBP enrollees with Medicare coverage to cost-sharing would lead them to forgo some services that have little or no expected benefits. Exercising this option would decrease Medicare spending by an estimated $3.9 billion over five years and discretionary spending by an estimated $60 million over that same time period, CBO calculates.
• Allow outside people and firms to purchase health insurance through FEHBP. The government would open FEHBP to individuals and employers outside of government, but unlike federal employees, these participants would be required to pay the full cost of premiums. To avoid people waiting to join the program until they needed health care services, the option would introduce an annual open-enrollment period similar to that for federal employees. This would not save the government any money. In fact, it would increase the federal deficit by an estimated $1 billion over 10 years, CBO says.