Vouchers May Prove Costly
Budget cutters, as predicted here May 17, have settled on a cost-sharing change for health insurance premiums that could hit federal employees harder than raising the retirement age or a less generous pension-setting formula.</br></br>Some feds still are battling the idea of a higher retirement age, even though it's been a dead issue for some time. Others fear the pay-more-get-less pension plan part of the House tax cut bill. It would force workers to pay an additional 2.5 percent of salary to the retirement fund. It would change the formula used to compute annuities (now the employee's highest three-year average salary) to a high-four system in 1996 and a high-five formula for anyone retiring in 1997 or thereafter.</br></br>That proposal -- which would impose a payroll surtax on federal workers to finance tax cuts for upper-income nonfederal workers -- may fizzle or be altered. It passed the House but found few friends in the Senate. The high-three to high-five plan also is up in the air.</br></br>But while workers and their unions were understandably preoccupied watching proposed retirement changes, budget-cutters have agreed on a change that would have a bigger effect on feds and retirees. Under a worst-case scenario, it could have workers and retirees paying 50 percent to 75 percent of their health premiums within a few years. Currently, employees and retirees pay less than 25 percent of their premiums. That percentage remains the same even when overall premiums rise. But under a budget compromise tentatively approved by Republican congressional leaders, employees would shift to a voucher system. Workers and retirees would get a fixed amount -- adjusted each year for inflation -- to buy a health plan. Next year, for example, someone buying a single plan would get $1,535 from Uncle Sam, and an employee or retiree buying a family plan would get $3,400. Based on 1995 premiums, that is a generous split.</br></br>But because the voucher would be adjusted annually based on the regular inflation rate -- rather than the much higher annual medical inflation rate -- the employee or retiree share of premiums would increase over time, while the government share would shrink.