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Report outlines billions in possible savings by cutting pay, benefits

Mar. 14, 2011 - 06:00AM   |  
By SEAN REILLY and Comments
Trimming benefits such as health coverage could save billions of dollars, the Congressional Budget Office says in a new report on options for reducing the federal budget deficit.
Trimming benefits such as health coverage could save billions of dollars, the Congressional Budget Office says in a new report on options for reducing the federal budget deficit. (Joe Raedle / Getty Images)

The government could save tens of billions of dollars during the next decade by trimming pay and benefits for civilian employees, the military and retirees, the Congressional Budget Office says in a new report on options for reducing the federal budget deficit.

Shaving half a percentage point off the across-the-board raises that federal employees normally receive each year, for example, would save more than $50 billion through 2021, according to the report. Congress has already canceled those raises for this year and 2012.

Similarly, capping military pay raises at a half-percentage point below the employment cost index for private-sector workers from 2012 though 2015 would cut projected spending some $17.3 billion over 10 years, the CBO estimated.

Bigger savings could be found by requiring workers, troops and retirees to pay more for their health coverage. Converting the Federal Employees Health Benefits Program to a voucher system under which the federal government kicks in a fixed dollar amount as opposed to a percentage of the total premium would save the government some $73.2 billion through 2021.

The CBO's recommendations are the latest deficit reduction plans that, in part, target federal employees and their benefits. Last year, the White House's deficit reduction commission called for basing federal employees' pensions on the average of their highest five years of salaries instead of the current high-three method and cutting the federal work force by 10 percent, among other recommendations. Several Republican lawmakers are dissatisfied with the two-year pay scale freeze President Obama instituted in 2011 and 2012, and have tried to halt the General Schedule's regularly scheduled step increases to broaden the freeze.

The CBO also suggested changing the inflation index used to calculate cost-of-living increases for veterans' benefits, as well as for pensions for military and civilian retirees.

CBO also proposed accelerating and broadening a 40 percent excise tax on high-cost health care coverage, which could affect enrollees in many FEHBP plans. The excise tax passed last year as part of the health care law begins in 2018. A family plan will be taxed 40 percent for all costs above $27,500 including both employers' and employees' shares of the premium and contributions made through accounts such as flexible spending accounts. An individual plan will be taxed for all costs above $10,200.

But CBO suggested instead implementing the excise tax in 2014, and lowering the thresholds to $21,000 for families and $8,200 for individual plans. CBO said this would raise more than $309 billion by 2021, although not all of the savings would come from FEHBP participants.

Under CBO's plan, the thresholds would be indexed to the consumer price index for urban consumers beginning in 2015. The law currently calls for the thresholds to change by the urban consumer price index plus one percentage point in 2019, and then just the consumer price index for all subsequent years.

Employee organizations such as unions and the National Active and Retired Federal Employees Association oppose the excise tax plan, saying FEHBP plans are not the so-called "Cadillac plans" the tax was meant to target.

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