The White House has also tucked a proposal into its $3 trillion deficit reduction proposal to overhaul how the government buys prescription drugs for the Federal Employees Health Benefits Program. On page 43 of its report, the administration calls for allowing the Office of Personnel Management to contract directly with pharmacy benefit managers, or PBMs, for prescription drugs. PBMs are companies that negotiate prescription drug prices with pharmaceutical companies on behalf of FEHBP’s insurance providers. But PBMs are not considered subcontractors, and as a result, OPM has little oversight of them and cannot be sure they pass on rebates (of as much as 50 percent of the drugs’ retail cost) to FEHBP enrollees.
The White House says the current “fragmented strategy [using PBMs] does not take full advantage of the combined purchasing power of the nearly eight million enrollees in the FEHB program.” It projects the move would save $1.6 billion over a decade.
The Supercommittee’s work is about to get a lot tougher. It was already supposed to find about $1.5 trillion in deficit reduction, which is no easy task. But last night, President Obama asked the Supercommittee to find another $447 billion to pay for the jobs bill he proposed to a joint session of Congress:
The agreement we passed in July will cut government spending by about $1 trillion over the next ten years. It also charges this Congress to come up with an additional $1.5 trillion in savings by Christmas. Tonight, I’m asking you to increase that amount so that it covers the full cost of the American Jobs Act. And a week from Monday, I’ll be releasing a more ambitious deficit plan — a plan that will not only cover the jobs bill, but stabilize our debt in the long run.
If the bill gets passed — and with ironclad Republican opposition to anything that smacks of more stimulus, that’s a gargantuan “if” — that means the Supercommittee will have to cut the deficit by nearly $2 trillion. And upping the ante makes it even more likely that federal pensions, pay and other benefits will be on the chopping block.
President Obama earlier this year put federal pensions on the table as part of the so-called “grand bargain” he was pursuing with House Speaker John Boehner, including a high-five, increased contributions, and a change to pensions’ future cost-of-living adjustments. That deal collapsed, but I would not be surprised if some or all of those proposals come back in that deficit plan Obama promised to release Sept. 19.
The Washington Post today takes a look at how other nations have regained their AAA credit rating from Standard & Poors after being downgraded. One of the leading case studies was Canada’s mid-90s turnaround after being downgraded to AA+.
As the Post notes:
The country passed a landmark budget in 1995. The plan tilted heavily towards cutting expenditures but also included some new revenue (the ratio was about $7 in cuts for every $1 of revenue). Canada cut the civil service by about 25 percent and overhauled its pension program. [emphasis added] The plan worked. Canada is now on much more financially-sound footing; S&P restored its AAA rating in 2002. The turnaround is now referred to, in some economic literature, as “The Maple Leaf Miracle.”
Canada’s predicament back then is similar to the United States’ present situation, the Post said. Which is another sign that no matter what, this deficit reduction is going to sting for federal employees.
Tags: deficit reduction
House Minority Leader Nancy Pelosi, D-Calif., just named the final three members of the so-called supercommittee tasked with coming up with $1.5 trillion in deficit reduction.
One of her picks — Rep. Chris Van Hollen, D-Md. — will likely give federal employees a voice in their deliberations. Van Hollen’s 8th District borders Washington and contains thousands of federal employees. During the ongoing budget-cutting debates, Van Hollen and fellow Maryland Democrat Steny Hoyer have been pushing to limit its effect on federal employees.
In a briefing with reporters last month, Van Hollen denounced a Republican plan to greatly hike federal employees’ contributions to their pension plans:
The Republican budget plan would immediately cut federal employee pay by about 5 1/2 percent. We think that that’s a terrible signal to send to federal employees. It’s like saying to the guys who helped track down Osama bin Laden, thank you very much, here’s your 5 1/2 percent pay cut. So it is, as the Whip [Hoyer] said, we’ve been working very hard to make sure that there’s shared responsibility within this package.
This doesn’t mean feds are out of the woods, of course. It’s very likely that they’ll face some kind of cuts when all is said and done. But their chances at containing the damage just got a lot better.
It’s looking increasingly likely that a deficit reduction deal is going to hit future feds particularly hard, as we reported last week. Rep. Dennis Ross, R-Fla., today confirmed that not only are lawmakers seriously considering raising the amount federal employees contribute toward their pensions, but the increase would be a lot higher for new employees than for current employees.
Ross told me that he’s not personally involved in the negotiations and couldn’t say how big the increases might be. (Unions have been told that current employees’ contributions — to both the Federal Employees Retirement System and the Civil Service Retirement System — would go up by either 0.4 or 0.5 percentage points per year for three years once the pay freeze ends, and that future employees’ FERS contributions would be either 5.5 percent or 6 percent. FERS contributions are now 0.8 percent.)
“For those existing employees, it will not be as significant as what it will be for new employees,” Ross said. “There’s no question that that’s going to be considered. To what extent, I don’t know.”
Ross said the deficit reduction deal may also require federal employees to pay more toward their health insurance.
But just how deep will the cuts to federal employees’ pay and benefits go? “I think that’s probably some of the fine print that’s going to be decided after an overall deal is made, as to the amount of [spending] cuts,” Ross said. “We’ll probably know more, maybe before the weekend.”
Although negotiations now appear in disarray, Ross is confident that lawmakers and the White House will find some way to cut the deficit and raise the debt ceiling. “There’ll be a deal struck,” Ross said. “It’s just a matter of when.”
Senate Majority Leader Harry Reid may have swerved in the game of chicken that is our debt ceiling debate, depending on how you look at it. He and Sen. Chuck Schumer, D-N.Y., held a press conference this afternoon to propose a $2.7 trillion deficit reduction package that would extend the debt ceiling into 2013.
The proposal would not include any additional tax revenues — which Republicans have taken a hard line on and has scotched all previous attempts at a bargain — but it would also not touch entitlements such as Medicare, Medicaid and Social Security. Reid said it would include $1.2 trillion in domestic discretionary cuts, including defense, over a decade and another $1 trillion from winding down the wars in Iraq and Afghanistan.
President Obama immediately endorsed Reid’s plan. But since Iraq and Afghanistan were going to end sooner or later, some view counting those savings as deficit reduction as a sham budget gimmick that won’t mollify creditors. Some conservative commentators and Republican staffers are already throwing cold water on the plan for just that reason.
Meanwhile, House Speaker John Boehner outlined his own plan, which would raise the debt ceiling in two stages. First, Boehner said, the government would cut $1.2 trillion over a decade and raise the ceiling by $1 trillion. Then, Congress would form a committee to prepare a bill cutting another $1.8 trillion. If Congress passes those cuts, the debt ceiling goes up another $1.6 trillion. (It also requires a vote on the Balanced Budget Amendment later this year.)
Boehner’s plan centers on exactly the kind of short-term debt ceiling increases that Obama and Democrats oppose, since it would force us to have this debate all over again during a presidential election. (And its worth noting that Republican leaders at one point also were against short-term increases.)
All of this means we’re probably no closer to a solution than we were this morning.
About two weeks ago I described deficit talks as going from bad to worse. Well, on Friday things went from worse to abysmal. President Obama says House Speaker John Boehner stopped returning his calls when they were supposedly wrapping up the final details on a deal, and then pulled out of negotiations. Boehner says Obama backtracked on a handshake deal on new revenue and demanded another $400 billion in taxes.
This photo, taken Saturday when top lawmakers were summoned to the White House for emergency talks, tells the whole story. The fatigue and frustration can be plainly seen on Obama and Boehner’s faces, and it seems the two men can’t even look at one another anymore.
There’s barely eight days left to agree on some way to raise the debt ceiling before … well, who knows what will really happen Aug. 3? Unions and employee groups haven’t been told anything. During a partnership council meeting in March, before the averted shutdown, they peppered administration officials with questions that went unanswered. But at last week’s partnership meeting, unions didn’t even bother asking Office of Personnel Management Director John Berry how a default would hurt feds. “Didn’t get us very far” last time, American Federation of Government Employees National President John Gage said.
Federal Times would like to hear from you on this subject. Are you hearing anything at all from your higher-ups on what a default would mean? Is there talk of furloughs, or other unfortunate consequences? What other questions do you have? E-mail me at firstname.lastname@example.org. If you don’t want to be quoted, that’s not a problem.
The prospect of major cuts to federal pay and benefits as part of a debt ceiling deal has many federal employees and their advocates extremely nervous. The so-called Gang of Six today backed lowering cost-of-living adjustments for federal and military retirees. But other proposals have suggested making federal employees contribute about 5 percent more of their salaries toward their pensions, base their pensions on their highest-five salaries instead of their high-three, switching feds’ health care to a premium support system, cutting staffing levels, or further freezing pay raises.
At a pen-and-pad briefing this morning with House Minority Whip Steny Hoyer, D-Md., and Rep. Chris Van Hollen, D-Md., I asked what fed-oriented proposals were still on the table, and which had the greatest chance of becoming reality. Hoyer responded:
Clearly, there have been a wide array of options put on the table. There have been no specific federal employee cuts that have been supported by us at this point in time. But there are things on the table dealing with pay and benefits of federal employees.
Retirement, federal employee health benefits and pay — they are the three benefits that federal employees essentially have. There have been … an array of options discussed. There have been no agreements on any of those.
Van Hollen then chimed in:
The Republican budget plan would immediately cut federal employee pay by about 5 1/2 percent. We think that that’s a terrible signal to send to federal employees. It’s like saying to the guys who helped track down Osama bin Laden, thank you very much, here’s your 5 1/2 percent pay cut. So it is, as the Whip said, we’ve been working very hard to make sure that there’s shared responsibility within this package.
Hoyer in May said proposals to cut federal employees’ benefits must be on the table in deficit reduction talks, though he did not endorse any proposals.
We’re in truly uncharted waters with the current debt ceiling showdown, and federal employee groups are starting to get nervous. The 21-member Federal-Postal Coalition just asked Office of Management and Budget Director Jack Lew and Treasury Secretary Tim Geithner for a meeting to detail the consequences if the ceiling isn’t raised by Aug. 2.
If Congress doesn’t raise the debt ceiling, the coalition wants to know:
- Will there be a government shutdown? If so, what plans are in place to ensure continuity of operations?
- What will it mean for the Thrift Savings Plan’s G Fund, which is backed by government securities (and into which the Treasury suspended additional investments back in May for a little more breathing room)? What about retirement funds?
- Will federal employees be furloughed? And what will that mean for their pay and benefits?
The coalition is made up of federal unions such as the American Federation of Government Employees, the National Treasury Employees Union and the National Association of Letter Carriers; management groups such as the Federal Managers Association and the Senior Executives Association; and other employee groups such as the National Active and Retired Federal Employees Association and the American Foreign Service Association.
Here’s Politico on yesterday’s debt ceiling negotiations, which are quickly going from bad to worse:
President Barack Obama abruptly walked out of a stormy debt-limit meeting with congressional leaders Wednesday, a dramatic setback to the already shaky negotiations.
“He shoved back and said ‘I’ll see you tomorrow’ and walked out,” House Majority Leader Eric Cantor (R-Va.) told reporters in the Capitol after the meeting.
On a day when the Moody’s rating agency warned that American debt could be downgraded, the White House talks blew up amid a new round of sniping between Obama and Cantor, who are fast becoming bitter enemies.
[...] A Democratic aide said[:] “Cantor rudely interrupted the president three times to advocate for short-term debt ceiling increases while the president was wrapping the meeting. This is just more juvenile behavior from him and Boehner needs to rein him in, and let the grown-ups get to work.”
And House Democratic Whip Steny Hoyer’s take on the same meeting:
Today’s White House meeting was constructive and progress was made.
Oh, Steny. Always the eternal optimist.