Hearing of the House Oversight and Government Reform Committee - "Catching Up: Benefits That Will Help Recruit and Retain Federal Employees
REP. DAVIS: (Sounds gavel.) The subcommittee will now come to order. Unfortunately, Mr. Marchant's plane is delayed a little bit, and so he may not arrive. So -- 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 the federal employee health benefits plan.
The chair, ranking member, and subcommittee members will each have five minutes to make opening statements and all members will have three days to submit the statements for the record, and hearing no objections 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 employee's health benefits plan respectively.
Under 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 of improving 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, the long-term investment solely in the G Fund is unlikely to provide returns sufficient to meet retirement needs. Young adults are the fastest growing age group among the uninsured.
Almost 400,000 young adults, younger than 24 years old would be uninsured upon graduating from college. This is due to the overwhelming amount of individuals who would be cut off 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 adults' dependence 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 cost 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 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.
I want to thank all of the witnesses for coming and being willing to participate and all of you for being here.
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REP. DAVIS: Thank you both very much. Very much appreciate your testimony.
Let me begin with you, Mr. Brown. Could you think of any reason that employees would want to opt out of enrolling in the TSP?
MR. BROWN: Just so I understand, that would opt out, that want to get out, could I think of a reason?
REP. DAVIS: Yes.
MR. BROWN: I don't know. It's all based on personal individuality. Maybe they were -- if they've had some sort of personal hardship or something, I said they might want to opt out. I mean in today's stressful economic times, that I could see that probably happening, and especially with junior employees and people who have not reached up through the career ladder.
But I can tell you at least from the position of this union itself was -- and being a TSP participant myself, we would strongly urge them to remember that this saves them for the long haul and be part of that three-legged school, if you will, of retirement -- you know, social security, your tension -- in this thing it would be TSP, obviously, and personal savings.
MR. LONG: I think I can add to Rick's comment thereby saying -- in looking at the data from the 401(k) rule -- and many plans have adopted automatic enrollment. And there are a small percentage of people that opt out, far less than those who do not affirmatively file. But why that happens is some people literally cannot afford it.
But what we're trying to get is of the 14 percent as far as 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 it would create the mechanism for them to opt out. They can do that.
It's the percentage in between that we believe are not opting in simply because of the no-show. And what automatic enrollment does is it uses inertia to encourage retirement savings.
REP. DAVIS: First the employees expressed an interest in automatic enrollment in the TSP and the automatic default to the life- cycle fund from the survey. Are you aware of any -- of an express interest in implementing changes or improvements to TSP? Are there recommendations, suggestions that employees have provided that they might think would improve the TSP?
MR. BROWN: Well, that -- we do get comments on a regular basis.
The thing is 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've 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 the -- a spouse can inherit the account that they -- of a participant. There are other recommendations and ideas that we get from the participant base, and we consider them all the time.
REP. DAVIS: What would be the impact on the retirement of federal employees enrolled in first, if they do not participate or contribute to the TSP?
MR. BROWN: And what would be the impact to themselves personally?
REP. DAVIS: Yes.
MR. BROWN: They would wind up at the end of their career without any type of savings 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've done and looked at other issues is trying to help our participants.
One of the main things is the ability in an opt-out. That in and of itself is an excellent vehicle for these folks, whoever wants to participate. What we're also trying to do is look at investments and changes to TSP keeping their 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 of the federal employees' retirement system is offering the best quality retirement for their hard-earned dollars they invest.
REP. DAVIS: What would be the impact if employees have most of their dollars -- investment dollars that is in the G Fund?
MR. BROWN: The long term -- G Fund is a fund that never has a bad day, and it also never has a specially 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 to somebody with investment in -- (off mike) -- that translates to less money after a 20, 30, or 40 year career, and therefore a lower quality of life.
And we're trying to turn that on its head. We're trying to improve the quality of life of our retirees.
REP. DAVIS: Do these operate on the basis of the greater the risk, the greater the reward?
MR. BROWN: That's 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. You want to take an appropriate level of risk for your particular goals.
The life-cycle funds are built on that assumption, so that somebody who has a 30-year window, a 30-year horizon for when they actually need the money, can invest more heavily towards stocks than somebody who is going to retire and draw the money in four or five years.
REP. DAVIS: And so the individuals who are more cautious investors, realizing that they have the assurance of the protection of their investment, would want to do the G Fund.
And those who are little more open, it kind of reminds me of the guys who -- the parables in the Bible where these individuals were given different sets of talents. And of course the ones who did the most investment ended up with the most return. But I guess they weren't so worried about the assurance of making sure that everything was paid.
MR. BROWN: I can assure you that we are well aware of the participant's 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 their money in at any time. The desire for the change in the default, from the G Fund to the life- cycle is again about inertia.
And we have a lot of people -- unfortunately, we have a significant amount of people that their money goes to the G Fund initially when they're mighty young, only 25 or 30 years old, and they sit there for an awfully long time. And they miss out on the potential to get that return that I know many of our (rich ?) members have unfortunately missed out on, now we try to fix that.
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REP. DAVIS: Thank you very much. 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 FEHB, that's the 21 year-olds, the 20-year-olds.
While they are indeed use less health care than do older employees, they still cost about -- I had last checked 1,600 and I think $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 be -- continue to be covering that's how you come up with the expense.
REP. DAVIS: I noticed during 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 there will be in it. Does OPM have a position on the concept of providing the 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 employee to their health and welfare and their family's 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 lives that this 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 -- young adult children.
REP. DAVIS: Even if, let's say the beneficiaries have to pay the cost themselves, and I know it is difficult to project, but would you mention opinion as to where OPM might be on the bill if that was the way we ended up just the matter to 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's been very popular with enrollees, with both employees and retirees. I think it last check over 700,000 people had enrolled in one or the other or both program.
So we have some experience with that, and if this -- 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 God send, I can say to that personally that is a God send, for folks because there is no -- it's automatic issue. You don't need to take a -- it isn't underwritten; you don't need to take a medical exam to be covered.
REP. DAVIS: 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 that 22 to 25 and they have to pay the cost themselves, would you view that as being preferable to them having no coverage at all.
MS. COLLINS: Well, considering the only option is really the individual market or this continuation policy (TCP?) -- it is certainly a better option that more -- 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 there would be better for the families if the premiums were subsidized and the costs were offset, but it would be much more preferable buying on the individual market.
REP. DAVIS: 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 adults, health coverage. Of course you also know that we must abide by the pay-go rules whether we are talking about $50 or whether we are talking about some ($)100 million, I mean those rules in effect.
Do either of you have any recommendations that could perhaps offset the cost of 5550 as introduced?
MS. KELLEY: Well, for me 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 the stand-alone plan that employees or other families would have to buy for them, versus amending the current FEHB it seems to me 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've never seen any kind of analysis of what the states have done to either minimize or eliminate the additional cost or what success they've had. That's one of the reasons that we would like to work with the subcommittee on having some kind of an impartial expert actually look at these numbers.
I understand there won't be -- did their numbers in. It's either a three-page report that is referred to as simple math, but I have to say that usually when it's a federal employee issue, OPM 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 to priced and I don't think that that analysis or research has been appropriately done by an impartial expert and that's what I would ask the subcommittee's help in having done.
REP. DAVIS: Thank you.
Mr. Gage, you have a --
MR. GAGE: Yes, and we suggested that OPM take full advantage of the Medicare Part D subsidy of course that's just 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 could tell you what a strain it is on them not to have health insurance coverage.
So I would like to work too 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 an underwriting that this is a simple matter of multiplying the number of potentials times the times of cost, for young adults who should be you know, very good underwriting risks.
So I too would like to work with the subcommittee on this. But I do think the time is now for this. This problem is getting worse.
MS. : If I could add Mr. Chairman one of our concerns is the stand-alone plan versus FEHB. And you know, maybe there's a way to figure it out so that it stays as an amendment or an 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 a serious medical condition would opt into whatever this new plan is, which would defeat the whole purpose of trying to providing insurance for all of the dependents ages 22 to 25.
So I don't think it has to be in an either/or but again it would take some real neutral cost analysis to look at that from a state perspective in their experience as well as the FEHB pool.
REP. DAVIS: Yes.
MS. : I also have a question to -- 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 is that -- has that been taken into account too rather than throwing it out of separate -- having it off as a separate plan, what is this -- adding this healthier group into the pool due to the premium.
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