1/12/10: More than half of the eight million-plus active federal employees and retirees covered by the Federal Employees Health Benefits Program (FEHBP) eventually could face the effects of taxes of thousands of dollars a year if an excise tax on high-value health insurance policies is part of a final health care reform bill, a coalition of organizations representing federal employees and retirees said today.

In a letter to key lawmakers helping fashion final legislation on this important subject, the coalition, which includes NTEU, said the proposed excise tax would hit “the average blue collar and white collar employee or annuitant.”

If such a tax is imposed, “FEHBP insurers will simply reduce coverage and, as the taxes increase, a downward spiral toward less coverage will ensue, which is antithetical to health care reform’s stated purpose,” the letter said in urging congress to drop the provision.

Separately, NTEU National President Colleen Kelley noted, “Even though the tax would not become effective until 2013, and its financial thresholds would increase every year, those increases very likely would not be enough to offset medical inflation.”

“The result,” she added, “would have FEHBP enrollees facing benefit cuts, and higher premiums and co-payments as insurance companies simply pass along this increased cost.”

The coalition, which includes the National Active and Retired Federal Employees Association along with a number of other federal employee unions, warned that, despite the description of the excise tax as a levy on high-value "Cadillac Plans," at least one study has projected the most popular FEHBP plan—the Blue Cross/Blue Shield standard plan—would be subject to the tax; this plan covers some 48 percent of FEHBP enrollees.

In all, the letter warned, more than half of active and retired federal workers could feel the bite of such a tax, particularly when the value of all health care is counted toward the threshold amounts, including dental or vision coverage and flexible spending accounts.

“Penalizing FEHBP enrollees with this tax is a huge disincentive to qualified applicants seeking federal or postal employment. It is bad for the government and bad policy overall,” the letter said.

On another issue—increasing the age for dependent coverage—the coalition expressed its concern that present House and Senate language is not clear enough on the requirement for group health plans to expand dependent coverage to the FEHBP.

Extending the age for dependent care coverage in FEHBP is an ongoing issue of concern to NTEU, with President Kelley offering repeated testimony before congressional committees seeking to encourage the government to be a leader in this field.

“There is every good reason to extend coverage to age 27,” Kelley said, “especially if the government hopes to be a competitive employer with the private sector as well as the many state and local governments that can offer such an incentive.”

Overall, the letter said, “We want you to know that our members support your efforts to contain medical costs, but insist upon the preservation and integrity of FEHBP as a program designed principally for federal and postal employees and annuitants.”