<DOC>
[108th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:89968.wais]
H.R. 1231, MAKING HEALTH CARE MORE AFFORDABLE: EXTENDING PREMIUM
CONVERSION TO FEDERAL RETIREES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CIVIL SERVICE
AND AGENCY ORGANIZATION
of the
COMMITTEE ON GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
ON
H.R. 1231
TO AMEND THE INTERNAL REVENUE CODE OF 1986 TO ALLOW FEDERAL CIVILIAN
AND MILITARY RETIREES TO PAY HEALTH INSURANCE PREMIUMS ON A PRETAX
BASIS AND TO ALLOW A DEDUCTION FOR TRICARE SUPPLEMENTAL PREMIUMS
__________
JULY 9, 2003
__________
Serial No. 108-66
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
89-968 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
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Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma C.A. ``DUTCH'' RUPPERSBERGER,
NATHAN DEAL, Georgia Maryland
CANDICE S. MILLER, Michigan ELEANOR HOLMES NORTON, District of
TIM MURPHY, Pennsylvania Columbia
MICHAEL R. TURNER, Ohio JIM COOPER, Tennessee
JOHN R. CARTER, Texas CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota ------
MARSHA BLACKBURN, Tennessee BERNARD SANDERS, Vermont
(Independent)
Peter Sirh, Staff Director
Melissa Wojciak, Deputy Staff Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Philip M. Schiliro, Minority Staff Director
Subcommittee on Civil Service and Agency Organization
JO ANN DAVIS, Virginia, Chairwoman
TIM MURPHY, Pennsylvania DANNY K. DAVIS, Illinois
JOHN L. MICA, Florida MAJOR R. OWENS, New York
MARK E. SOUDER, Indiana CHRIS VAN HOLLEN, Maryland
ADAH H. PUTNAM, Florida ELEANOR HOLMES NORTON, District of
NATHAN DEAL, Georgia Columbia
MARSHA BLACKBURN, Tennessee JIM COOPER, Tennessee
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
Ronald Martinson, Staff Director
B. Chad Bungard, Deputy Staff Director and Senior Counsel
Christopher Barkley, Clerk
Tania Shand, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on July 9, 2003..................................... 1
Text of H.R. 1231................................................ 4
Statement of:
Davis, Hon. Tom, a Representative in Congress from the State
of Virginia................................................ 9
Fallis, Charles L., president, National Association of
Retired Federal Employees; Sue Schwartz, Deputy Director of
Government Relations, Military Officers Association of
America; and William H. Young, president, National
Association of Letter Carriers............................. 21
Letters, statements, etc., submitted for the record by:
Davis, Hon. Danny K., a Representative in Congress from the
State of Illinois, prepared statement of................... 51
Davis, Hon. Jo Ann, a Representative in Congress from the
State of Virginia:
Prepared statement of.................................... 3
Prepared statement of Walter Olihovik, national
president, National Association of Postmasters of the
United States.......................................... 18
Davis, Hon. Tom, a Representative in Congress from the State
of Virginia, prepared statement of......................... 12
Fallis, Charles L., president, National Association of
Retired Federal Employees, prepared statement of........... 23
Schwartz, Sue, Deputy Director of Government Relations,
Military Officers Association of America, prepared
statement of............................................... 34
Young, William H., president, National Association of Letter
Carriers, prepared statement of............................ 42
H.R. 1231, MAKING HEALTH CARE MORE AFFORDABLE: EXTENDING PREMIUM
CONVERSION TO FEDERAL RETIREES
----------
WEDNESDAY, JULY 9, 2003
House of Representatives,
Subcommittee on Civil Service and Agency
Organization,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2 p.m., in
room 2247, Rayburn House Office Building, Hon. Jo Ann Davis of
Virginia (chairwoman of the subcommittee) presiding.
Present: Representatives Jo Ann Davis of Virginia,
Blackburn, and Van Hollen.
Staff present: Ronald Martinson, staff director; B. Chad
Bungard, deputy staff director and senior counsel; John
Landers, detailee; Vaughn Murphy, legislative counsel; Robert
White, director of communications; Christopher Barkley, clerk;
Tania Shand, minority professional staff member; and Teresa
Coufal, minority assistant clerk.
Mrs. Davis of Virginia. The Subcommittee on Civil Service
and Agency Organization will come to order.
This hearing represents an important step in our efforts to
extend premium conversion, or the ability to pay for health
care premiums with pre-tax money, to Federal retirees, military
retirees, and active duty military personnel. This is a benefit
that is widely available in the private sector, and has been
available to executive branch Federal employees since October
2000.
This is a matter of equity. The Federal Government has a
long history of treating our active employees and retirees the
same. They have access to the same health care, why shouldn't
they have the same ability to pay their premiums with before
tax dollars? And why shouldn't our military personnel be able
to do the same for their TRICARE programs?
This is also a matter of fairness. Health care premiums are
skyrocketing for everyone, but no one feels this pressure more
than people on a fixed income. The average Federal pension
check is less than $1,900 per month. Last year's Federal cost-
of-living increase was just 1.4 percent. Over the last 6 years,
premiums in the Federal Employees Health Benefits Plans have
jumped at least 8 percent a year, almost completely off-setting
the small COLA increases.
I am honored to be an original cosponsor of H.R. 1231, the
legislation that would extend premium conversion to the entire
Federal family. In past years, this proposal has died an
anonymous death because it was not referred here but to the
Ways and Means Committee, which never gave it serious
consideration. This year Chairman Tom Davis, the House bill's
sponsor, who is with us here today as our first witness, and
Senator John Warner, the chief sponsor on the other side of the
Capitol, crafted the legislation in such a way as to ensure a
joint referral to the Government Reform Committee. This enables
us to hold this hearing today, and to shed some light on this
critical subject.
Congress recognizes the burden Americans face due to the
rising cost of health care. Already this year we have taken a
bold step in adding a prescription drug benefit to Medicare.
And just yesterday, many of us went to the floor to ensure
passage of legislation that holds Federal retirees harmless
when this new drug benefit goes into effect. It is only
appropriate that we now turn our attention to the issue of
premium conversion for the entire Federal family as the next
step in our efforts.
[The prepared statement of Hon. Jo Ann Davis and the text
of H.R. 1231 follows:]
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Mrs. Davis of Virginia. I thank you, and I would like to
now recognize the chairman of our Government Reform Committee.
Mr. Tom Davis of Virginia. Tom Davis. [Laughter.]
Mrs. Davis of Virginia. I was just asking if I needed to
swear you in to make you honest. [Laughter.]
Mr. Tom Davis of Virginia. Oath of office swears us in.
We're done.
Mrs. Davis of Virginia. You're done.
Mr. Tom Davis of Virginia. The oath of office swears
Members in.
Mrs. Davis of Virginia. Why don't we start with you then,
Mr. Davis, Mr. Chairman. Thank you.
Mr. Tom Davis of Virginia. Thank you. If you forget who
anybody is today, it is Davis. It is Davis, Davis----
Mrs. Davis of Virginia. I know who you are.
Mr. Tom Davis of Virginia. I know. I know that. And I am
happy you are where you are, Jo Ann.
STATEMENT OF HON. TOM DAVIS, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF VIRGINIA
Mr. Tom Davis of Virginia. Madam Chairman and members of
the subcommittee, I really appreciate the opportunity to come
before you today to discuss this issue for our Nation's
military and civil servants.
I know I am preaching to the choir this afternoon, but I am
pleased to see all but two members of this subcommittee as
cosponsors of the legislation this year. Although we all know
full well the deliberative nature of Congress, it has been
1,152 days since I first introduced premium conversion
legislation, and I am pleased to finally have the ability to
testify on this issue. And for that, we thank you, Madam
Chairwoman.
As you know, we have introduced legislation in the 108th
Congress to allow Federal civilian and military annuitants to
pay their Federal Employees Health Benefits Program premiums on
a pre-tax basis, and allow active duty military personnel to
apply a below the line deduction for TRICARE supplemental
premiums paid annually. Although not an answer to rising health
care costs, H.R. 1231 will take the next step in helping to
improve the quality of life for those retirees and active duty
personnel living on a fixed income.
I first introduced this legislation in the 106th Congress,
and was pleased to receive the support of 111 of our colleagues
at that time. In the 107th Congress, H.R. 2125 received even
broader bipartisan support, yet despite 282 cosponsors, was
never acted upon. I am pleased to say that we have moved
quickly in the 108th Congress, and in the first 6 months have
surpassed our total from the last Congress, with 283 cosponsors
to date.
The FEHBP covers 8.6 million individuals, including 2.2
million Federal and postal employees, 1.9 million Federal
annuitants, and 4.5 million dependents. All of us here today
recognize the importance of the FEHBP as we seek to retain and
recruit the best and the brightest to serve our Nation as
members of the Civil Service. Deputy Director Blair pledged
late last year to work closely with the members of the
Government Reform Committee, as well as providers and plan
participants, to keep the FEHBP a model for employer-provided
health care coverage. OPM has continued this commitment, and I
firmly believe that our legislation will be integral to this
effort.
Under current law, amounts distributed from a section
401(a) qualified plan and used to pay for benefits in a former
employer's section 125 cafeteria must be included in the
participant-retiree's income. Section 402(a) stipulates that
distributions from a qualified plan are taxable to the
distributee in the taxable in which distributed, except for two
instances stated in the statute. Current exemptions include
distributions made to a spouse or former spouse under court
order, and eligible rollover distributions transferred within
60 days.
In 1959, Congress created the Federal Employees Health
Benefits Plan [FEHBP] as a recruitment and retention tool for
the Federal Government to compete in the job market. There is
no disputing that Federal employees, retirees, and their
survivors enjoy the widest selection of health plans in the
country, enabling users to compare the costs, benefits, and
features of different plans. Market-orientation and consumer
choice have been hallmarks of the program's success. And
although OPM has been more successful than private sector plans
at constraining costs, the numbers tell us that our annuitants
are losing more and more of their monthly paychecks to health
care premiums.
According to GAO, FEHBP premiums have increased by an
average of nearly 10 percent a year since 1998, a trend which
promises to continue in the near future given the increased
costs for prescription drugs and outpatient care. Conversely,
COLAs have only increased by 2.38 percent for CSRS and 1.96
percent for FERS over the last 5 years. It is critical for
annuitants to receive relief since they have been forced in
recent years to shoulder increasingly high health insurance and
prescription drug costs on their average monthly annuity of
$1,869 and average annual annuity of $22,428. It has been
estimated this legislation would result in a savings of
approximately $434 a year. For some, this could mean an annual
utility bill or car insurance payment, for others it could mean
airfare to see their family. Regardless of the choice, a modest
amount of money to those on a fixed income will have a
substantial impact.
In addition, this legislation is important to establish
parity between employees and retirees. OPM made administrative
changes and began offering premium conversion plans to
executive branch employees in October 2000 and Congress
extended the tax benefit to legislative branch workers in
January 2001. This option must be made available to those whose
income is fixed and whose medical costs are on average much
higher than current employees. In fact, yesterday the House
reaffirmed parity between retirees and current employees with
the passage of H.R. 2631, Madam Chairwoman, legislation which
we sponsored together. This legislation represents the Federal
Government's commitment that our annuitants will remain on
equal footing with current employees with regard to
prescription drug benefits. This commitment must also be made
in terms of providing the premium conversion benefit to our
annuitants.
In conclusion, now more than ever is the time to show our
appreciation to those men and women who have and continue to
dedicate their lives to our Nation and our ideals. Our Nation's
tax code, although arcane and complex, has many built-in
incentives that assist individual taxpayers in areas our Nation
holds most dear, such as education, philanthropy, and health
care. I can think of few priorities as dear as providing
appropriate health care for our retirees and our active duty
military. It is my hope that this legislation will be enacted
in the 108th Congress. I will continue to work to ensure its
passage.
I appreciate the subcommittee taking a look at this issue
today and look forward to working with all of you as we remain
vigilant in our efforts to provide the best for our Federal
civilian and military employees and annuitants. Thank you very
much.
[The prepared statement of Hon. Tom Davis follows:]
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Mrs. Davis of Virginia. Mr. Chairman, we are delighted to
have had you here to testify today. And by tradition, we do not
question Members of Congress who testify before the committee.
So I thank you again, Chairman Davis, for taking the time.
Mr. Tom Davis of Virginia. Jo Ann, you always have ample
opportunity to ask me questions off-stage.
Mrs. Davis of Virginia. I know where I can get you.
Mr. Tom Davis of Virginia. So I will be happy to help as we
work through this. I just appreciate your willingness to hold
this hearing and try to move this at least on a fast-track
through this committee where we will face additional obstacles,
but we will try to work through them. Thank you very much.
Mrs. Davis of Virginia. Thank you, Mr. Chairman.
We are going to go ahead and proceed. We should have a
Member or two show up here shortly.
I ask unanimous consent that all Members have 5 legislative
days to submit written statements and questions for the hearing
record, and that any answers to written questions provided by
the witnesses also be included in the record. Without
objection, it is so ordered.
I also ask unanimous consent that all exhibits, documents,
and other materials referred to by Members and the witnesses
may be included in the hearing record, and that all Members be
permitted to revise and extend their remarks. Without
objection, it is so ordered.
Before we begin, I do want to enter into the record a
statement from Walter Olihovik, the national president of the
National Association of Postmasters of the United States.
Without objection, it is so ordered.
[The prepared statement of Mr. Olihovik follows:]
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Mrs. Davis of Virginia. If our second panel of witnesses,
Charles L. Fallis, president of the National Association of
Retired Federal Employees; Sue Schwartz, deputy director of
government relations for the Military Officers Association of
America; and William H. Young, president of the National
Association of Letter Carriers, if you all would come forward
and remain standing, I will administer the oath. It is the
subcommittee's standard of practice to ask witnesses to testify
under oath. If you will raise your right hands.
[Witnesses sworn.]
Mrs. Davis of Virginia. Let the record reflect that the
witnesses have answered in the affirmative. You may be seated.
The panel will now be recognized for an opening statement.
We will ask you to summarize your testimony in 5 minutes. Any
more complete statements you may wish to make will be included
in the record.
I would like to welcome Charles Fallis, president of NARFE.
I thank you for being with us today. And I am going to
recognize you first, Mr. Fallis, for 5 minutes.
STATEMENT OF CHARLES L. FALLIS, PRESIDENT, NATIONAL ASSOCIATION
OF RETIRED FEDERAL EMPLOYEES; SUE SCHWARTZ, DEPUTY DIRECTOR OF
GOVERNMENT RELATIONS, MILITARY OFFICERS ASSOCIATION OF AMERICA;
AND WILLIAM H. YOUNG, PRESIDENT, NATIONAL ASSOCIATION OF LETTER
CARRIERS
Mr. Fallis. Thank you. On behalf of the Nation's 2.3
million Federal annuitants, I am happy to testify today in
support of H.R. 1231 and S. 623, bills that were introduced by
Representative Tom Davis and Senator John Warner. I also want
to commend you, Chairwoman Davis, for holding, for the first
time ever, hearings on this premium conversion issue that is so
important to us. I want to thank you for the lengths that you
have gone out of way to ensure the health and economic well-
being of Federal retirees.
I think the reasons are clear why these bills should become
law. Premiums for plans available for the Federal Employees
Health Benefits Program have skyrocketed ever since 1998. It
was these double digit premiums, these hikes that helped
persuade OPM to revisit and reconsider earlier interpretations
that Section 125 of the Internal Revenue Code did not apply to
the Federal Government as an employer. And as a result of those
reconsiderations, the premium conversion benefit was granted
first to executive branch employees in October 2000 and then,
thereafter, to legislative branch employees in January 2001.
We are glad, of course, that our colleague who are still
working receive this relief, but, of course, we were
understandably disappointed that annuitants were left out. We
believe very strongly that, as a matter of fairness and equity,
Federal annuitants should be included and should have equal
relief. Annuitants live on fixed incomes, and much of the
meager cost-of-living increases that were received during the
last 6 years were eroded substantially by the premium
increases. The reality is that most of the 2003 average COLA of
$26 was immediately consumed by these premium increases.
But it is not just retirees who should care about this
legislation. Indeed, imagine the shock of a newly retired
homeland security worker when he or she retires and receives a
first annuity check and learns that the Federal Government does
not permit Federal retirees pre-tax earnings to pay for their
share of health premiums. The result of that is that about a
$434 savings which was there during the work years is lost
immediately upon retirement, at a time when it is needed the
most.
It will be a rude awakening for today's active Federal and
postal worker to learn that this inequity will continue unless
the Davis and Warner bills are passed. For that reason, I am
grateful to the Federal, postal, and military organizations,
including those who are testifying here with me today, for the
strong support they have given to H.R. 1231 and S. 623.
On the downside, some lawmakers have expressed concerns
that the proposed legislation, premium conversion, would be
extended only to Federal retirees and not to all other
retirees. Well, NARFE suggests that, because of their service
to their country, providing premium conversion rights to
Federal and military retirees is a reasonable first step toward
providing it to all retirees.
The Congressional Joint Committee on Taxation says that
premium conversion legislation, when fully implemented, would
cost $7.1 billion over 10 years. NARFE certainly is sensitive
to the cost of legislation, particularly in light of the
Federal budget deficit. Nonetheless, we also recognize that
several proposals to use the tax code to help other Americans
absorb skyrocketing health care costs are currently receiving
favorable consideration, and we do not believe that H.R. 1231
and S. 623 are out of line in that connection. Higher health
insurance premiums have hit everyone in the Federal community,
employees and retirees alike. That is why everyone who serves
our country, including Federal and military retirees, should
receive equal tax relief to make health insurance more
affordable for all.
We commend Congressman Tom Davis, Senator John Warner, and
you, Chairwoman Davis, along with actually about 282 Members of
the House, for recognizing that retirees, too, are struggling
with rising health costs just as our other citizens.
So, thank you again, Chairwoman Davis, for holding this
hearing. I can assure you of NARFE's full support and
cooperation in moving H.R. 1231 to the floor of the House as
soon as possible. Thank you very much.
[The prepared statement of Mr. Fallis follows:]
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Mrs. Davis of Virginia.. Thank you, Mr. Fallis.
We have been joined by my colleague, Ms. Blackburn from
Tennessee. Ms. Blackburn, did you have an opening statement?
Ms. Blackburn. No, ma'am, I do not. I appreciate the
opportunity to step in for just a few moments and be with you
all. I think we are all interested in this, interested in
seeing it move forward, but we have been in the middle of a
day-long markup in Judiciary. Thank you, Madam Chairman.
Mrs. Davis of Virginia. Thank you, Ms. Blackburn.
Unfortunately, that is the problem with several of our
colleagues today, there are meetings on top of meetings, as it
so often happens here on the hill.
I would now like to recognize Sue Schwartz of the Military
Officers Association of America. I want to thank you, Ms.
Schwartz, for being here today. You have 5 minutes.
Ms. Schwartz. Good afternoon, Madam Chairwoman and
distinguished members of the subcommittee. The Military
Officers Association of America [MOAA] is grateful for the
invitation to present our views on H.R. 1231 and S. 623, to
allow active duty servicemembers and Federal civilian and
military retirees and survivors to pay health insurance
premiums on a pre-tax basis and to allow a deduction for
TRICARE supplemental premiums.
Madam Chairman, we are also most appreciative of your
leadership as an original cosponsor of H.R. 1231, as well as
for your continued support for equity in the treatment of
uniformed services and Federal employees. H.R. 1231 would allow
8.6 million current and retired military servicemembers, their
families, and survivors the same privilege already enjoyed by
millions of other Americans.
Many uniformed services beneficiaries, active duty,
including Ready Reservists and National Guardsmen, and
retirees, pay premiums for a variety of health programs. For
the vast majority of military beneficiaries, these are not tax
deductible because their health care expenses do not exceed 7.5
percent of their adjusted gross income. This creates
significant inequity with many private sector and Federal
workers, many of whom already enjoy tax exemptions for health
and dental premiums through employer-sponsored health benefit
cafeteria plans. Since 2000, OPM has offered current Federal
employees pre-tax benefits under the Federal Flexible Benefits
Plan, called FedFlex.
This year the gap between military and Federal employee
benefits will widen even further. OPM will soon expand FedFlex
by offering the option to enroll in flexible spending accounts
[FSAs]. Federal employees will soon enjoy even greater benefits
covering additional out of pocket costs.
MOAA firmly believes that military beneficiaries are
Federal employees too and should be able to enjoy the same
equal tax relief regarding their health care expenses.
A survey of private sector employees conducted last year by
the Society for Human Resource Management shows that 69 percent
of the private sector organizations surveyed offer flexible
medical spending account benefits. Even my employer, MOAA, a
private, non-profit organization with less than 100 employees,
offers the premium conversion benefit. If MOAA can provide this
benefit to 95 employees to maximize employee benefits, why
cannot the Federal Government provide the same benefit for
those who currently serve or those who have served their Nation
in uniform?
As DOD competes with the private sector in the ``war for
talent,'' premium conversion can offer a valuable recruitment
and retention tool. DOD is challenged to search for new ways to
attract qualified candidates away from the private sector to
choose military service, as well as to enhance retention.
Compensation issues continue to be of concern to our
military families. Pay and benefit improvements are integral to
retaining a top quality all-volunteer force to wage the war
against terrorism at home and abroad. The stresses of military
life along with the recent increase in operations tempo
associated with fighting two wars since September 11 are taking
their toll on military families. Sacrifices are taken for
granted as a part of the military life. However, in response to
the hardships we impose upon our military families, it is
important that every attempt is made to provide them with a
quality of life that is competitive with the private sector.
MOAA firmly believes that sailors, soldiers, airmen, and
marines who sacrifice so much in service to their country are
also Federal employees in every way and deserve to be afforded
the same tax relief for their health care premiums as current
Federal workers.
It is most unfortunate that Federal annuitants are
prohibited from participating in FedFlex. Both military
retirees and Federal annuitants also bear the burden of
increasingly high premiums. One example of where military
retirees would greatly benefit concerns the TRICARE Retiree
Dental Program.
One of the greatest complaints we hear from our retiree
members is the high cost of the retiree dental program. Unlike
the active duty dental program, the Government does not
subsidize retiree premiums, a significant dissatisfier for
retired beneficiaries. While the program is clearly successful,
participation could be greatly enhanced by offering premium
conversion to offset the high costs of the program.
MOAA strongly supports enactment of this legislation to
correct this significant inequity in the tax code affecting the
military. Rising health care costs affect all Federal
employees, civilian or uniformed, active or retired, and this
proposal is essential to ensure all are provided similar
relief.
Our hope is that the precedent set in 2000 for currently
serving Federal civilian employees will pave the way to ensure
equal treatment for all military and Federal personnel.
Madam Chairman, I look forward to answering your questions.
And thank you again for this opportunity.
[The prepared statement of Ms. Schwartz follows:]
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Mrs. Davis of Virginia. Thank you, Ms. Schwartz.
And finally, last, but not least, I would like to welcome
William Young, president of the National Association of Letter
Carriers. I want to thank you for being with us today. And you
are on.
Mr. Young. Thank you very much, Chairwoman Davis, for this
opportunity to testify before the Civil Service and Agency
Organization Subcommittee. I would like to mention that
appearing with me today is our director of retirees, Don
Southern. I have two of my national trustees here, Randy Keller
and Danny Rupp. And last, but not least, I have the president
emeritus of the National Association of Letter Carriers,
Vincent R. Sombrotto, who is here because he has a personal
stake as a retiree. This legislation would affect him
personally, and he is over here to make sure that I do not say
anything to mess it up for him. [Laughter.]
I am here representing the nearly 305,000 members of the
National Association of Letter Carriers. One of the great
strengths of our organization is that a large number of our
retirees, some 86,000, are also members of our union. At the
outset, I would like to thank you, Madam Chair, for your
leadership on another issue, protecting the prescription drug
benefits of retirees enrolled in the Federal Employees Health
Benefits Program. As you are quoted as saying in this morning's
Washington Post, ``This is an issue of the Federal Government
leading by example.'' I could not agree with you more. And that
is why I am here with you today to support premium conversion
for retirees, because this, too, is an issue where the Federal
Government can lead by example.
Most of our retired members, some 63,000, in fact, are also
enrolled in the NALC's Health Benefit Plan, which provides a
comprehensive package of health benefit insurance. As you know,
NALC HBP is part of the Federal Employees Health Benefits
Program.
In October 2000, premium conversion for Federal employees
went into effect, enabling them to take advantage of a benefit
that was already available to active letter carriers. The NALC
takes great pride in having been a leader in establishing
premium conversion within the Federal community. Thanks to the
collective bargaining process in place for postal employees, we
were able to establish premium conversion for our active
members nearly a decade before it became available to the rest
of the Federal work force.
Over that time, this bargained for contractual provision
has saved active letter carriers throughout the country
millions of dollars. I would like to commend you, Madam Chair,
as well as Chairman Tom Davis and Senator John Warner for
leading the effort to expand this benefit to include retirees.
H.R. 1231, which has more than 280 cosponsors, will allow
Federal civilian, military, and postal retirees to pay health
insurance premiums on a pre-tax basis. This will provide
significant out of pocket savings to these individuals.
As a general rule, letter carriers are a healthy group. The
physical demands of delivering the Nation's mail inherently
supports a healthy lifestyle. At the same time, a full career
of walking the streets and battling the elements every day also
presents our retirees with some unique and very physical
challenges. Thank goodness our members can rely on a
comprehensive and affordable health plan to take care of their
needs during their hard-earned retirement.
Like many of the Nation's retirees, our members often
confront some difficult financial decisions. In addition, as
Federal retirees, many of our members are faced with obstacles
unique to the Federal and postal community such as the Windfall
Elimination Provision and the Government Offset Provision which
deprive Civil Service retirees of earned benefits. That makes
it even more difficult for them when it comes time to pay for
health insurance premiums.
To give you an idea of how helpful H.R. 1231 would be to
our retired members, consider the case of a new annuitant with
30 years of service under CSRS. That annuitant will qualify for
an annual annuity of approximately $24,000 a year, which is
worth $20,400 after Federal taxes at the 15 percent tax
bracket. If the annuitant is a union member and is enrolled in
the NALC health plan, he or she must pay premiums worth more
than 10 percent of their after-tax annuity income, some $2,300
a year, for family coverage. This proposal would save that
retired letter carrier $345 each and every year. Now that may
not sound like a lot, but to people who must live on a modest
fixed income in the face of escalating health care costs and
rising premiums, such savings are not insignificant.
Premium conversion has been a win-win for active letter
carriers, both in demonstrating the value of collective
bargaining which established it and for the resulting savings
which have enabled letter carriers to pump millions of dollars
back into the economy. We are grateful that you, Chairwoman
Davis, recognize the importance of expanding premium conversion
to include all Federal retirees. We look forward to working
with you, Ranking Member Davis, and the members of this
subcommittee to see that it becomes law. Thank you very much.
[The prepared statement of Mr. Young follows:]
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Mrs. Davis of Virginia. Thank you, Mr. Young. And thank you
to all of our panelists.
I would like to recognize my colleague from Maryland who
has joined us, Mr. Van Hollen, to see if you have an opening
statement you would like to make.
Mr. Van Hollen. Just a very short remark, thank you, Madam
Chairwoman. Let me thank the witnesses for their testimony. I
want to thank you, Madam Chairwoman, for your leadership on
this important issue which, as we heard from the testimony of
Mr. Young, is very important to retired Federal employees. I
represent an area, the Eighth Congressional District in
Maryland, that has lots of current Federal employees and lots
of retired Federal employees, and I can tell you this is
something I hear about whenever I talk to them. You are right,
it may not be a huge amount, but for people who are retired on
fixed incomes it can mean quite a lot. So I want to thank you,
Madam Chairwoman, and I also want to thank the chairman of the
full committee, Congressman Tom Davis, for his leadership on
this issue. I am proud to be a cosponsor of this legislation
and I look forward to its hopefully speedy passage.
I would also like to say I want to thank you and the
chairwoman of the committee for your quick leadership: I was
pleased to join with you in this effort to make sure that the
bill we just passed with respect to prescription drug coverage
for people on Medicare did not inadvertently hurt our Federal
retirees. We may have big differences on whether or not we
thought the bill was otherwise a good idea, but, clearly, we
all agreed on the fact that whatever the merits of the
underlying bill, we did not want it to harm Federal employees.
And so I appreciate the bipartisan consensus on that. Thank
you, Madam Chairwoman.
Mrs. Davis of Virginia. Thank you, Mr. Van Hollen. And I
want to thank you for joining in and supporting our Federal
retirees and our active military and military retirees.
I am going to start with a few questions, if you will put
me on a timer for 5 minutes, then I will go to you, Mr. Van
Hollen.
I do not think we are going to be able to change the IRS'
mind about premium conversion for retirees unless we enact this
legislation. I have to say that the current tax policy is just
too hit and miss to make sense to me. I do not understand it,
but I am not an accountant either. The law says that if an
employer sets up a cafeteria plan, then health insurance
premiums can be pre-tax. But if the same employer does not want
to go to the administrative expense of setting up the cafeteria
plan, then the same health insurance premiums are not pre-tax.
And then when a person retires, as you pointed out in your
testimony, those same health insurance premiums are never pre-
tax. And if a person is not employed and has to pay for health
insurance out of his or her own pocket, that is not pre-tax
either. The situation cannot possibly make sense to taxpayers
and, as I said, it does not make sense to me. I think it is
time for a change in this system and I do not see any reason
why we should not start with our Federal civilian and military
retirees.
With the rapidly growing cost of health care premiums,
would you not say that Federal civilian and military retirees
as a group are facing an uphill battle in being able to afford
their health care needs? Anybody want to comment on that? I
think you all probably did in your testimony. It seemed to me,
and correct me if I am wrong, but that your increase in your
COLA was less than the cost of the increase in the health care;
was that about right?
Mr. Fallis. Just about the same. If you take the average
COLA for last year, it is $26 a month. And plans like the Blue
Cross/Blue Shield's standard option was I believe $22.52 a
month.
Mrs. Davis of Virginia. So you netted about $3.50 a month
increase?
Mr. Fallis. That is right.
Mrs. Davis of Virginia. Do you have any examples of
anything that you brought with you that your members would like
to share from each of your organizations, anything to put in
the record to help here?
Mr. Fallis. I think our membership in NARFE, of course, is
speaking with one voice on this. No member of NARFE has premium
conversion. We think it is terribly unfair. Quite frankly, I
believe with a little compassion and understanding, the IRS
could have come up with a different solution here. I do not
really truly see our retirement plan is what they call a
``qualified plan.'' They indicate ``qualified plans'' are not
included in this. But if you take a situation where in a
qualified plan a 40 year-old worker leaves employment in the
private sector where there is a retirement fund, that employee
is allowed to take not only his or her contributions, but those
that are made by the firm or the company or whatever. That is
quite different in the Federal Government. When one leaves
Government service he or she is not allowed to take anything
other than his or her own contributions. And so I think that
alone makes it different from what we would call a ``qualified
plan.'' So, yes, I believe that it could be done; probably will
not be. But I think the IRS could have given us a better
decision and have avoided all of this.
Mrs. Davis of Virginia. I think that would have been the
easier way to go. But, quite frankly, I do not think it is
going to be the way. Unless we do the legislation, I do not
think it is going to happen.
Ms. Schwartz. Madam Chair, may I add one other.
Mrs. Davis of Virginia. Certainly.
Ms. Schwartz. There is also a very deserving group of
beneficiaries within DOD, and those are our Guardsmen and
Reservists who do so much for our Nation. And within the
TRICARE program, their dental premiums are not subsidized by
the Federal Government, just as the retiree premiums are not.
And there has been a real problem with dental readiness for the
Guardsmen and Reservists because it is very expensive for them
to buy into this program. If we were able to get the premium
conversion benefit for our Guardsmen and Reservists, it would
give a significant tax break for them and maybe make them
better able to afford the program. Many Guardsmen and
Reservists could not deploy because their dental readiness was
not adequate. So I think that is a group that really would
benefit from this, and we appreciate the subcommittee helping
them out as well.
Mrs. Davis of Virginia. Certainly, our Guardsmen and
Reservists have been very active in the last year. They are
doing yeoman's work and we could not be doing it without them.
Ms. Schwartz. Yes. Right. Thank you.
Mrs. Davis of Virginia. Mr. Young.
Mr. Young. Madam Chairwoman, I bring a rather unique view
to this because, as I said in my testimony, all of the active
members that I represent, which is the majority of the 305,000
number, already have pre-tax because the employer that we work
for, the U.S. Postal Service, was able to administer a
cafeteria plan. To us, to the letter carriers, it is a basic
issue of fairness. It is just not fair the way it is set up
right now. What it boils down to to me is that one group of
employees I represent, the actives, they have a voice. At the
bargaining table, I am able, or whoever the president is at the
time, is able to speak on their behalf. What has happened to
our retirees is, to be honest with you, they have no voice. And
you have moved way up in their charts, I can tell you that, and
the other people that support this, and I mean that sincerely,
because for all practical purposes you are their voice, their
only voice.
And so I hope that the issue of fairness surfaces here and
that people understand. Like I said, for most of the people I
represent, we have it. But it is not fair, it really is not.
And it is even more unfair when you add into the equation that
the people who can afford to take the hit the least are the
very ones that are being asked to absorb it. And so I would ask
the committee to keep their mind on the issue of fairness as
they deal with this, because the way it is set up it is just
not right, it is not fair.
Mrs. Davis of Virginia. Thank you, Mr. Young.
I am going to yield to my colleague from Maryland, Mr. Van
Hollen, for questions.
Mr. Van Hollen. Thank you, Madam Chairwoman. I do not have
a lot to add. I think that is a very important point you
raised, Mr. Young, with respect to fairness. I am ready to vote
on this. My only question is when. I do not know when we are
scheduled to vote on this as a subcommittee or a full
committee. But, really, I do not have any questions. As I said,
I am a cosponsor of this bill. It is an issue I have talked
about on many occasions within my congressional district. So I
appreciate your all being here today. And, again, thank you for
your leadership.
Mrs. Davis of Virginia. Mr. Van Hollen, you are going to
get your chance to vote on it next Wednesday, I believe. It is
the 16th, whatever day that falls on.
Mr. Van Hollen. Terrific. That is great.
Mrs. Davis of Virginia. We will be having a mark-up. We are
having a hearing that day and I believe the markup is going to
be right after the hearing. So I would certainly appreciate it
if you were there and can vote.
Mr. Van Hollen. All right. Thank you.
Mrs. Davis of Virginia. But we do plan on bringing it up
for a markup next Wednesday. And then I would assume our
chairman of the full committee, Mr. Davis, would bring it to
the full committee very quickly. And then, of course, as you
know, it would probably have to go over to Ways and Means after
that. And that is where you are going to have to work.
[Laughter.]
Where we are going to have to work. But we certainly have
the cosponsors, the people who are behind you on it. I mean,
283 cosponsors is more than what we need to pass it on the
House floor. So we just have to get it out of the committee and
get it out there to the floor.
I do not have any further questions. But I do appreciate
your taking the time to come and get all this on the record so
that we can take the bill forward and try and do what I believe
is fair and equitable to all people. I think the biggest
argument for it, Mr. Fallis, and I think you are the one who
said it, is think of the poor man or woman who is sitting here
an active employee right now, they retire and they get a big
hit in their paycheck. It is like they get a demotion.
Mr. Fallis. Retirees are fast becoming known as the
stepchildren of the Federal community.
Mrs. Davis of Virginia. Well, we appreciate all the service
that our retirees have given us. And I appreciate all the
service that our active men and women in the military are
giving us right now. My heart is with them. Thank you, Mr.
Young. My sister-in-law was a postmaster for many years. I know
that is not a letter carrier, but----
Mr. Young. Close enough.
Mrs. Davis of Virginia. Close enough, yes. Thank you all
for coming.
And with that, the hearing is adjourned.
[Whereupon, at 3 p.m., the subcommittee was adjourned, to
reconvene at the call of the Chair.]
[The prepared statement of Hon. Danny K. Davis follows:]
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