Mandatory Spending
Function 550 - Health
Adopt a Voucher Plan and Slow the Growth of Federal Contributions for Federal Employees' Health Benefits
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
| Billions of Dollars | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2023– 2027 |
2023– 2032 |
|
| Adopt a Voucher Plan, With Growth Based on the CPI-U | |||||||||||||
| Change in Mandatory Outlaysa | 0 | 0 | * | -0.5 | -1.2 | -1.9 | -2.5 | -3.1 | -3.7 | -4.3 | -1.7 | -17.3 | |
| Change in Revenuesb | 0 | 0 | * | * | * | -0.1 | -0.2 | -0.3 | -0.4 | -0.4 | -0.1 | -1.4 | |
| Decrease (-) in the Deficit From Changes in Mandatory Outlays and Revenuesc | 0 | 0 | * | -0.5 | -1.1 | -1.8 | -2.3 | -2.9 | -3.4 | -4.0 | -1.6 | -16.1 | |
| Change in Discretionary Spending | |||||||||||||
| Budget authority | 0 | 0 | -0.4 | -1.0 | -1.7 | -2.5 | -3.2 | -3.9 | -4.6 | -5.4 | -3.1 | -22.8 | |
| Outlays | 0 | 0 | -0.4 | -1.0 | -1.7 | -2.5 | -3.2 | -3.9 | -4.6 | -5.4 | -3.1 | -22.8 | |
| Adopt a Voucher Plan, With Growth Based on the Chained CPI-U | |||||||||||||
| Change in Mandatory Outlaysa | 0 | 0 | -0.1 | -0.6 | -1.4 | -2.1 | -2.8 | -3.5 | -4.1 | -4.9 | -2.1 | -19.6 | |
| Change in Revenuesb | 0 | 0 | * | * | * | -0.2 | -0.2 | -0.3 | -0.3 | -0.4 | -0.1 | -1.5 | |
| Decrease (-) in the Deficit From Changes in Mandatory Outlays and Revenuesc | 0 | 0 | -0.1 | -0.6 | -1.3 | -2.0 | -2.6 | -3.2 | -3.8 | -4.5 | -2.0 | -18.1 | |
| Change in Discretionary Spending | |||||||||||||
| Budget authority | 0 | 0 | -0.5 | -1.1 | -1.9 | -2.8 | -3.6 | -4.3 | -5.1 | -6.0 | -3.5 | -25.3 | |
| Outlays | 0 | 0 | -0.5 | -1.1 | -1.9 | -2.8 | -3.6 | -4.3 | -5.1 | -6.0 | -3.5 | -25.3 | |
Data sources: Congressional Budget Office; staff of the Joint Committee on Taxation.
This option would take effect in January 2025.
CPI-U = consumer price index for all urban consumers; * = between -$50 million and zero.
a. Includes estimated savings by the Postal Service, whose spending is classified as off-budget.
b. Estimates include the effects on Social Security payroll tax receipts, which are classified as off-budget.
c. Changes in discretionary spending are not included in the total because they would be realized only if future appropriations were adjusted accordingly and because the Congress uses different procedures to enforce its budgetary goals related to discretionary spending.
The Federal Employees Health Benefits (FEHB) program provides health insurance coverage to federal workers and annuitants, as well as to their dependents and survivors. Policyholders, whether they are active employees or annuitants, generally pay 25 percent of the premium for lower-cost plans and a larger share for higher-cost plans; the federal government pays the rest of the premium. Currently, the FEHB program also provides health insurance coverage for postal workers and annuitants, but the government contribution for those participants is determined through collective bargaining and paid primarily by the Postal Service (USPS). Beginning in 2025, those benefits will be provided through the Postal Service Health Benefits (PSHB) program.
Both the FEHB and PSHB programs would be affected by this option. It consists of two alternatives to replace the current premium-sharing structure with a voucher, which would not be subject to income and payroll taxes. Under both alternatives, the value of the voucher in 2025 for each type of coverage (self only, self plus one, and family) would be equal to the government's average expected contributions to FEHB or PSHB premiums in 2024, adjusted for inflation. Under the first alternative, the value of the voucher in 2025 and each subsequent year would be determined using the projected rate of inflation as measured by the consumer price index for all urban consumers (CPI-U). The second alternative would index the voucher to the chained CPI-U, which is another measure of inflation designed to account for changes in spending patterns and to address several types of statistical biases that exist in the traditional CPI measures. Since 2001, the chained CPI-U has grown by an average of about 0.25 percentage points per year more slowly than the traditional CPI-U.
Government spending on premiums for annuitants and postal workers is classified as mandatory spending, whereas spending on premiums for other federal employees is classified as discretionary. Both alternatives would reduce mandatory spending for the FEHB and PSHB programs because the federal government would make smaller payments for premiums for annuitants and postal workers than it would under current law. The alternatives would also decrease mandatory spending because some FEHB and PSHB participants would leave the program. The net effect of those disenrolled participants on changes in mandatory spending would be small relative to savings from the vouchers.
Revenues would also be affected because more people would have employment-based health insurance outside of the FEHB and PSHB programs. That change would reduce federal tax revenues by shifting some of employees' compensation from taxable wages to tax-favored health insurance. Both alternatives would also reduce discretionary spending by lowering federal agencies' payments for FEHB premiums for current employees and their dependents if appropriations were reduced to reflect those lower payments.