[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
CATCHING UP: BENEFITS THAT WILL HELP RECRUIT AND RETAIN FEDERAL
EMPLOYEES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FEDERAL WORKFORCE,
POSTAL SERVICE, AND THE DISTRICT
OF COLUMBIA
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
APRIL 29, 2008
__________
Serial No. 110-136
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
48-067 PDF WASHINGTON : 2009
----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
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Washington, DC 20402-0001
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania DAN BURTON, Indiana
CAROLYN B. MALONEY, New York CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri CHRIS CANNON, Utah
DIANE E. WATSON, California JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of PATRICK T. McHENRY, North Carolina
Columbia VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota BRIAN P. BILBRAY, California
JIM COOPER, Tennessee BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
------ ------
Phil Schiliro, Chief of Staff
Phil Barnett, Staff Director
Earley Green, Chief Clerk
Lawrence Halloran, Minority Staff Director
Subcommittee on Federal Workforce, Postal Service, and the District of
Columbia
DANNY K. DAVIS, Illinois
ELEANOR HOLMES NORTON, District of KENNY MARCHANT, Texas
Columbia JOHN M. McHUGH, New York
JOHN P. SARBANES, Maryland JOHN L. MICA, Florida
ELIJAH E. CUMMINGS, Maryland DARRELL E. ISSA, California
DENNIS J. KUCINICH, Ohio, Chairman JIM JORDAN, Ohio
WM. LACY CLAY, Missouri
STEPHEN F. LYNCH, Massachusetts
Tania Shand, Staff Director
C O N T E N T S
----------
Page
Hearing held on April 29, 2008................................... 1
Statement of:
Brown, Richard, vice chair, Employee Thrift Advisory Council;
and Gregory T. Long, executive director, Federal Retirement
Thrift Investment Board.................................... 9
Brown, Richard........................................... 9
Long, Gregory T.......................................... 18
Green, Daniel A., Deputy Associate Director for Employee and
Family Support Policy, Strategic Human Resources Policy
Division, U.S. Office of Personnel Management; Colleen M.
Kelley, president, National Treasury Employees Union; Sara
R. Collins, assistant vice president, the Commonwealth
Fund; and John Gage, national president, American
Federation of Government Employees, AFL-CIO................ 39
Collins, Sara R.......................................... 55
Gage, John............................................... 83
Green, Daniel A.......................................... 39
Kelley, Colleen M........................................ 46
Letters, statements, etc., submitted for the record by:
Brown, Richard, vice chair, Employee Thrift Advisory Council,
prepared statement of...................................... 13
Collins, Sara R., assistant vice president, the Commonwealth
Fund, prepared statement of................................ 57
Davis, Hon. Danny K., a Representative in Congress from the
State of Illinois, various prepared statements............. 3
Gage, John, national president, American Federation of
Government Employees, AFL-CIO, prepared statement of....... 85
Green, Daniel A., Deputy Associate Director for Employee and
Family Support Policy, Strategic Human Resources Policy
Division, U.S. Office of Personnel Management, prepared
statement of............................................... 42
Kelley, Colleen M., president, National Treasury Employees
Union, prepared statement of............................... 48
Long, Gregory T., executive director, Federal Retirement
Thrift Investment Board, prepared statement of............. 20
CATCHING UP: BENEFITS THAT WILL HELP RECRUIT AND RETAIN FEDERAL
EMPLOYEES
----------
TUESDAY, APRIL 29, 2008
House of Representatives, ,
Subcommittee on Federal Workforce, Postal Service,
and the District of Columbia, ,
Committee on Oversight and Government Reform, ,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:04 p.m., in
room 2154, Rayburn House Office Building, Hon. Danny K. Davis
(chairman of the subcommittee) presiding.
Present: Representatives Davis of Illinois, Norton,
Cummings, and Kucinich.
Staff present: Lori Hayman, counsel; and Marcus A.
Williams, clerk/press secretary.
Mr. Davis of Illinois. The subcommittee will now come to
order. Unfortunately, Mr. Marchant's plane is delayed a little
bit and so he may not arrive. At any rate, though, we welcome
you to the Federal Workforce, Postal Service, and the District
of Columbia hearing on the Thrift Savings Plan and Federal
Employees Health Benefits plan.
The chairman and ranking member and subcommittee members
will each have 5 minutes to make opening statements, and all
Members will have 3 days to submit statements for the record.
And hearing no objection, that will be the order.
Today the subcommittee is holding hearings on two issues
that will ultimately benefit the retirement and health of
enrollees in the Thrift Savings Plan and the Federal Employees
Health Benefits Plan respectively. Under the current law, newly
hired Federal employees and members of the Uniformed Services
can elect to contribute to the TSP.
The first hearing panel will discuss the legislation that
would authorize the automatic enrollment of new and rehired
employees and members of the Uniformed Services in the TSP.
Automatically enrolled participants who want to stop
participation and have their contributions returned would have
a 90-day period from the date of deposit of the first
contributions in his or her TSP account to terminate
contributions.
Automatic enrollment will go a long way in improving the
saving habits of Federal employees. Currently, a new
participant account established in the TSP is defaulted to a
100 percent investment in the G-Fund.
The TSP panel hearing will also discuss legislation that
would change the default investment fund from the G-Fund to an
age-appropriate Lifecycle Fund, the L-Fund. While the G-Fund
provides protection against investment loss, long-term
investment solely in the G-Fund is unlikely to provide returns
sufficient to meet requirement needs.
Young adults are the fastest growing age group among the
uninsured. Almost 400,000 young adults, younger than 23 years
old, will be uninsured upon graduating from college. This is
due to the overwhelming amount of individuals who will be
cutoff from their parents' or university's health insurance
plan.
A report by the Commonwealth Fund, a private foundation
that aims to promote a high-performing health care system in
the United States showed that two out of five college graduates
are uninsured after they leave school.
The second hearing panel will discuss covering young adult
dependents between the ages of 22 and 25 under the FEHBP. Last
month, I introduced H.R. 5550 to raise the age young adults
would qualify for health insurance under the FEHBP from 22 to
25 years of age.
As many of you know, cost is a key factor in what
legislation will be brought to the House floor for
consideration. It was just a few weeks ago that members were
debating at the subcommittee and full committee markups whether
the possible costs associated with legislation that would
provide maternity leave for Federal and congressional staff was
worth the cost.
Following this hearing, I will offer an amendment in the
nature of a substitute to H.R. 5550 that will address the cost
associated with the bill, while preserving coverage for young
adults.
I ask unanimous consent that the written statements of the
Federally Employed Women and the Retirement Security Project be
included in the record.
[The information referred to follows:]
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Mr. Davis of Illinois. I want to thank all of the witnesses
for coming and being willing to participate and all of you for
being here.
I'm going to ask Representative Norton if she has any
opening comments she would like to make.
Ms. Norton. No, Mr. Chairman, no opening comments.
Mr. Davis of Illinois. Thank you very much.
Then we'll proceed to our first panel of witnesses, and I
will introduce the witnesses. Mr. Greg Long serves as the
director of product development for the Federal Investment
Board, which is the agency responsible for administering the
Thrift Savings Plan for Federal employees. Prior to working for
the Federal Retirement Investment Board, Mr. Long served as
director of marketing for the American Bar Association
retirement funds with City Street.
And Mr. Richard Brown is the current vice chairman of the
Employee Thrift Advisory Council. In addition to his role on
the Advisory Council, Mr. Brown is the president of the
National Federation of Federal Employees.
Gentlemen, thank you both. And if you would stand and raise
your right hands and be sworn in.
[Witnesses sworn.]
Mr. Davis of Illinois. The record will show that the
witnesses answered in the affirmative. So we thank you
gentlemen very much, and we'll begin with you, Mr. Brown. Of
course, we know the 5-minute statement period. The yellow light
indicates that a minute is left, and we stop at the red. And
thank you both very much. Please proceed.
STATEMENTS OF RICHARD BROWN, VICE CHAIR, EMPLOYEE THRIFT
ADVISORY COUNCIL; AND GREGORY T. LONG, EXECUTIVE DIRECTOR,
FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
STATEMENT OF RICHARD BROWN
Mr. Brown. Thank you, Mr. Chairman, committee members.
Thank you for the opportunity today. My name is Richard M.
Brown. I serve as the national president of the National
Federation of Federal Employees, an affiliate of the IAMAW, as
well as the vice chairman of the Employee Thrift Advisory
Council [ETAC]. ETAC is comprised of 15 individuals from 15
different organizations which represent active and retired
Federal employees and Uniformed Services.
ETAC serves as the advisory body to the Federal Retirement
Thrift Investment Board which oversees the Federal Government's
Thrift Savings Plan [TSP].
It is in my capacity as ETAC vice chair that I appear
before you today. I'm here to address TWO specific Board-
proposed legislative changes to the TSP: an automatic
enrollment provision for new employees, and a change in the
default for new employees who could not make an investment
decision. It is my intention to accurately share with you the
views of the Council as a whole regarding these two issues.
First, the automatic enrollment. I will first discuss the
issue of automatic enrollment with the Thrift Savings Plan. The
TSP is an opt-in system. Employees who want to participate in
the TSP must complete and submit a contribution election to
their specific--respective agency. New employees do not have
contributions to the TSP deducted from their paycheck unless
they specifically choose to do so. Sorry about that.
According to the Board's proposed plan, all newly eligible
Federal employees who do not affirmatively decline to invest a
portion of their paycheck in TSP would automatically have 3
percent of their base pay deferred on their behalf, the level
at which would receive 100 percent agency match; a 90-day grace
period from the date of the first automatic contribution to
include--included in the proposal. Any automatically enrolled
participants who did not wish to participate in the TSP could
withdraw the current market value of their employee
contributions at any time during this period. The withdrawal
would be taxable as ordinary income in the first year it was
distributed, but would not be subject to early withdrawal
penalties. A participant could still stop or change their
contributions at any time after the grace period expired, but
the account would be subject to normal withdrawal rules.
The Board hired an independent consultancy, Watson Wyatt
Worldwide, to conduct a survey gauging participant satisfaction
with the TSP and input on proposed changes, including automatic
enrollment in the program. The survey revealed strong support
for automatic enrollment of new employees. Nearly two-thirds of
all respondents agreed that automatic enrollment of new
employees is a good idea, compared with only 20 percent who
disagreed. Neither age nor income made a large difference in
the respondents' support for automatic enrollment.
ETAC discussed the automatic enrollment issue at our June
12, 2007 meeting, and there was widespread support for the
proposed change. There was some minimal concern about the
administrative cost and work involved in implementing a change,
but the overall sense of the Council was benefits of automatic
enrollment outweighed the implementation costs. Council members
made a number of arguments in favor of the automatic
enrollment. Starting the habit of early saving on one's career
increases the likelihood that an employee will continue
contributing throughout his or her career. Through compounding
earnings, even a modest automatic 3 percent contribution may
lead to a sizable account balance over time, particularly when
3 percent is combined with the automatic 1 percent agency
contribution and an additional 3 percent in matching funds that
the employee will receive.
Initiating automatic enrollment will ensure that those
employees who do not intentionally refrain from investing in
the TSP will not continue to miss out on the dollar-for-dollar
matching funds to which they are entitled. The Council feels
that all Federal employees should invest in TSP; however, new
hires will be educated on the change and presented with the
necessary information to make an informed decision about their
participation in the plan. We do not believe this information
will be difficult for them to access or understand, and the
grace period and related opt-out provision ensure that they'll
have time to make these decisions without penalty.
For all these reasons, the ETAC strongly supports automatic
enrollment in the TSP for new employees.
The second change to the TSP proposed by the Board is all
new employee enrollees in the plan who do not make an
investment election would have their contributions defaulted to
age-appropriate Lifecycle, or L-Fund.
Currently TSP participants may choose how their money is
allocated. They have a number of funds to choose from,
specifically the G, F, C, S and I Funds. When participants do
not make allocation choices, their contributions are
automatically invested in the government securities or G-Fund.
The G-Fund earns interests and does not incur any losses, but
due to low-level risk may not provide substantial rate of
return to meet the employee's long-term retirement goals.
According to the Board's proposed plan, employees would
have the same set of funds to choose from, but the default
election would change from the G-Fund to an age-appropriate L-
Fund based on specific participant's estimated retirement age.
In the L-Fund, money is allocated more heavily toward stocks
for younger participants, which may lead to greater asset
fluctuation and more risk, but are also expected to produce
higher rate of return. The closer a participant gets to
retirement, the more heavily the L-Fund is invested in
government securities and bonds.
In the previously mentioned survey, respondents were asked
whether the G-Fund or an age appropriate L-Fund should be used
as a default fund for those TSP contributors who do not
specifically know how their funds are to be allocated. The
study found that 49 percent of the respondents preferred the L-
Fund as the default, while 27 percent preferred the G-fund and
24 percent had no preference.
When respondents were broken down by age group, all those
under 40 expressed the strongest preference for the L-Fund as
the default; and 55 percent, those 40 to 49, at 53 percent; and
those over 50, at 45 percent. It is worth knowing, though, that
every age group preferred the L-Fund over the G-Fund as a
default.
This issue was also addressed by ETAC at our June 12, 2007
meeting. There was some hesitation about changing the default
election to the age-appropriate L-Fund. The primary concerns
were that the L-Fund does not yet have a long history and that
the change would expose enrollees to risk. Participants may
lose money in L-Funds, particularly in the short term. However,
ETAC members were largely in favor of the change to the L-Fund
for default allocations.
Committee members expressed support to change the L-Fund
default for a number of reasons. Many of us expressed our wish
that they had delivered--diversified our investments and taken
more risk when we were younger. Many of us were initially
skeptical of the plan but were much more supportive after
reading the survey results and talking to our own members.
We are generally supportive of, and understand the change.
The TSP is intended to be a long-term investment, a vehicle for
participants. So a default that maximizes a chance for growth
in the long term makes sense. Furthermore, the TSP plan
participants are able to change their future investment
allocations to a different fund or funds within the plan as
well as move their existing account balances via interfund
transfer. Any employee who does not wish to invest in the L-
Fund would be able to easily make a different investment
decision.
For all these reasons, the ETAC also supports legislation
that would change the default fund from the G-Fund to the age-
appropriate L-Fund for all newly enrolled participants.
This concludes my statement. Once again, thank you very
much for the opportunity to be here today.
Mr. Davis of Illinois. Thank you very much, Mr. Brown.
[The prepared statement of Mr. Brown follows:]
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Mr. Davis of Illinois. We'll go to Mr. Long.
STATEMENT OF GREGORY T. LONG
Mr. Long. Good afternoon, Chairman Davis and members of the
subcommittee. My name is Greg Long. Mr. Chairman, you had
previously noted my title as director of product development.
That is actually my former title. And as of today, I am the
executive director of the Federal Retirement Thrift Investment
Board. And as such, I am the managing fiduciary of the Thrift
Savings Plan [TSP]. And I welcome this opportunity to appear
before the subcommittee.
The Board is an independent agency with responsibility to
act solely in the interest of TSP participants. Consequently,
our statements to the Congress are not submitted for clearance
by the Office of Management and Budget.
You requested my views today on two proposals we
transmitted for consideration by the Congress to improve the
Thrift Savings Plan for Federal employees. We appreciate your
holding this hearing to examine these proposals. The Board
strongly supports amending the Federal Employees Retirement
System Act of 1986 [FERSA], to authorize automatic enrollment
of all newly hired Federal and postal employees into the Thrift
Savings Plan; and second, to change the TSP default for new
enrollees from the government securities investment, or G-Fund,
to an age-appropriate L-Fund, or Lifecycle Fund.
Lifecycle TSP is a retirement savings and investment plan
for Federal and postal employees and members of the Uniformed
Services. It is a defined contribution plan that offers the
same type of benefits that many private sector employees
receive under 401(k) plans. The TSP is available to employees
covered by the Civil Service Retirement System, the Federal
Employees Retirement System and also members of the Uniformed
Services.
Under FERSA, employees and service members who wish to
participate in the TSP must submit a contribution election to
their employing agency or service. FERSA also requires
employing agencies to create an account for noncontributing
FERS employees following the completion of a statutory waiting
period. Agencies must deposit an amount equal to 1 percent of
the FERS employee's basic pay to the accounts. Participant
contributions by FERS employees are matched by the agencies,
based upon a statutory formula. Since FERSA designates the G-
Fund as the TSP's default fund, all initial contributions from
the employees and agencies are invested in the G-Fund.
Thereafter, participants may submit a request to direct their
contributions and reallocate their investments among any of the
TSP's funds. For participants who do not submit a request,
their accounts will remain invested in the G-Fund by default.
Now, following the passage of the Pension Protection Act of
2006 [PPA], the Board undertook a review of the TSP's policies
in light of that legislation. Particularly we focused on
provisions of the PPA which applied to private-sector qualified
plans and 401(k) plans but not the TSP. This included the
automatic enrollment, as well as a focus on qualified default
investment alternatives [QDIAs].
The Board conducted significant research and data
collection on automatic enrollment and QDIAs. The research
included an analysis of the 401(k) industry, data and trends, a
review of TSP specific data, consideration of survey findings,
consultation with the statutory Employee Thrift Advisory
Council, solicitation of feedback from the agencies and,
finally, a cost analysis.
Agency matching contributions provide a strong incentive
for employees to contribute their own funds. And the voluntary
participation currently stands at 86 percent, which compares
very favorably to private sector 401(k) plans. However, 14
percent of FERS employees and 73 percent of Uniformed Service
employees who are not contributing currently to the TSP are
less likely to be financially self-sufficient in retirement
than their counterparts who do contribute.
Further, noncontributing FERS participants are failing to
collect agency matching contributions, which the Congress
authorized for their benefit. The statutory ETAC expressed
support for automatic enrollment in its June meeting and the
feedback from the civilian agencies are generally favorable.
Our analysis indicates that the systems communications and
staffing modifications required will be minimal. That
legislative proposal authorizes immediate automatic
contributions from all newly hired employees who did not
affirmatively decline to contribute a portion of their pay to
the TSP. The initial contribution rate would be 3 percent of
basic pay, but employees may opt-out or change their
contribution at any time. Participants would also have a 90-day
grace period from the date of their first contribution in which
to withdraw the funds.
I'm aware that under congressional budget rules, the
automatic enrollment proposal could generate a potentially
significant cost. I hope that a way can be found to overcome
that obstacle so that more employees will make full use of the
TSP in order to be better prepared for their retirements.
I can see, Mr. Chairman, that my time has now expired and I
know that my statement has been submitted for the record. With
your concurrence, I can wrap up here or continue.
[The prepared statement of Mr. Long follows:]
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Mr. Davis of Illinois. Thank you both very much, gentlemen.
We appreciate your testimony.
Let me begin with you, Mr. Brown. Could you think of any
reasons that employees would want to opt-out of enrolling in
the TSP?
Mr. Brown. Just so I understand ``opt-out,'' want to get
out; could I think of a reason?
Mr. Davis of Illinois. Yeah.
Mr. Brown. I don't know; it is all based on personal
individuality. Maybe they were--if they had some sort of
personal hardship or something, they may want to opt-out. And
in today's stressful economic time, I could see that probably
happening, especially with junior employees and people that
have not reached up through the career ladder. But I can tell
you at least from the position of this Union and so forth, and
being a TSP participant myself, we would strongly urge them to
remember to save some for the long haul and be part of that
three-legged stool, if you will, of retirement; you know,
Social Security, your pension, and this thing. It would be TSP,
obviously, and personal savings.
Mr. Long. I think I can add to Rick's comment there by
saying in looking at the data from the 401(k) world--and many
plans have adopted automatic enrollment. There are a small
percentage of people that opt-out, far less than those who do
not affirmatively sign up. But why that happens is because some
people who literally cannot afford it. But what we're trying to
get is of the 14 percent of FERS employees that don't
participate, there might be 2 or 3 percent that really are
living hand-to-mouth, paycheck-to-paycheck, and can't afford
it. And we have created a mechanism for them to opt-out. They
can do that. It is the percentage in between that we believe
are not opting-in simply because of inertia. And what automatic
enrollment does is, it uses inertia to encourage retirement
savings.
Mr. Davis of Illinois. The employees expressed an interest
in automatic enrollment in TSP and the automatic default to the
Lifecycle Fund on the survey. Are you aware of any other
expressed interests in implementing changes or improvements in
the TSP? Are there recommendations or suggestions that
employees have provided that they might think would improve the
TSP?
Mr. Long. Well, we do get comments on a regular basis of
things that people would like to have different, sure. And we,
as part of our normal course of business, consider those. There
are certainly some changes that we have made recently. One of
which is we have decided to send out on an annual basis a
statement to all of our participants, almost 4 million people,
that aids with our educational efforts. We also created an
ability to have spousal accounts so that a spouse can inherent
the account of a participant. There are other recommendations
and ideas that we get from--that are participant-based and we
consider them all the time.
Mr. Davis of Illinois. What would be the impact on the
retirement funds of Federal employees enrolled in FERS if they
do not participate or contribute to the TSP?
Mr. Brown. What would be the impact to themselves
personally?
Mr. Davis of Illinois. Yes.
Mr. Brown. They would wind up at the end of their career
without any type of saving if they didn't participate. And I
think that would be probably devastating to anyone. I mean, if
I could just caveat on what Greg has said, part of the things
that we have done and looked at other issues as trying to help
out participants, one of the main things is the ability to in
and opt-out. That in and of itself is an excellent vehicle for
these folks, whoever wants to participate.
What we also try to do is look at investments and changes
to TSP, keeping the overhead low, thus making the return on the
employees' investments higher. Across the board, even though we
are 15 other organizations, we try to act collectively to
ensure that dollar-for-dollar that the Federal Employees
Retirement System is offering the best quality-requirement for
their hard-earned dollars they invest.
Mr. Davis of Illinois. What would be the impact if
employees kept most of their dollars--investment dollars, that
is--in the G-Fund?
Mr. Long. Long term, the G-Fund is a fund that never has a
bad day and it also never has an especially good day. Long
term, the equity markets have shown that they have better
performance. So likely--there are no guarantees in life--but
likely over the long term, somebody in the G-Fund will make a
smaller return than somebody who invests in the L-Funds. That
translates to less money after a 20, 30 or 40-year career and
therefore a lower quality of life. We're trying to turn that on
its head. We are trying to improve the quality of life for our
retirees.
Mr. Davis of Illinois. Do these operate on the basis of the
greater the risk, the greater the reward?
Mr. Long. That is the intention, yes. And the capital
markets are built on that assumption, that you don't want to
avoid risk, you want to manage risk and take an appropriate
level of risk for your particular goals. The Lifecycle Funds
are built on that assumption. So that somebody who has a 30-
year window, 30-year horizon for when they actually need the
money, can invest more heavily toward stocks than somebody who
is going to retire and withdraw the money in 4 or 5 years.
Mr. Davis of Illinois. So the individuals who are the more
cautious investors, realizing that they have the assurance of
the protection of their investment would want to do the G-Fund?
Mr. Long. Uh-huh.
Mr. Davis of Illinois. And those who are a little more
open, that kind of reminds me of the parables in the Bible
where these individuals were given different sets of talents
and, of course, the ones who did the most investing ended up
with the most return. But I guess they weren't so worried about
the assurance of making sure that everything was there.
Mr. Long. I can assure you that we are well aware of the
participants' desire for safety, especially in these volatile
times in the marketplace. And therefore the G-Fund will always
remain a choice that anybody can put all of their money in at
any time. The desire for the change in the default from the G-
Fund to the Lifecycle is again about inertia, and we have
unfortunately, a significant amount of people that their money
goes to the G-Fund initially when they might only be 25 or 30
years old, and they sit there for an awfully long time and they
sit out on the potential to get that return that I know many of
Rick's members have unfortunately missed out on, and we're
trying to fix that.
Mr. Davis of Illinois. Thank you very much.
Delegate Norton.
Ms. Norton. Mr. Chairman, I think your first question, did
we know why people would opt-out in the first place is an
important one, because it is hard to believe that people truly
understand the one for one. Doubling your money up to 4 percent
is a pretty sure bet. Did your survey cover people who had
opted out?
Mr. Long. Yes, it did. And we were actually surprised about
this. I'm speaking from memory here. But we did segregate the
survey between people who only got the 1 percent and that was
their only contribution, therefore they were not participating,
and asked them about the automatic enrollment. And they were--
that group was still in favor of it, which was actually a
little bit surprising to us.
Ms. Norton. Have they been asked why they opted out in the
first place? If they are simply conferring what they have
already done, if you ask them should you have to contribute,
this is money they have to put forward. But I am wondering if
they have been specifically surveyed as to why in the first
place, which would give some sense of whether they had a full
understanding that they are losing money.
Mr. Brown. Speaking for our Union, nothing--I have spoken
to many members around the country. I have never spoken to
someone that opted out or chose not to.
Ms. Norton. That's why I'm asking, since you have been
surveying people, and you surveyed people about opting out for
this--as reported to the subcommittee. I'm trying to find out
what you know about people who opt-out.
Mr. Brown. I would guess--and this is just a guess--but
from talking to the folks and being a participant myself, maybe
because they didn't get the value of it or the whole process
explained to them very well by their particular agencies. You
know, in speaking on behalf of the Union and not as the ETAC
Vice, the more that is explained to them at their local agency,
regardless of who they work for, the more informed they are,
they seem to be more diversified in their investment portfolio,
if you will. And they also participate without opting out when
they are explained that they can borrow against it or they can
add more or specific funds and how they operate.
The smarter the folks are--that's why--on the ETACs of the
House we've gone and have taken farther steps not only with the
Web site and DVDs and pamphlets and literature, but we rely
heavily on a lot of the managers at the various agencies to
explain it to them properly. I think if you looked at why they
might opt-out, only because it wasn't explained to them
properly. Not that they can't know, they just didn't know.
Ms. Norton. Mr. Brown, I really believe that what you're
saying is in fact the case. It is more likely to be the case
than not. I also think that managers are more likely to put--
everybody does--his or her own business first and foremost and
prioritize what is important.
So I suspect that there are a lot of people who simply do
not understand, particularly since it is the agency. And I am
not sure the extent to which unions are involved in explaining
this matter, but I'm very concerned to know who these people
are who are opting out. I would assume that if there is knowing
opting out, that it does have to do with what, I think, you,
Mr. Long, said about how they can't even afford to put that
away. And I'm sure there are such people, and certainly such
people work for the Federal Government. Can you opt to put in
less than a certain amount?
Mr. Long. Yes. And I do want to--I misspoke earlier when I
said that 14 percent of the people opted out. That is
actually--those are the 14 people among the first group that
didn't opt-in because----
Ms. Norton. Yeah. And I would expect that. See, that I
would expect. But you haven't--for me at least--gotten to the
people who never participated, who would be expected, it seemed
to me when questioned, to want to continue to do as they have
before. And it does seem to me there is some obligation to find
out more--that's a large number as far as I'm concerned. And
this is a matter of free choice. So nobody is going to say you
have to do it, even--you yourself are allowing people to opt-
out. But I do believe that some obligation--particularly if you
want them in--to--for example, not rely only on anecdotal
evidence, to in fact--it is not hard to think of a survey that
one could do where one could actually ask the specific
questions: Did you know if you put in $5, the Federal
Government adds to that and puts in $10, and go on down the
line until you get to the point where you might know something
about this group.
I also would like to know who they are. I would like to
know their GS ratings, I would like to know, you know, where
they work. That is too large a number simply to report. So I
would ask you, since I believe you also believe that the more
the merrier, as it were, that a rather simple survey be
designed to find out more about those who are not going to opt-
in--not about those who are going to opt-out--once again, I
would say, because they have already opted out--but about why
they have chosen not to participate. I think you would learn a
great deal more about the program if you learned more about
them. You learn from those who made a deliberate choice not to
participate because some of those reasons might help you
improve the program and you would certainly learn whether or
not there are a large group of people who are not spending the
time to find out because they think this is just another piece
of paper from the government.
The government doesn't pass out many pieces of paper that
amount to money in your hands and the notion that this one will
be picked up and understood seems to me too much of an
assumption to make, given the large number who are not
participating.
So I would request that you endeavor to find out more about
who they are, what their reasons are, in order to perhaps
encourage them to come to the program, particularly given Mr.
Brown's testimony that when in fact the matter is explained
sufficiently, more and more people look like they come into the
program. Then, of course, once you found out who they were by
survey indicated, you know, how they opt-out of a program, why
they are not opting-in, would tell you what you need to know
about how to get more information to people and whether Web
sites are enough--these people aren't going to your Web site
because they have already opted-out. So you're preaching to the
converted when there are, you know, 14 percent, large numbers,
who may want to come to church too, but don't know that when
you put your money in this collection box, the preacher gives
you back some before you go home. So I'm interested in
expanding the program in that way, if you would----
Mr. Brown. I think part of that, and as we touched on
earlier is the--you know, the centralizing of the personnel
functions and the various agencies. They don't have people to
stand out there and meet with the new employees, or even
existing employees, and inform them of their benefits. And we
have spoken against that on many occasions because not only
just for your TSP, but the rest of your benefits and
entitlements for working for the Federal Government.
And I would say most people, they don't spend as much time
in the personnel department with the employees they've done.
I've seen it, I've witnessed it. I've been involved in the
Federal Government since 1985 and I have seen the various
agencies draw down their personnel departments. It is critical
to explain these benefits to these folks. And they are not
doing it; they are centralizing the personnel systems, this way
divesting themselves of personal contact, and an employee winds
up losing because of that. And I think if you----
Ms. Norton. And who loses? The employee and, frankly, the
program.
Mr. Brown. That's right.
Ms. Norton. That's why I would like to put the burden on
the program. I don't think any preaching to the managers is
going to work. I do believe most of them are doing very
difficult jobs and regard this as in people's best interest and
therefore perhaps they are not giving it the kind of time they
should. For them it may seem too paternalistic to go beyond
simply informing them of the program. It may be. I don't know
enough about these people to know who we are talking about in
the first place.
But one more question in that regard. Could one reason be
the difficulty of getting money out? Would you recall for me
what it takes to get your money out in case you need some of
the money that is in a Thrift Savings Program?
Mr. Long. There are loans that you can take out a loan.
There are two loans available. So if somebody wants to purchase
a residence, or for any other reason, a general purpose loan,
you can take out a loan. It does require you to pay it back.
And this is a common feature in 401(k) plans, and that is
designed so that people who put their money in can take some
comfort that they can get the money back if they need it.
There is a secondary option, and that is a hardship
withdrawal that can be done in-service. So let's say you're a
Federal employee and you--because of medical reasons or any
other reasons, you encounter a financial hardship, you can take
that money out. There are, depending upon your age, penalties.
Ms. Norton. There are what? I'm sorry.
Mr. Long. Depending upon your age, there can be penalties
that you need to be concerned about.
Ms. Norton. What kind of penalty? How great----
Mr. Long. IRS tax penalties. Ten percent usually is what
occurs. And then, of course, you have to pay taxes on the money
because you have not yet paid taxes on those moneys.
I think I can also shed some light on your earlier comment,
that is the----
Ms. Norton. See, if I can just respond to that answer. I
think it is an important answer. I'm not sure they understand
that. I would say that perhaps that is one of the reasons and,
of course, it is important for people to have that information
too. But I suspect that they haven't gotten that far to know
that if you, in fact, have to take your money out, there is a
10 percent penalty or, for that matter, they should know about
the loans which probably are at a rate that would be favorable.
But I suspect that they don't get past not getting in the
program in the first place. Go ahead.
Mr. Long. Getting that 14 percent down to as small a number
as possible is exactly why we are here. So we are of the same
mind here. We want to get as many Federal employees
participating. We are doing two things. Automatic enrollment, I
think, is the most important thing that can shrink that number
down. The second--right now----
Ms. Norton. But that would still leave 14 percent, or the
present number, out of the program.
Mr. Long. Yes. This is a go-forward perspective provision,
that is correct. What we're doing now is we know those people
who are receiving that 1 percent automatic but not
participating. And starting this year, we're sending them a
statement. Every single person will get one every year. The
people who are not participating, we have a customized message
on there that speaks to the fact that if you're not
participating, you're missing out on matching dollars. We're
trying to use our educational efforts to encourage
participation.
Also yesterday, here, actually over on the Senate side, the
TSP staff held a financial fair because we know that there are
some people who work in Congress that don't participate. So we
use our efforts and our resources to deliver educational
efforts to the staff on the Hill.
Ms. Norton. What percentage of those who are staff of the
Congress do not participate?
Mr. Long. I have to tell you, I don't know. I can certainly
find out.
Ms. Norton. I'd like to have that information as well. I
would like to have that information as well.
Mr. Long. Yeah, we can get that.
Ms. Norton. Thank you very much, Mr. Chairman.
Mr. Davis of Illinois. Thank you very much. Mr. Cummings.
Mr. Cummings. Thank you very much, Mr. Chairman. I want to
thank you for this hearing. I'm just wondering, just
following--I have just one question with regard to what
Congresswoman Norton was talking about. We know there are a
group of people who don't opt-in; is that right?
Mr. Long. Yes.
Mr. Cummings. And we--but we don't know why they don't opt-
in. We're guessing; is that right? Have we done any surveys or
anything?
Mr. Long. We have done a survey.
Mr. Cummings. You have?
Mr. Long. Yes.
Mr. Cummings. And what have they said?
Mr. Long. Among the first group, and this is the group that
receives the matching, the Federal Employees Retirement System.
The most significant reason--and this comes at 24 percent--of
that 14 percent is they don't have the money.
Mr. Cummings. They don't have the money. So they need every
dime--basically what they are saying is I need every dime of my
pay and I'm not anxious to put this money in there and get
matched; is that right?
Mr. Long. Yeah, that's correct.
Mr. Cummings. Have you all ever tried to navigate your Web
site?
Mr. Long. Yes.
Mr. Cummings. Well, let me just talk about that for a
moment. Because if nothing else happens out of this hearing, I
want to deal with your Web site. The other day I went to the
Web site and, literally, it is not the easiest thing to
navigate. I'm just telling you. And I have heard that from
other people also. I have heard it from constituents and staff.
And I want you to just take a look at it. I mean, in other
words, get some experts to look at it and talk to some just
regular everyday people, not people that, you know, that work
in your office. Maybe just some regular folks and ask them--I'd
like you to do a little survey and check into that. I literally
had to--Mr. Brown, I see your expression, but I'm telling you
what I feel and what I have observed, OK?
Mr. Brown. No. That----
Mr. Cummings. But let me just be clear. Because you all are
here today talking about suggestions for trying to improve and
have a more open situation for people to come into. Well, the
fact is that if it is difficult to navigate your Web site, that
is a problem. And all I'm asking you to do is to take a look at
it and get some folk who--just regular people, and just find
out what they think and how they think it can be improved.
Sometimes I think we do things because we have been doing
them. And sometimes I think we need to take a look at, you
know, situations. I literally had to go to Member Services to
get somebody to help me get through the Web site, because I
wanted to do--try to make some changes and find out exactly
where my money and was, that kind of thing.
And so I know that if I'm going through it, I'm sure other
people are going through it, too. Do you all do surveys or
anything like that with regard to the Web site?
Mr. Long. I think I have some good news for you.
Mr. Cummings. I can't hear you. I'm sorry.
Mr. Long. I think I have some very good news for you.
Mr. Cummings. You have some good news for me? Let's make
sure the press hears this. Now, what is the good news?
Mr. Long. I accepted your recommendation and we are doing
exactly that. About 3 months ago, I hired a consultant and
their job is specifically to aid us, first of all, in
conducting focus groups, and we'll be redesigning the Web site.
I'm familiar that our Web site is functional, although it needs
to be updated and the navigation issues are real.
Mr. Cummings. They are very real. I was so frustrated, I'm
serious, I was so frustrated, I wouldn't even be bringing this
up if it were not for my frustration. I sat there for half an
hour trying to figure this thing out, and ended up having to
call Member Services. And then we got on the phone and went
through it together to figure out, you know, how to do what I
had to do.
All right, Mr. Brown.
Mr. Brown. Part of my--you made a comment about my facial
expressions. I was trying to remember--I know we had discussed
that at one of the ETAC meetings about--because--before it was
even started up, before there was even such a thing as a Web
site or even before it was able--other than just informational
at best, and trying to be able to invest over the Internet and
so forth. And as I was sitting here, I was trying to think
that--because all Web designs, including the one that our unit
has, and another one has, can always be improved and can always
be made more simplistic and more time efficient and so forth.
As I was sitting here and as you were speaking, I was
trying to think that we--I don't have the minutes in front of
me, but I know that we had discussed that. I'm sure we did. So
I was kind of wondering in my mind when we did it. I know it
was sometime ago. So you saw the look on my face--it wasn't----
Mr. Cummings. I was trying to read your mind, and I
shouldn't have done that.
Mr. Brown. There is very little to read.
Mr. Cummings. Because I just think that--I just think that
in today's world, if something is inviting and if the person
can easily navigate, I think that helps, I really do. And I
think we have to--I think it needs to be--I know your
consultant is going to tell you what to do, but you have also
got to keep in mind there is an older generation who have
learned how to deal with computers from 5 and 6-year-olds. Keep
that in mind also. And that is real.
And I just think that like I said, I think you will do a
big favor by trying to improve that. Now, is there a--is there
a timetable in that, Mr. Long?
Mr. Long. We are expecting a report back from the
consultant within about 3 months. But then comes the technology
part, then comes the building.
Mr. Cummings. Whoa, whoa, whoa. Let's rewind. You said
you've been doing it for 3 months. They have been looking at
your Web site for 3 months. And--now--all right. So when are
you expecting them to come back?
Mr. Long. There are significant parts to this. I expect
them to come back to us with final recommendations and design
and markups within 3 months. Over the summer.
Mr. Cummings. OK. And then how long do you think it will
take to, you know, actually put them into effect?
Mr. Long. I don't have an estimate for you on that.
Mr. Cummings. Well, can--Mr. Chairman, can we kind of hold
them to something? I mean, we--let me just tell you--let me
just tell you what I'm concerned about. Since I have been in
Congress, I have these--I chair some hearings, and one of the
things I have noticed is that people will come before us--not
you, others--will come before us and tell us they are going to
do things, right? And then we don't have another hearing about
it until the next Congress or maybe two Congresses later.
Players have changed, the chairman has changed, and a lot of
times things have not gotten done.
And I would really like for you to give our chairman of our
committee--I mean, when you get back--I'm not trying to force
you to come up with a date right now. But we need to be dealing
with some deadlines, because I think if you recognized 3 months
ago or longer that there was a problem, then that means that,
just based on what you have just said, 6 months are going to go
by, at least, where we haven't done anything about this
problem. And I am convinced that government can move faster. I
really am.
And I think government should move very fast when it comes
to people's money, particularly in this day and age. And I
think that all the thrift folks who have money in there in your
plan would be elated. I think we sometimes need to move as fast
as private industry would move.
I know it is hard. I know you have some things to jump
over. But let me tell you something. What you come in here and
said to us and I think, by the way--I agree with you, we need
to do the things that you have said. I agree with you a million
percent. But at the same time, I just think that there are
certain things you all need to do, too, and need to do faster.
With that, Mr. Chairman--and if you would kindly give us a
date that we can hold you to. And then we can at least, you
know, just make sure that date doesn't pass by.
Mr. Long. We'll work on correspondence back to you.
Mr. Cummings. You're going to get me some correspondence?
Mr. Long. Exactly.
Mr. Cummings. You said you'll work on it.
Mr. Long. I don't think I can--I will get you some
correspondence.
Mr. Cummings. Yes. OK. And how soon can you get me that?
How soon can you get me that, what you've just said?
Mr. Long. I think it would be reasonable to assume I could
do that within a week.
Mr. Cummings. Good. I'm going to hold you to that.
Mr. Davis of Illinois. Thank you very much, Mr. Cummings.
I think it would be very helpful if before certainly we
were recessing or ending our work leading up to the
Presidential election with the idea that we are going to start
kind of fresh and new, at least with the executive branch, that
we have this information--that information, so that individuals
could use it as we are getting down to closing out the year, if
they wanted to try to make some changes. I think it would be
very helpful.
Gentlemen, thank you very much. I have no further
questions. And we appreciate your testimony. We will prepare
for our second panel.
And we are very pleased to have Mr. Daniel Green, who is
the Deputy Associate Director for Employee and Family Support
Policy, Strategic Human Resources Policy Division, U.S. Office
of Personnel Management. Mr. Green is currently responsible for
developing Federal employee benefits policy, covering the
multibillion-dollar retirement and insurance programs
administered by OPM.
And we have Ms. Colleen Kelley, who is the president of the
National Treasury Employees Union, the Nation's largest
independent Federal sector Union representing employees at 31
different government agencies. As the Union's top elected
official, she leads NTEU's efforts to achieve the dignity and
respect Federal employees deserve. Ms. Kelley represents NTEU
before Federal agencies, in the media, and testifies before
Congress on issues of importance to NTEU members and Federal
employees.
We have Dr. Sara Collins, who is currently the assistant
vice president of the Commonwealth Fund and an economist by
trade. Dr. Collins oversees and manages the program on the
future of health insurance at the Commonwealth Fund. And we
thank you, Dr. Collins.
Mr. John Gage is the national president of the American
Federation of Government Employees, AFGE AFL-CIO. Mr. Gage
watches over the rights of some 600,000 Federal and D.C.
Government employees. Mr. Gage was elected national president
at AFGE's 2003 National Convention in Las Vegas, NV.
Thank you all for coming. And if you would stand and raise
your right hands to be sworn in.
[Witnesses sworn.]
Mr. Davis of Illinois. The witness will show that--I mean
the record will show that the witnesses answered in the
affirmative. We thank you all for being with us. We will follow
our usual procedure of 5 minutes for a summary statement. Your
full statements are in the record. The yellow light indicates
that you have a minute left and, of course, the red light means
that our time is up. Thank you all for being here. We will
begin with Mr. Green.
STATEMENTS OF DANIEL A. GREEN, DEPUTY ASSOCIATE DIRECTOR FOR
EMPLOYEE AND FAMILY SUPPORT POLICY, STRATEGIC HUMAN RESOURCES
POLICY DIVISION, U.S. OFFICE OF PERSONNEL MANAGEMENT; COLLEEN
M. KELLEY, PRESIDENT, NATIONAL TREASURY EMPLOYEES UNION; SARA
R. COLLINS, ASSISTANT VICE PRESIDENT, THE COMMONWEALTH FUND;
AND JOHN GAGE, NATIONAL PRESIDENT, AMERICAN FEDERATION OF
GOVERNMENT EMPLOYEES, AFL-CIO
STATEMENT OF DANIEL A. GREEN
Mr. Green. Chairman Davis and distinguished members of the
committee, I am pleased to be here today to discuss the issue
of health insurance coverage for young adult dependents of
Federal employees and retirees. The Office of Personnel
Management offers numerous tools for Federal agencies to
recruit and retain an effective civilian work force. At OPM we
believe that success in our mission helps the total work force
succeed at theirs: safeguarding the health, security and well-
being of all Americans. Good personnel policies and practices
just make good business sense.
Overall, the government provides excellent comprehensive
benefit programs, with care for employee dependents being an
important aspect of an effective work force. OPM administers
the Federal Employees Health Benefits Program, which covers
approximately 8 million Federal employees, retirees and their
dependents. The FEHB program offers competitive health benefit
products for Federal workers by contracting with private sector
health plans. We emphasize flexibility and consumer choice as
important features of the program. In addition to the 283 plan
choices offered under the program, Federal enrollees may choose
between self-only or family coverage. Dependents under family
coverage are spouses and unmarried children under 22 years of
age, including adopted, foster and stepchildren. At age 22,
young adult dependents lose FEHB coverage. They may enroll in
temporary continuation of coverage for the full cost of
premium, plus a 2 percent administrative fee. TCC enrollments
may be continued for up to 36 months following loss of
eligibility. Therefore TCC currently assists young adult
dependent children with additional insurance coverage to age
25.
TCC allows dependents the choice to enroll in a different
health plan than their parents' family coverage. Dependents may
therefore enroll in a lower-cost plan.
The average FEHB premium for self-only coverage in 2008 is
$433 per month, including both government and enrollees'
shares. However, the Mail Handlers Value Option has a 2008
self-only premium of $178 a month.
In addition, some FEHB carriers offer affinity products
which are not administered by OPM, but which provide enrollees
with stand-alone dependent coverage for young adults over the
age of 22. For example, one of the FEHB carriers offers an
affinity product with dependent coverage for young adults up to
age 27 at $184 per month.
We understand that Chairman Davis will be introducing a
substitute for the current H.R. 5550. It would be premature for
the administration to state a position ahead of the
substitute's introduction. Nonetheless, we have considered this
general topic in the past and offered the following
observations regarding extended dependent coverage for young
adult children. Simply changing the age of dependent children
under family enrollments, as proposed in the current H.R. 5550,
would raise total premium costs for the government and all
enrollees to offer additional benefits for only part of the
population.
In 2005, at the request of Congress, OPM reviewed the
potential costs associated with adding coverage for dependent
full-time students up to age 25. We found that adding those
dependents alone would increase FEHB costs by over $200 million
a year. Approximately $160 million would be borne by the
government with the remainder of the cost paid by enrollees
through increased premiums.
Chairman Davis' substitute for H.R. 5550 proposes to offer
extended dependent coverage for employees with young adult
children over the age of 22 as a voluntary enrollment option.
The proposed legislation would allow health insurance companies
to bid competitively to offer such coverage to dependents of
FEHB enrollees. Premiums for the voluntary option would not
include a government contribution, and dependents would need to
have been covered under the FEHB program up to age 22 to
qualify. We estimate there are about 245,000 dependents,
students and nonstudents, in the target age group.
In 2006, OPM actuaries estimated the cost of extending FEHB
benefits to unmarried, full-time student dependents under 23
years of age at about $1,640 per member per year, or roughly
$135 per month. This cost estimate was based on experience data
from one of our largest fee-for-service health plans;
therefore, we believe this represents the low end of any cost
estimate.
Mr. Chairman, I appreciate the opportunity to testify
before the subcommittee on this issue. OPM will be pleased to
work you and the rest of the Congress on addressing this issue,
and I will be glad to answer any questions you or other Members
may have.
Mr. Davis of Illinois. Thank you very much, Dr. Green.
[The prepared statement of Mr. Green follows:]
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Mr. Davis of Illinois. We will proceed to Ms. Kelley.
STATEMENT OF COLLEEN M. KELLEY
Ms. Kelley. Thank you very much, Chairman Davis,
Representatives Norton and Cummings, for the opportunity to
address this important issue to Federal employees.
NTEU supports H.R. 5550, the bipartisan bill to extend FEHB
coverage for child dependents up to age 25. This bill takes a
simple approach to solve a large problem. Right now, young
people who receive health insurance through their parents FEHB
family policies lose it when they turn 22. These young adults
are frequently in college or out of school, but with no job, or
a job with no benefits. They are part of a growing segment of
society who are not financially independent of their families
and cannot afford health insurance on their own. NTEU believes
they should have coverage.
Research data shows that young adults ages 19 to 29 are the
largest and fastest growing segment of the population without
health insurance. There are numerous precedents in the States
and in the private sector for care independence past age 21.
According to the National Association of Insurance
Commissioners, most health insurance policies cover full-time
student dependents until age 23, a full year longer than FEHB.
In recent years, 17 States have required coverage for
dependents in private plans up to ages 24, 25, 26 or, in one
case, to age 30.
In Massachusetts, young adults are considered dependents
for insurance purposes up to age 25, or for 2 years after they
are no longer claimed on their parents' tax returns, whichever
comes first. And Maryland enacted a law last year requiring
plans to cover unmarried young people who reside with the
policyholder until age 25. It is not surprising, then, that
Federal employees and retirees who participate in FEHB are
disappointed that the Federal Government is far behind.
If the States require private policies to carry dependents
past age 22, why not the Federal Government? Private insurers
offer coverage for young people out there in the States, yet
one of the largest health insurance plans in the country, one
that serves almost 9 million people, is way behind the curve.
If employees working in the private sector can have their
dependents covered well beyond the time they turn 22, then
surely the Federal Government, with the largest risk pool in
the country, should be able to do the same. Let's have the
Federal Government lead on this issue rather than follow.
Barely a day goes by without an article about the pending
retirement ``tsunami'' and the need to attract and retain
talent in the Federal work force. The bill before us is an
excellent place to begin. Increasing the age for young adults'
health coverage is a move toward personnel competitiveness,
recruiting and retaining talent, and realizing work force
equity in the Federal sector. Let me provide two brief
examples.
A daughter of one of our Members lost her insurance at age
22, and while in college and at the same time working for a
company that did not offer health insurance, she fell down her
stairs, broke her jaw and had to have teeth removed and
repaired. Her parents could not afford to carry a separate
policy on her. The daughter incurred a debt of $25,000 in
medical expenses. Needless to say, as a young person, she could
not readily pay this, and she was required to get a full-time
job to pay off her debt and put college on hold.
As OPM has noted, FEHB offers temporary continuation of
coverage, TCC, to those who lose insurance. But as OPM noted,
enrollees must pay the full cost of the premium, the enrollee
and the government share, for a total of 100 percent plus a 2
percent administrative fee. This essentially puts it out of
reach for young people when they are dropped, even when parents
help to pay.
Another example is an NTEU member who took TCC for his
daughter. He was required to pay $457 a month for TCC, plus
paying his daughter's deductible, plus the family's own FEHB
premiums. The father wrote this to us in an e-mail, ``I would
be better off working for a private employer in New Jersey. I
have worked almost 33 years with the IRS. And this insurance
issue might be the one that forces me to leave before I wanted
to. I might have to find another job in the private sector.''
As to cost, to my knowledge, there has not been an in-depth
examination by impartial experts, but common sense would
suggest that infusing a large number of young and generally
healthy individuals into a risk pool of government employees
who are older or retired should not cost much. OPM did a
cursory three-page paper in 2005 and came up with a 0.7 percent
increase in premiums.
I find even a small increase hard to believe, and I urge
the subcommittee to authorize an impartial study of the issue
in its entirety.
Let me reaffirm NTEU's support for H.R. 5550. It is good
public policy, one which would certainly help the Federal
Government retain its talented work force and attract new
employees.
We very much appreciate your leadership on this issue, Mr.
Chairman, and I look forward to working with you to make it
happen. Thank you.
Mr. Davis of Illinois. Thank you very much, Ms. Kelley.
[The prepared statement of Ms. Kelley follows:]
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Mr. Davis of Illinois. Dr. Collins.
STATEMENT OF SARA R. COLLINS, Ph.D.
Ms. Collins. Thank you, Mr. Chairman, for this invitation
to testify on providing health insurance coverage to young
adults enrolled as dependents in the Federal Employees Health
Benefits Program. The subcommittee is to be commended to
explore ways to stem the growing tide of uninsured young adults
in the United States.
Adults ages 19 to 29 are the fastest growing age group
among people who lack health insurance in the United States, as
you stated in your opening comments. The number of uninsured
young adults, 19 to 29, climbed to 13.7 million in 2006; this
is up from 13.3 million in 2005. Young adults are
disproportionately represented among people who lack health
insurance, accounting for 30 percent of the 46 million
nonelderly uninsured people, even though they comprise just 17
percent of the population.
Why do young adults become uninsured?
The most gaping hole in our voluntary, employment-based
health insurance system occurs when people do not have access
to employer coverage and have incomes that are too high to
qualify for Medicaid and the State Children's Health Insurance
Program.
The individual insurance program has proven to be a largely
inadequate substitute for employer coverage because of
underwriting and the fact that people face the full cost of the
premium.
Young people making the transition from childhood to
adulthood fall into this gap in greater frequency than any
other age group.
Young adults are at risk of losing access to employer
coverage or public insurance programs at two critical
transition points: 19th birthdays or graduation from high
school and graduation from college.
Young adults covered as dependents on their parents'
employer policies often lose their eligibility for that
coverage at 19 or graduation from high school, particularly if
they don't go on to college.
Medicaid and SCHIP reclassify all teenagers as adults on
their 19th birthday, meaning that most lose coverage.
As a result of these changes, uninsured rates drop sharply
at age 19, rising from 11 percent among children under age 18
to 30 percent among young adults 19 to 29. Low-income young
adults are particularly at risk of losing coverage: Among those
in families with incomes under poverty, more than half are
uninsured compared to about one in five low-income children.
Half of young adults who graduate from high school, but do
not go on to college are uninsured for some time during the
year following their graduation. This is twice the rate for
young adults who attend college.
Among young adults who go to college, the year following
their college graduation can also be perilous. As new entrants
to the labor force, they can confront hazards that reduce their
likelihood of having coverage like those faced by high school
graduates: waiting periods, temporary positions, low-wage jobs,
employment at small firms and job turnover. Nearly two of five
college graduates can expect to spend at least some time
uninsured in the year just after graduation.
What are the consequences of going without health
insurance?
While young adults are, on average, in better health than
older adults, losing coverage disrupts their access to health
care and leaves them and their families at risk of high out-of-
pocket costs.
Health risks that are prevalent among young adults include
obesity, which increased by 70 percent in this age group in the
1990's. There are 3\1/2\ million pregnancies each year in this
age group. One-third of all HIV diagnoses are made among young
adults. Injury-related visits to emergency rooms are far more
common among young adults than they are among either children
or older adults.
The Commonwealth Fund Biennial Health Insurance Survey
found that half of uninsured young adults, 19 to 29, because of
costs, had either failed to fill a prescription, not gone to a
doctor or specialist when they were sick, or skipped a
recommended medical test, treatment or followup visit. This is
compared to about 30 percent of young adults who are insured
all year.
Just one-third of uninsured young adults, 19 to 29, have a
regular doctor, compared with 81 percent of those who are
insured. Forty-six percent of uninsured young adults in the
Commonwealth Fund Survey reported problems with their medical
bills, including having trouble making payments, being
contacted by a collection agency because of inability to pay
bills, significantly changing their way of life in order to pay
bills or pay off medical bills over time. This is compared to
about a quarter of young adults who had coverage and reported
such problems.
Federal action to expand affordable, comprehensive health
insurance to everyone would help ensure that young adults would
avoid gaps in their health insurance. Massachusetts has led the
Nation on expanding health insurance to all and has included
policies targeted to ensure that young adults stay enrolled.
In addition, 18 other States have passed legislation that
increases the age of dependency for young adults for purposes
of private insurance coverage. New ages of dependency range
from 24 in Delaware, Indiana and South Dakota to age 30 in New
Jersey. Twelve States have settled on age 25.
In the absence of universal coverage at the Federal level,
three targeted policy changes would help cover more young
adults, extend eligibility for Medicaid and SCHIP beyond age
18. This would have by far the biggest impact on reducing the
number of uninsured young adults, extending eligibility for
dependents under private coverage beyond 18 or 19, as 19 States
have done and which this committee is considering for FEHB.
Even increasing the age to 23 could cover an estimated 1.4
million unmarried dependent young adults.
And finally, States could ensure that all colleges and
universities require full-time and part-time students to have
health insurance and that they offer coverage to both.
Thank you.
Mr. Davis of Illinois. Thank you very much.
[The prepared statement of Ms. Collins follows:]
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Mr. Davis of Illinois. Mr. Gage.
STATEMENT OF JOHN GAGE
Mr. Gage. Thank you, Mr. Chairman, Congresswoman Norton. On
behalf of the more than 600,000 Federal employees represented
by AFGE, I thank you for the opportunity to testify today.
Extending health insurance coverage through the FEHB to
dependents up to age 25 has long been a priority for AFGE's
members. Many children of Federal employees are forced to delay
completion of college degrees because they must work to earn
the money necessary to pay ever-increasing college tuition.
Some young adults may be pursuing the advanced degrees which
are increasingly necessary even for entry-level jobs at some
professional occupations.
Finally, a large number of young adults whose parents are
Federal employees are working but hold jobs that provide either
no employer-sponsored health insurance or health insurance
options that are entirely unaffordable. According to the Robert
Wood Johnson Foundation, as of 2004, approximately 13.7 million
Americans between the ages of 19 and 29 were uninsured. Unless
they are full-time students or their parents, full-time
caregivers, they lose eligibility for coverage under their
parents' family coverage.
In FEHB, unmarried children can be covered up until age 22.
FEHB will not cover dependents over age 22 unless the child is
incapable of supporting him or herself because of a disability
that began before age 22.
At least 14 States have passed legislation that redefines
``dependent'' for purposes of family health insurance coverage,
and most of those have extended coverage to the age of 25 and
beyond.
The legislation introduced by you, Mr. Chairman, H.R. 5550,
was an attempt to bring the Federal Government up to the
standards set by these progressive States and other employers
against whom the Federal agencies compete to recruit and retain
employees. AFGE strongly supports H.R. 5550, because it
provides a straightforward answer to the problem of insurance
coverage for the young adult dependents of Federal employees.
The actual cost to FEHB of extending family coverage to
those in the age interval of 22 to 25 are likely to be
negligible, but the benefits to families would be substantial.
The compromise bill before us today would have OPM make
available for purchase a separate insurance policy for the
young adult dependents. While certainly no one means for this
compromise to be a model for future efforts to improve health
insurance for Federal employees and their families, it is
important to note that employee-pay-all insurance products are
not employee benefits.
It is unclear how many Federal employees would be able to
afford coverage for their dependents, age 22 to 25. But since
thousands of Federal employees remain uninsured, all together,
because they cannot afford FEHB premiums, we can only conclude
that there are many thousands more in the lower grades of the
general schedule and the Federal wage system who can barely
afford their current plan and could not possibly afford to
purchase additional individual plans for their young adult
dependents.
For the government to claim it cannot afford to extend
their current FEHB family coverage to dependents is especially
frustrating to hear, since the Bush administration continues to
refuse to take advantage of rebates made available under the
Medicare Modernization Act. This law, establishing the Medicare
Part D prescription drug program, allowed subsidies for
employers who provide their retirees with prescription drug
coverage. According to a recent GAO study, if OPM were to apply
for these rebates, all FEHB premiums would be cut immediately
by roughly 2 percent and future premium growth would be reduced
as well.
It is not too late for OPM to apply for and receive the
Medicare Part D subsidy. Federal employees pay, on average, 30
percent of premiums, and in each of the past 3 years the
enrollees share of premiums has risen by a higher percentage
than the agency share.
AFGE strongly urges the Congress to require OPM to obtain
the maximum amount available to FEHB under Medicare's Part D
employer subsidy provision. We believe that these funds are
adequate to pay for both an extension in eligibility for
dependent coverage to age 25, as provided in H.R. 5550, and the
improvement in FEHB financing that is provided for in H.R.
1256.
In closing, we commend the chairman for introducing H.R.
5550; and we hope that many Federal employees will be able to
afford the plans that OPM chooses to make available for this
age group and that, soon, Congress and a new administration
will be successful in addressing in a more comprehensive way
the many problems of health care in America.
That concludes my statement, Mr. Chairman.
Mr. Davis of Illinois. Thank you very much.
[The prepared statement of Mr. Gage follows:]
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Mr. Davis of Illinois. And I thank each one of you.
Mr. Green, let me ask you, in your testimony, you state
that the cost of the underlying bill, H.R. 5550, would be $200
million a year.
Could you tell us how you arrived at that cost figure?
Mr. Green. Yes, sir. The cost could be more than that
depending upon the final bill and how it is proposed. It is
simple math, however.
Our actuaries tell us that the average medical expense for
young adults that are in the FEHB--that are covered in the
FEHB, the 21-year olds, 20-year olds--while they, indeed, use
less health care than do older employees, they still cost
about, at last check, $1,640 a year. Since there would be no
offsetting revenue to pay for that additional expense, you
multiply 1,640 times the number of children, adult children,
that would continue to be covered, and that is how you come up
with the expense.
Mr. Davis of Illinois. I noticed in your statement you
indicated that OPM couldn't really take a position on the
substitute because it had not been introduced, and you didn't
really know exactly what might very well be in it.
Does OPM have a position on the concept of providing
coverage for this category of young people, essentially, that
we are talking about?
Mr. Green. OPM has the position that what is of concern to
Federal employees, to their health and welfare and their
families' health and welfare, is of concern to us. This has
been an issue, and we know it is of concern to Federal
employees and to Members of Congress. We have heard from them;
we have heard from Members of Congress.
We know ourselves, in our own life, that it is an issue.
And so, yes, of course, we are open to discussing any and all
ways that the issue can be dealt with fairly for all, and that
includes people with and without young dependent children--or
young adult children.
Mr. Davis of Illinois. Even if, let's say, the
beneficiaries had to pay the cost themselves--and I know it is
difficult to project, but would you venture an opinion as to
where OPM might be on the bill if that was the way we ended up
suggesting that it be paid for?
Mr. Green. Well, fortunately, we have had some experience
with that recently.
OPM implemented the dental and vision law for Federal
employees, and as you know, it has been very popular with
enrollees, with both employees and retirees. I think, at last
check, over 700,000 people had been enrolled in one or the
other or both programs.
So we have some experience with that, and if such a bill
became law, we would certainly implement it as effectively as
we know how, because I do think that it would be a challenge,
but nonetheless doable to come up with a balance of premium and
benefits that made it attractive to people that needed that
kind of coverage.
It is correct that the TCC is relatively expensive,
although it is a godsend--I can say to that personally--that it
is a godsend for folks because it is automatic issue. You don't
need to take--it isn't underwritten; you don't need to take a
medical exam to be covered.
Mr. Davis of Illinois. Well, thank you very much.
Ms. Collins, let me ask you: You indicated in your
testimony, certainly that there is a need to insure young
adults between the ages of 19 and 29.
If we ended up covering this group that we are talking
about, 22 to 25, and they had to pay the cost themselves, would
you view that as being preferable to them having no coverage at
all?
Ms. Collins. Considering the only option is really the
individual market or this continuation policy, the CP is
certainly a better option. The larger group you can buy into,
the better, the lower your premium will likely be; so it would
be a better option.
At least, of course, it would be better for these families
if the premiums were subsidized and some of the costs were
offset, but it would be much more preferable to buying on the
individual market.
Mr. Davis of Illinois. Thank you.
Let me ask you, Ms. Kelley and Mr. Gage, I understand that
both your organizations would prefer that the government absorb
the cost of the young adult health coverage. Of course, you
also know that we must abide by the PAYGO rules whether we are
talking about $50 or whether we are talking about $200 million.
I mean, those rules are in effect.
Do either of you have any recommendations that could
perhaps offset the cost of H.R. 5550, as introduced?
Ms. Kelley. Well, from a cost offset standpoint, I would be
willing to work with the subcommittee and look for that. But I
guess I have to say that my biggest concern about the cost
right now is that when I think about the cost of a stand-alone
plan that employees or their families would have to buy for
them versus amending the current FEHB, it seems that the cost
is going to be more in a stand-alone plan.
And it also seems to me that there is a lot of successful
experience out there in these States that everyone has cited,
and I have never seen any kind of analysis on what the States
have done to either minimize or eliminate the additional cost,
or what success they have had. That is one of the reasons we
would like to work with the subcommittee on having some kind of
an impartial expert actually look at these numbers.
I understand the OMB did the numbers, and it is either a
three-page report, or it is referred to as ``simple math.'' But
I have to say, usually when it is a Federal employee issue,
OPM's solution to it is a new plan with 100 percent of the
premium borne by the employees, and that is not one, as you
noted, that we would normally support.
So I believe there are probably some other options out
there of how this can be costed or priced, and I don't think
that analysis or research has been appropriately done by an
impartial expert; and that is what I would ask the
subcommittee's help in having done.
Mr. Davis of Illinois. Thank you.
Mr. Gage, do you have a----
Mr. Gage. Yes, sir. We suggested that OPM take full
advantage of the Medicare Part D subsidy. Of course, that
shifts it to Medicare.
But I am a poster child for this. I have two kids in
college now, two just out of it, four kids between those ages,
and I can tell you--one just back from Iraq--and I can tell you
what a strain it is on them not to have health insurance
coverage. So I would like to work with the subcommittee.
I don't think it is a matter of simple math. I don't know
how these States--Maryland, for instance--can cover students
through 25, and not see an appreciable premium increase for the
other participants in the plan. So I think we ought to put
everything on the table here and recognize that this is a huge
problem for Federal employees and their families and make sure
that--I just can't believe in actuarial numbers, in
underwriting, that this is a simple matter of multiplying the
number of potentials times the cost for young adults who should
be very good, very good underwriting risks.
So I, too, would like to work with the subcommittee on
this. But I do think that the time is now for this. This
problem is getting worse.
Ms. Kelley. If I could add, Mr. Chairman, one of our
concerns is this stand-alone plan versus FEHB; and, you know,
maybe there is a way to figure it out so that it stays as an
amendment or addendum to FEHB, not as a stand-alone plan; and
that would go a long way to ensuring that the risk pool isn't
so small that only those who know they have some kind of
serious medical condition would opt into whatever this new plan
is, which would defeat the whole purpose of trying to provide
insurance for all of the dependents, ages 22 to 25.
So I don't think it has to be an either/or, but again it
would take some real neutral cost analysis to look at that from
a State perspective and their experience, as well as the FEHB
pool.
Mr. Davis of Illinois. Yes.
Ms. Collins. I also had a question, too, for Mr. Green,
whether adding this less-expensive group to this large-risk
pool, what it would do to the overall premiums for this risk
pool. So has that been taken into account, too? Rather than
selling it as a separate--having it off as a separate plan,
what does just adding this healthier group into the pool do to
the premiums?
Mr. Davis of Illinois. Well, thank you very much. Let me
just shift over to Ms. Norton.
Ms. Norton. Well, thank you very much, Mr. Chairman, for a
very important hearing. And I want to thank these witnesses for
excellent and informed testimony.
The chairman is right that we have to go on PAYGO, but if
you are dealing with insurance, calculating extra cost is very
different from the way we do for most Federal programs. So I am
skeptical, along with some of you, about additional costs and
how it is done.
I think a stand-alone plan is absurd. They could do their
own stand-alone plans. I think it is absurd at a time when
Republicans and Democrats are saying that the entire country
should have access to the FEHB.
That is the big plan that people run around the country
with and have been talking about, now, for at least a decade,
that one of the ways to give health care to everybody is to let
them into this large pool. And the whole point is, you get a
more diverse pool than the Federal employees, who tend to be
older, and you get the efficiencies that the FEHB has.
So what we do, if you will forgive me, stupidly, is to
force committees like this to go to more expensive ways to do
what needs to be done.
So I am very concerned about denying access to FEHBP, when
consistently we hear from Members of Congress on both sides of
the aisle that denying access to FEHBP for relatives, people
who are already in and already part of it, so it would only be
for them beyond the age where they are now already part of the
plan.
And I am very concerned, as well, Mr. Chairman, because I
am not certain that CBO, or whoever, has calculated the cost,
is actuarially intelligent. I don't know if, for example, they
have figured out what it would mean to the increasingly older
work force of the Federal Government to have an influx of new
young bodies who would add to the pool; that, actuarially, it
seems to me, would have a salutary effect on the pool for
everybody who is in it.
And I think we do need an independent study, but I think it
needs to be done by insurance experts. It needs to be done by
people who would look at our pool and talk about what would
adding new people between the ages we are talking about--they
are rather small in number--what it would mean, so that at
least we would know there is a figure and what the figure is.
So I am very bothered by being forced, as the chairman has
been forced, because we don't have any other information. And
we know what the rules are and we have to abide by them.
I believe that the bill itself, the wisdom of the bill
itself, cannot be doubted. Here is a country that is unwilling
to provide health care for these youngsters. We are talking
about people who get out of school, where they are almost
automatically low-wage people--very often they are temps--where
even out of what they earn they have to pay for their own
health care. That is a reason right there to save money.
They are on something close to stand-alone plans. You find
yourself a pool through some health insurance plan that does
not give you nearly the benefits that going into our FEHB
would. They have lower wages. Some of them are still in school,
for goodness sakes. They are carrying loans; many of them are
carrying loans from college.
And then I say to you--there is a professor of law at
Georgetown, who teaches one course there every year--that they
are also carrying their law school loans. We are already making
it impossible for these young people. They go back home to live
because of the cost of housing compared with wages that have
been stagnant even for people with skills and for families.
We want them to go to school and graduate school, and yet
we don't want to provide a way for their health care to be
taken care of. And there is very little incentive for people
who have low wages or no wages, because they are still in
school and are overage for the plan, to take from meager wages
to pay for what families and people who are on larger salaries
today find they are unable to pay for, even with the kind of
subsidy they get from their employers.
So I just think we are stuck way on stupid now. We are
going to, it looks like, provide health care only incrementally
to people. That is why we went to children last year, got
vetoed four times just for trying to add funds for children.
And we were trying to go that route.
Here are some more children, although somewhat over the
age, many of whom have the wages of children, if you would
forgive me, who are still in school. So I am very bothered by
the fact that we have to go this way, although I don't see any
way consistent with what we know now but your suggestion is
that we need to find out, and we need to find out far more than
we know.
I also want to suggest that we are talking to employees who
are dealing with the same Federal contribution to their Federal
health care plan; in memory, I can't remember when this was
raised. I think it is what it always has been, that it has
never been raised. So the burden would be terrifically on the
parent or the person on whom the dependent was depending. But
again I think most people would understand the danger of not
being in health care.
And I would just think that for those of us--the chairman
is one of them, Mr. Cummings is another--who have sponsored the
bill to increase the employer share in FEHB, you would think
that at least this small increase, whatever it is, should be
what the Federal Government would be willing to do at a time
when it has been unwilling to increase its own contribution--
while, in fact, inflation with health care premiums has
certainly not avoided us anymore than it has avoided others--
forcing employees to pay a greater percentage of their own
health care.
Mr. Chairman, what we are seeing is the scattering of
Federal Government employees even before they are retired. The
government should 1 day sit down and try to figure out the cost
of the loss of this skilled work force; then it might figure
out something to do about their health care. They are going to
take the skills that they got in the Federal Government and
they are going to go to contractors or to the private sector
and do quite well, thank you.
Meanwhile, we are left with the investment in them and no
way to keep them; and as your hearings have shown, Mr.
Chairman, no way to attract an equal pool of the pool that is
now retiring and very often leaving before retirement, leaving
us before the retirement program. We have to find ways, even if
they are small, incremental ways, to keep these employees with
us and to reduce the hardships on them. This would seem to me
to be an obvious and intelligent way to do it.
I strongly support the chairman's amendment and hope that
we can do some more work before we have to go along with the
plan that will cost everybody more, who is involved.
And finally, Mr. Chairman, may I say one thing? I am--
excuse me--sick and tired of every time we offer something more
to Federal employees we say, You can have it if you pay 100
percent: You can have certain kinds of dental health; you can
have certain kinds of help for vision; and let us all give us
ourselves a pat on the back because you can have that. You can
even have a long-term health plan for long-term illness.
All of that, we, your Federal employer, is proud to give
you if you pay 100 percent of it. Compared to what? Compare
that to what the private sector is offering young people, and
you will see why we are having trouble recruiting young people
to join the Federal work force, especially those at the rank we
need, and you will see why so many Federal employees have
figured out that they can get out of Dodge, and it is best to
do so now even before retirement.
Thank you very much, Mr. Chairman.
Mr. Davis of Illinois. Thank you.
Mr. Cummings.
Oh, Elijah left.
Let me thank you all for coverage and for sharing with us.
I have no further questions, and you are excused. Thank you.
[Whereupon, at 3:45 p.m., the subcommittee was adjourned.]