[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




           FEHBP: OPM'S POLICY GUIDANCE FOR FISCAL YEAR 2000

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON THE CIVIL SERVICE

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 13, 1999

                               __________

                           Serial No. 106-49

                               __________

       Printed for the use of the Committee on Government Reform


     Available via the World Wide Web: http://www.house.gov/reform

                                 ______

                   U.S. GOVERNMENT PRINTING OFFICE
60-956                     WASHINGTON : 2000


                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
JOHN T. DOOLITTLE, California            (Independent)
HELEN CHENOWETH, Idaho


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                      Carla J. Martin, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

                   Subcommittee on the Civil Service

                   JOE SCARBOROUGH, Florida, Chairman
ASA HUTCHINSON, Arkansas             ELIJAH E. CUMMINGS, Maryland
CONSTANCE A. MORELLA, Maryland       ELEANOR HOLMES NORTON, Washington, 
JOHN L. MICA, Florida                    DC
DAN MILLER, Florida                  THOMAS H. ALLEN, Maine

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                   George Nesterczuk, Staff Director
                  Jeff Shea, Professional Staff Member
                         John Cardarelli, Clerk
            Tania Shand, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 13, 1999.....................................     1
Statement of:
    Flynn, William E., III, Associate Director, Retirement and 
      Insurance Services, Office of Personnel Management.........    17
    Gammarino, Stephen W., senior vice president, Federal 
      Employee Program, Blue Cross and Blue Shield Association; 
      Dr. Joseph Braun, chief medical officer, George Washington 
      University Health Plan; and Bobby L. Harnage, Sr., 
      president, American Federation of Government Employees.....    46
Letters, statements, etc., submitted for the record by:
    Braun, Dr. Joseph, chief medical officer, George Washington 
      University Health Plan, prepared statement of..............    84
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............     7
    Flynn, William E., III, Associate Director, Retirement and 
      Insurance Services, Office of Personnel Management:
        Information concerning monetary values...................    44
        Information concerning the President's budget for the 
          FEHBP..................................................    35
        Prepared statement of....................................    19
    Gammarino, Stephen W., senior vice president, Federal 
      Employee Program, Blue Cross and Blue Shield Association, 
      prepared statement of......................................    50
    Harnage, Bobby L., Sr., president, American Federation of 
      Government Employees, prepared statement of................    66
    Morella, Hon. Constance A., a Representative in Congress from 
      the State of Maryland, prepared statement of...............    12
    Scarborough, Hon. Joe, a Representative in Congress from the 
      State of Florida, prepared statement of....................     3

 
           FEHBP: OPM'S POLICY GUIDANCE FOR FISCAL YEAR 2000

                              ----------                              


                         THURSDAY, MAY 13, 1999

                  House of Representatives,
                 Subcommittee on the Civil Service,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:20 a.m., in 
room 2154, Rayburn House Office Building, Hon. Joe Scarborough 
(chairman of the subcommittee) presiding.
    Present: Representatives Scarborough, Morella, Cummings, 
Norton, and Allen.
    Staff present: George Nesterczuk, staff director; Garry 
Ewing, counsel; John Cardarelli, clerk; Jeff Shea, professional 
staff member; Tania Shand, minority professional staff member; 
and Jean Gosa, minority staff assistant.
    Mr. Scarborough. Good morning. I want to thank all of our 
witnesses for participating in this important hearing today.
    My name is Joe Scarborough. I appreciate you being here, 
and I apologize for the delay. You all are experts on the 
Federal Employees Health Benefits Program. I'm sure the 
subcommittee is going to benefit greatly from your insights on 
the impact that OPM's policy guidance for the year 2000 will 
have on the FEHB and those who rely on it for their health care 
coverage.
    The FEHB is the largest employer-sponsored health benefits 
program in the Nation. Approximately 9 million individuals, 
Federal employees, retirees and their families, obtain their 
health care insurance through the FEHB. In the eyes of Federal 
employees and the annuitants both, it is one of the most 
important benefits the Federal Government provides for active 
and retired civil servants.
    Over the years, the FEHB has earned a widespread reputation 
as a model employer-sponsored health benefits program. Even 
now, many experts consider the FEHB a model for reforming 
Medicare.
    Nevertheless, we've seen some disturbing developments in 
the direction of the FEHB in recent years. The development 
that's most visible I'm sure to individual enrollees is the 
dramatic premium increases during the last 2 years.
    During that period, FEHB premiums have increased on average 
by 8.5 percent in 1998 and 10.2 percent in 1999. The 
President's budget appears to anticipate another double digit 
increase again for the year 2000.
    We have also seen a trend toward more mandated benefits and 
an increased standardization in FEHB. I believe this 
development is a real threat to the FEHB. The key to the 
program's success has been its market orientation. Consumers 
may choose the health plan that best meets their needs from 
among many competing offerings. That framework has made it 
possible for both employees and annuitants to receive high-
quality health care coverage at reasonable premiums.
    Mandates and standardization are incompatible with this 
successful approach. Now experts have been warned and have 
warned this subcommittee that mandates and overregulation of 
the FEHB market adds costs to the programs and reduces consumer 
choice. Mandates have both visible and hidden costs.
    The visible cost, of course, is the added cost of providing 
the mandated benefit. The hidden cost results from the loss of 
flexibility that carriers should have to design the innovative 
benefit packages that will be both attractive to consumers and 
cost effective.
    When viewed in isolation, however, the cost of providing a 
single benefit often appears very reasonable. But it's much 
harder to calculate the hidden, but very real, costs of the 
loss of flexibility and consumer choice. Each mandate creates 
its own cost spiral which in the aggregate is an engine for 
driving up premiums.
    As the administrator of the FEHB, OPM also affects premiums 
and the quality of health care available to the employees and 
retirees through administrative directives and through other 
mandates.
    For example, directives drawn from the President's self-
titled patient's bill of rights such as information disclosure 
requirements and the right to demand amendments to one's 
medical records could really increase costs without providing 
benefits to enrollees.
    On the other hand, if OPM provides carriers with sufficient 
flexibility to implement these instructions, their costs may at 
least be contained.
    For these reasons, this subcommittee has a duty to 
carefully examine the directives in the call letter. In 
conducting this examination, I believe the following questions 
are critical.
    First of all, does the policy directive address a real 
problem in the FEHB? Second, will the directive increase 
premiums or lower the quality of health care for Federal 
employees and retirees? Third, will the directive be 
implemented in a reasonable manner?
    The answers to these questions are important to each person 
who relies on the FEHB, for the carriers who participate in the 
program, and finally for the taxpayers who will be shouldering 
the burden of paying for 72 percent of FEHB premiums.
    I look forward to exploring these issues with each of our 
witnesses and again thank them for their cooperation in making 
this hearing possible.
    Now it's certainly my privilege to turn it over to the 
ranking member, Mr. Cummings, for any comments that he may 
have.
    [The prepared statement of Hon. Joe Scarborough follows:]

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    Mr. Cummings. Thank you very much, Mr. Chairman. Today's hearing 
has been convened so that the subcommittee can continue its 
close oversight of the Federal Employees Health Benefits 
Program, an essential benefit program for Federal employees and 
retirees. Specifically, we will seek to determine the nature of 
the guidance to be provided to participating health insurance 
plans by the Office of Personnel Management through its call 
letter for the 2000 contract year.
    In addition, the subcommittee will seek to determine the 
impact on FEHBP of President Clinton's executive memorandum 
mandating compliance with the patient's bill of rights.
    Much has occurred, however, since we held a similar hearing 
last March. This year's call letter requiring full disclosure 
in the use of provider discounts effectively implements H.R. 
1836, the Federal Employees Health Care Protections Act, 
enacted by Congress last year.
    Though OPM's Inspector General found no unethical conduct 
on the part of plans who arrange for provider discounts, the 
implementation of the act strengthens OPM's ability to use 
administrative sanctions against health care providers who seek 
to defraud and abuse the government's health benefits program.
    In 1998, FEHB plans supported and implemented important 
consumer protections outlined in the patient's bill of rights. 
These included information disclosure, access to emergency 
care, access to obstetricians and gynecologists, and access to 
specialists for people with special care needs.
    At last year's hearing, I stated that I applauded the 
expansion of these important benefits and protections, but that 
it must be understood that expansion does not come without a 
cost.
    I am pleased that the cost of implementing these 
protections to date is less than 25 cents per enrollee.
    Finally, I understand that there is some controversy over 
the application of cost accounting standards to FEHBP 
contracts. Cost accounting standards are designed to increase 
the uniformity and consistency with which cost accounting data 
is supplied by contractors to the government for the purposes 
of assisting in either negotiation, pricing, or administration 
of contracts.
    CAS are applied to all contractors that perform under 
negotiated, cost-based pricing arrangements with the Federal 
Government in order to ensure that costs are properly 
allocated. Blue Cross and Blue Shield has raised concerns about 
the difficulties of implementation of CAS on FEHBP plan 
contracts and would like to extend section 518 of the Omnibus 
Appropriations Act of 1998 which exempts carrier contracts from 
the application of CAS.
    The American Federation of Government Employees believes 
the FEHB contracts should be subject to CAS so agencies can 
ensure the accuracy of bills submitted by contractors. There is 
also a concern that premiums will increase if CAS are not 
applied to FEHBP contracts.
    I am looking forward to testimony from OPM, Blue Cross and 
Blue Shield, and AFGE on the pros and cons of applying CAS to 
FEHBP contracts and to ultimately do what is in the best 
interest of enrollees.
    I thank all of the witnesses for coming this morning to 
testify before the subcommittee, and I hope that you can shed 
some light on these very important issues.
    Mr. Scarborough. Thank you, Mr. Cummings.
    [The prepared statement of Hon. Elijah E. Cummings 
follows:]

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    Mr. Scarborough. Mrs. Morella.
    Mrs. Morella. Thank you, Mr. Chairman. And I also 
appreciate your holding this oversight hearing to discuss the 
administration of the Federal Employees Health Benefits 
Program. Like many of my constituents, I was shocked last fall 
when I learned that, on average, premiums in the program would 
rise by 10.2 percent in 1999. Within this overall rise in 
premiums, there was an average increase of 7.4 percent in the 
employee and retiree share of the FEHBP premiums.
    As before, I'm concerned that the magnitude of this 
increase was so far above the 3.5 percent rate of medical 
inflation, and I must point out that an article in the journal 
Health Affairs reported last year that premiums in private 
employer-sponsored health plans would rise at the considerably 
slower rate of 3.3 percent in 1999. How will this discrepancy 
affect the increase, if any, of the premiums in the year 2000?
    In particular, I think we need to discuss the specific cost 
increases and efforts being made to avoid or to limit them. For 
instance, last year it was reported that prescription drug 
costs, which account for approximately 20 percent of FEHBP 
expenditures, would rise by as much as 22 percent. According to 
the Employee Benefit Research Institute, private insurance 
payments for prescription drugs increased 17.7 percent in 1997, 
after growing 22.1 percent in 1995 and 18.3 percent in 1996.
    FEHBP is the country's largest employer-based health 
insurance program serving the health care needs of almost 10 
million Federal employees, retirees and their families. And 
basically I think it's a good program.
    But how are FEHBP's plans using this leverage to implement 
meaningful cost containment mechanisms with the goal of passing 
on the savings to plan members?
    Further, a leading explanation for the sharp growth in drug 
expenditures is that prescription drugs are a substitute for 
other forms of health care. The theory is that using 
pharmaceutical products will result in cost savings in other 
areas of the program.
    For example, last year I was active in the passage of 
legislation requiring all but five religious-based FEHBP plans 
to cover all five methods of prescription contraceptives. 
Previously, only 19 percent of Federal health plans covered all 
five methods.
    And while it's difficult to determine the extent to which 
these contraceptives save the health plans money by protecting 
women's health, preventing unintended pregnancies and reducing 
abortions, I'm interested in learning more on the 
implementation and the impact of this provision.
    On a related note, I'm curious how other preventative 
measures like ensuring consistent coverage of bone density 
tests through a comprehensive national coverage policy in the 
FEHBP would reduce future costs to the program.
    And, finally, I'm also interested in hearing about those 
steps that are being taken to ensure uninterrupted complete 
service to all plan participants in light of Y2K. I understand 
that carriers are required to report on their Y2K compliance 
status along with their
benefit and rate proposals on May 31st. At this point, what can 
the witnesses tell us about their progress in assuring Y2K 
compliance?
    I thank you, Mr. Chairman. I look forward to hearing the 
panelists and I yield back.
    [The prepared statement of Hon. Constance A. Morella 
follows:]

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    Mr. Scarborough. I thank Mrs. Morella. Mrs. Morella is a 
champion of the rights of Federal employees and we certainly 
appreciate her help and participation on the committee, as we 
do Mr. Cummings and obviously also Ms. Norton.
    I would like to recognize Ms. Norton for any opening 
statement she may have.
    Ms. Norton. Thank you, Mr. Chairman. And I appreciate your 
views of the occasion of the issuance of OPM's annual call 
letter inviting proposals for the change in rates and benefits 
to do oversight on the very important, perhaps the most 
important program for Federal employees, the Federal Employees 
Health Benefits Program.
    I think that I can say without contradiction that the FEHBP 
works better than many health plans in the country. That does 
not mean that this plan is anywhere close to perfect; and, 
therefore, the opportunity to look more closely at how to 
improve it, should in fact be welcome.
    The concern about costs abated for a while, because costs 
slowed considerably during the early 1990's, and now we are 
back where we were with costs going up very rapidly.
    And one is almost left to believe that companies were 
inclined to control costs during the time when the President's 
comprehensive health plan was being passed that at least it had 
a deterrent effect on costs, because when that bill died, 
almost on cue, we began to see costs going up again.
    Now, I would be the first to admit that there are other 
factors in the marketplace, but I am very concerned that costs 
for the FEHBP which had done a good job in controlling costs 
have begun now to keep pace and exceed costs elsewhere, 
without, it seems to me, a credible explanation.
    I note that there has been some objection to President 
Clinton's Executive order implementing a patient's bill of 
rights. I just think that's a pitiful way to try to account for 
costs increases, particularly, since what the President's 
modest version of a patient's bill of rights did was 
essentially sanction the plans already allowed--virtually all 
of the controversial differences between the Democrat and 
Republican bills in the House and Senate are not even in the 
Executive order, and some of them couldn't be in the Executive 
order in any case because you can't do them in Executive 
orders.
    So I will be looking this morning for some serious 
discussion about costs and why costs are going up from FEHBP 
and from the carriers who are here. If you're serious about 
costs, you've got to look beyond whatever small costs come out 
of something like a patient's bill of rights and get down to 
real explanations about why these costs began to go up again 
during the mid and late 1990's while you were able to hold them 
down in the early 1990's.
    These costs are not simply borne by the taxpayers, they are 
also borne by employees. The taxpayers deserve a credible 
explanation and so do Federal employees.
    Thank you very much, Mr. Chairman.
    Mr. Scarborough. I thank you, Ms. Norton. Now we will hear 
from our friend from Maine.
    Mr. Allen. Mr. Chairman, I simply want to thank you for 
holding this hearing and state that I look forward to hearing 
the testimony of all of the witnesses. And I appreciate your 
being here today. It's no secret I have a special interest in 
the rapid increase in the price of and utilization of 
prescription drugs, and I think that if we can understand how 
prescription drug prices are affecting the Federal Employees 
Health Benefits Program, we will have a better sense for how 
that issue is affecting Medicare beneficiaries and others in 
private plans throughout the country.
    So I appreciate your holding this hearing, Mr. Chairman. 
Thank you.
    Mr. Scarborough. Well, thank you, Mr. Allen.
    Now we're ready for our first panel. We ask William E. 
Flynn III, Ed Flynn, who is the Associate Director of 
Retirement and Insurance Services in the Office of Personnel 
Management to please come forward--and, as you know, going 
through this routine quite a few times since this is an 
investigative committee, we ask that you raise your right hand 
and take the oath.
    [Witness sworn.]
    Mr. Scarborough. Thank you. If you could be seated and 
please give us your opening statement.

    STATEMENT OF WILLIAM E. FLYNN III, ASSOCIATE DIRECTOR, 
    RETIREMENT AND INSURANCE SERVICES, OFFICE OF PERSONNEL 
                           MANAGEMENT

    Mr. Flynn. Thank you, Mr. Chairman. Good morning to all the 
members of the subcommittee. I do want to thank you for 
inviting me today to discuss OPM's goals for negotiations later 
this summer with health plans that participate with us in the 
Federal Employees Health Benefits Program. At the outset, I 
would like to say that we are confident that the objectives 
we're pursuing will strengthen our ability to provide high 
quality affordable health care for the 9 million individuals we 
cover.
    In addition, the program will remain a model employer-
sponsored program that relies on competition and consumer 
choice. As importantly, we value greatly the opportunity to 
partner with the almost 300 health plans which play a vital 
role in insuring the program's success. Quite honestly, we 
couldn't offer the program without them. As one example, over 
the past 2 years in collaboration with health plans, we've 
undertaken full implementation of President Clinton's patient's 
bill of rights.
    For total costs of less than $10 annually for each 
policyholder, participants in the program this year will have 
greater access to care, emergency rooms, and from specialists 
when needed and more information enabling them to make informed 
health care choices.
    For contract year 2000, which will begin next January, we 
have focused our objectives in the following areas: further 
work on implementation of the President's patient's bill of 
rights, quality measures for health care, family-centered 
health care, enhancements in customer service, clarifications 
in provider contracts, implementation of the Department of 
Defense's demonstration project involving the Federal Employees 
Health Benefits Program, and Y2K or year 2000 compliance.
    Now, in the remaining few minutes, Mr. Chairman, I would 
like to point to a few items which I believe can help set a 
context for our discussions today. First, we are as concerned 
as anyone over the rising costs of health care. The Federal 
Employees Health Benefits Program is a market-based program, 
and testimony at last fall's hearing aptly demonstrated that 
the cost increases we were experiencing were being driven by 
the same forces, and generally at the same levels, as other 
parts of the health care economy.
    The total average premium in the program today is about 
$4,400 per year. In an era of managed care and some of the 
problems that it has generated, investing $10 per year in 
safeguards, information and other protections associated with 
the patient's bill of rights seems a prudent investment.
    This is particularly so given our emphasis on results in a 
setting where we rely on health plans to install procedures 
which are appropriate for their individual business settings.
    Second, I think it's important to constantly reinforce the 
idea that this program is an important component of the 
compensation package which the government offers in order to 
attract and retain the kinds of employees necessary to carry 
out the work of government. For that reason, we must always 
stay attuned to what our customers tell us.
    We undertake extensive efforts to do that, some of which 
led to the objectives outlined in the call letter. Nonetheless, 
we can always do better. I am concerned when I hear that 
important participants in this program believe that their views 
are not being heard.
    However that belief has come to be held, it's harmful and 
I'm confident we can and will overcome it.
    And finally all of us are interested in holding costs down 
or perhaps even reducing them. Most commentators believe that 
the savings which resulted from the widespread introduction of 
managed care have now been achieved and are not likely to be 
repeated except at the margin.
    In this context, it's entirely reasonable to carefully 
examine alternative means of achieving savings. And I believe 
two areas hold particular promise.
    The first can be found in the increasing volume of 
knowledge about health care quality and techniques that produce 
healthy outcomes. In the few short years I've been associated 
with this program, there have been remarkable advances in the 
collection, analysis, and dissemination of data about 
treatments that are effective and cost efficient. We should do 
more.
    And second, we have seen how the creation of preferred 
provider networks has helped control costs in the Federal 
Employees Health Benefits Programs. Those networks are widely 
offered within each of the health plans that participate. It's 
only reasonable to suppose that aggregations of networks which 
can take several different forms might be further effective in 
controlling costs into the future.
    In short, Mr. Chairman, there are things which can and 
should be considered and discussion of them should be 
inclusive. We can't afford to simply assume that things will 
take care of themselves. And we look forward to working with 
you and other members of the committee and others on these 
important matters. Thank you.
    [The prepared statement of Mr. Flynn follows:]

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    Mr. Scarborough. Thank you, Mr. Flynn. We appreciate it. In 
my opening statement I set out three questions that I said I 
thought were going to be important to be answered. I want to 
put them to you now and get your feedback. First of all, what 
problems in the FEHBP do the policy directives in the call 
letter that you sent out address?
    Mr. Flynn. Well, Mr. Chairman, I think the first thing I 
would do is just quickly go back through the topical headings 
in the call letter. I would be the last person to characterize 
those headings as problems in and of themselves.
    For example, implementation of the DOD demonstration 
project is something that Congress passed last year and that 
we're in the process of implementing, I might add, on a 
cooperative basis with the health plans. We will be 
participating in that with the Department of Defense and other 
key stakeholders.
    Y2K compliance, I think, will largely not be a problem, but 
it certainly is an issue that we must address.
    Ms. Norton mentioned the President's Executive order 
directing Federal departments and agencies that administer 
health benefit programs to implement the President's patient's 
bill of rights. This is not a problem. It's an opportunity for 
us, I think, to do some good things.
    In the areas of quality health care, family-centered health 
care, and enhanced customer service, I think what we're doing, 
Mr. Chairman, is encouraging health plans to build on 
strengths. So, you know, you can look at this in terms of the 
cup's half full or half empty. I would like to think it's more 
than half full and we want to make it better.
    Mr. Scarborough. Do you see any of these directives causing 
the costs to go up further or causing the quality of health 
care for Federal employees to decline?
    Mr. Flynn. Mr. Chairman, when we lay out our negotiation 
objectives for the coming year, we look at, among other things, 
the impact on costs in this program. In the invitation letter, 
which you sent us, you asked us about our projected impact on 
increased costs in the program, and we've provided that.
    I think that the total amount of increased costs that we 
expect in the program for 1999, based on the things that we are 
looking for, is somewhere in the neighborhood of about $20 
million.
    That covers things like 90-day transitional coverage as 
part of the patient's bill of rights initiative, for a cost of 
$3.8 million, and about $12 million for various types of 
preventive screening services, and a few other items like that. 
The two that I can see real quickly are about $15 million, or 
somewhere in that $15 to $20 million cost range.
    Mr. Scarborough. OK. While we're talking about costs and 
increases, what about the question regarding how much you 
expected the premiums to go up?
    I know we had asked you that question, and the answer was a 
bit ambiguous. While you can't look into the crystal ball, 
obviously, you had to consult with OMB while they were making 
their projections on how much they expected the costs to go up.
    So could you give us something--and again I understand you 
can't look into the crystal ball until you finish negotiations 
this summer, but could you give us and give people, especially 
that have a lot of Federal employees in their District, some 
sort of idea about how much you expect the premiums to go up?
    Mr. Flynn. Well, you're right, Mr. Chairman, we really 
won't know until it's over. I would just simply say a couple of 
things. First of all, you pointed out the differentials 
reflected in the President's budget. Those don't reflect 
premium increases per se. The numbers in the President's budget 
are on a fiscal-year basis. This program operates on a 
calendar-year basis.
    The numbers in the President's budget reflect all income to 
the Federal Employees Health Benefits fund, not all of which 
reflects premium increases but some demographic shifts as well. 
So looking at those figures and using some standard assumptions 
about inflation and the economy, in general, produces those 
numbers; and they're not intended to be a reflection of what is 
expected to occur next year's premium.
    I think the best thing that I can say about next year right 
now is that there will be an increase. I don't know how much it 
will be. But I'm confident that this program will look next 
year, just like it looked last year and in the years previous, 
like other health care programs, like what other private sector 
employer sponsors are experiencing, and we will do our best to 
manage with that.
    Mr. Scarborough. I know you will. Obviously there are a lot 
of outside forces that you all can't control. Do you think it's 
safe to say, though, that it will most likely be a double-digit 
increase this year?
    Mr. Flynn. I would not go so far as to say double-digit 
increase, Mr. Chairman. Again, we won't know until it's over, 
but that is not where I would be at this point, but I cannot 
say with any definitive sense at this point.
    Mr. Scarborough. OPM has, though, talked with OMB, have 
they not? What has OPM told OMB that they expect the increase 
to be?
    Mr. Flynn. Well, I think we, and OMB in the projections in 
the President's budget, assume among other things, that the 
general trend in medical inflation will be what it's been for 
the past several years; and for the past several years, it's 
been up there. Again it's an attempt to portray early on in the 
budget process what might occur.
    Mr. Scarborough. Right.
    Mr. Flynn. But you really don't know until the rate 
proposals come in.
    Mr. Scarborough. Right, and my red light is on. But was 
there a hard number that when OPM was talking to OMB, did you 
all say, well, it looks like it's going to be more than last 
year, it's going to be--I'm just trying to get--I'm certainly 
not trying to put you on the spot here. I'm just trying to get 
a ballpark, 2 percent is different from 12 percent, and you all 
have discussed this.
    And, obviously, again, those of us that are up here have an 
awful lot of Federal employees that it should help if they can 
project what is going to happen 6 months from now.
    Mr. Flynn. Well, there is a specific number that we have 
agreed on. I don't know what that is exactly. But I would be 
glad to go back to the staff and provide it for the committee.
    Mr. Scarborough. Great, I appreciate that. That would be 
helpful.
    [The information referred to follows:]

    The numbers in the President's Budget for the Federal 
Employees Health Benefits (FEHB) Program represent the total 
income to the Employees Health Benefits Fund in FY 1999 and FY 
2000. Because these are income totals, the increases are due in 
part to changes in population assumptions. Further, the basis 
for these numbers is fiscal years rather that FEHB contract 
years that renew on a calendar year basis.
    Our submission for the FY 2000 President's Budget 
anticipated an average increase in FEHB enrollee contributions 
of 9 percent for contract year 2000. Further, we estimated that 
total Government contributions will increase by 8.2 percent and 
that total permiums under the program will increase by 8.4 
percent.

    Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Let me just go back to something. The beneficiaries of all 
of this, of course, are the Federal employees, and you're 
trying to make sure that we have the best plan possible. And I 
was kind of struck by something that I read in Bobby Harnage's 
statement, from the American Federation of Government 
Employees--and he is going to testify in a few minutes--that 
the current structure of FEHBP gives Federal employees 
virtually no meaningful voice in setting premiums and benefits.
    Has OPM solicited their recommendations? I mean, you know, 
like recommendations from employee unions for proposed benefit 
packages and designs that would possibly reduce the rate of 
growth of premiums? You know, I mean, have you had those kinds 
of discussions?
    Mr. Flynn. We certainly have had those discussions at an 
informal level, Mr. Cummings. I also read that statement and 
want you and everyone to know that to the degree that an 
organization such as AFGE feels somehow excluded from the 
process of being able to give us their opinions and views, 
that's something that I need to correct. And I would make a 
commitment to do that.
    We do get a lot of input. We hear from individual 
employees, the National Association of Retired Federal 
Employees, Federal departments and agencies, unions, and health 
plans. There's a lot of input we get. We do customer 
satisfaction surveys. I've talked in my testimony about focus 
groups that we've conducted that have been facilitated by the 
Gallup organization.
    The thoughts, the expressions of interests, the needs and 
desires expressed by the customers--the stakeholders in this 
program--are extremely important to us, and we need to look for 
ways in which we can get that input effectively.
    Mr. Cummings. Well, I just want to make sure--I agree with 
what you just said. It just seems to me that if I've got the 
beneficiaries who are paying the premiums saying we really want 
to sit down, we really want to work with you, because we're 
paying, we note the Federal Government is paying their piece, 
but we're paying, too, and our employees, you know, they want 
to get the best package for their dollar, and saying that maybe 
there's some things that we can tell you that will help.
    I don't want us to be in a situation--and I'm sure all of 
us would agree with this up here--we don't want a situation 
where they're locked out, because they speak for a lot of 
people who are the beneficiaries of this. That statement really 
bothered me when I read it, because I was just wondering if we 
are becoming such experts that we allow folks who could 
possibly help us out of the process.
    And I'm glad to hear your commitment. And I hope that when 
I ask you that question again the next time I see you that we 
have--if correction is appropriate, and I take it that it is, 
just listening to what you just said, that that will take 
place.
    Let me move on to something else. Mr. Allen a few moments 
ago talked about this whole thing of prescriptions, and I'm 
sure he will get into it even more. But I just had a press 
conference in my district--and I hadn't even talked to him 
about it yet--but about this whole thing of prescriptions and 
the elderly.
    I was just shocked when I began to read the report that was 
done on my district with regard to the kinds of money that 
insurance companies--I mean the kind of discounts that are 
given to the preferred customers as opposed to my elderly 
people who don't have insurance.
    It just got a phenomenal response in my district. People 
seemed like they came out of the woodwork. And I was just 
wondering, how do prescriptions play into this? I hope you 
don't mind me getting into this. How do prescriptions play into 
this whole premium situation? Can you help me with that?
    Mr. Flynn. Well, I will try, Mr. Cummings. This is a good 
deal from recollection, but prescription drugs in this program 
account for about $1 out of every $5 in the premium that's 
charged, about 20 percent. And as Mrs. Morella mentioned in her 
opening statement, in large measure because of the increasing 
role of prescription drugs in health care generally, but also I 
think in some respects it is attributable to the demographic 
characteristics of the group that participates in the Federal 
Employees Health Benefits Program. We have seen over the past 
several years these costs rising at annual rates of around 20 
percent.
    This is an area that, not just for us, but for health care 
administrators and people who have an interest generally, I 
think does need a lot of attention. Clearly, drugs play an 
important role in health, but clearly they are playing an 
increasingly larger role in terms of the costs of health. I 
don't have an answer to that. But it is a big issue for us as 
well.
    Mr. Cummings. The light is on, but, Mr. Chairman, just one 
other question.
    Mr. Scarborough. Sure.
    Mr. Cummings. In your negotiations--and I'm not trying to 
get into anything that's secret or whatever--but, I mean, when 
you sit down and you talk about--if you're talking about 20 
percent, I mean, and you sit down and you're trying to figure 
out, you know, just negotiating, I take it that there comes up 
discussions with regard to prescriptions, right?
    Mr. Flynn. Sure.
    Mr. Cummings. And I mean do you see any light at the end 
this escalating tunnel? I mean, in other words, do you see it 
getting at least stabilizing or getting any better?
    Mr. Flynn. Well, at last fall's hearing, Mr. Gammarino and 
a gentleman from Merck-Medco that runs a pharmacy benefit 
program both testified, and I would tend to agree, that there 
is nothing out there that one can point the finger at that says 
these trends will stop. They offered some suggestions for 
controlling costs that had to do with copayments and 
deductibles and things like that.
    And the only thing that I said that I thought we ought to 
begin to take a look at that I made some reference to in my 
opening statement this morning is that perhaps--because of the 
importance of this benefit and because just as you've 
mentioned, Mr. Cummings, the tremendously deep discounts that 
are given to volume purchasers--it is time for us to look at 
the possibility of carving out a national prescription drug 
benefit for the entire program, and perhaps look at partnering 
with other government agencies on the purchase of 
pharmaceuticals for Federal employees, retirees, and others who 
get benefits from Federal programs, as a way of perhaps 
controlling these costs.
    But these are extraordinary times. Those are extraordinary 
increases, and those are the kinds of things that I think we 
need to consider.
    Mr. Cummings. Thank you.
    Mr. Scarborough. Thank you, Mr. Cummings. Now, I see the 
voice of quiet moderation has entered the committee room. Mr. 
Mica from Florida.
    Mr. Mica. Thank you, Mr. Chairman. I'm pleased to be with 
you again, and I'm shocked that Mr. Flynn has returned for 
another round of abuse. But welcome back, Ed.
    Mr. Flynn. Thank you, sir.
    Mr. Mica. Mr. Flynn, how many folks do we have that are 
policyholders----
    Mr. Scarborough. Mr. Mica, you are soft spoken. I'm having 
trouble hearing you. If you can get a little closer.
    Mr. Mica. How many folks do we have that are policyholders 
in FEHBP?
    Mr. Flynn. I believe the number is about 4.1 million.
    Mr. Mica. 4.1 million?
    Mr. Flynn. I believe that's correct. It's in that range.
    Mr. Mica. And how many of the 4.1 million would be affected 
by the patient's bill of rights?
    Mr. Flynn. All of them, sir.
    Mr. Mica. All of them. So your calculation of $10 per year 
for each policyholder would be $41 million?
    Mr. Flynn. Yes. It actually works out, Mr. Mica, to a 
little bit less than $10 a year. I think the precise 
calculation is about $8.61. And I think actually the range is 
about $35 million.
    Mr. Mica. Well, President Clinton attended an event in 
Philadelphia on April 9th to promote his patient's bill of 
rights and director LaChance, with whom you may be acquainted, 
was also at the event. The President said that the patient's 
bill of rights was implemented in the FEHBP for less than a $1 
a month per enrollee. Is that pretty accurate?
    Mr. Flynn. Yes, sir. I believe he said less than $1 a month 
and less than $10 a year.
    Mr. Mica. He made it sound like less. He said less than a 
$1 a month, and you said $10. But you said the total is between 
$35 and $40 million probably?
    Mr. Flynn. I think actually between $30 and $35 million, 
Mr. Mica.
    Mr. Mica. When we held the original hearings on the 
President's bill of rights proposal, it's my understanding that 
just about everyone testified that there was no medical 
benefit, most of the patient's bill of rights dealt with 
regulatory items or mandates.
    Mr. Flynn. Well, I don't think I would characterize my 
testimony in that way, Mr. Mica.
    Mr. Mica. Well, what specific medical benefit is there? Is 
there additional mental health coverage or additional--specific 
medical benefit?
    Mr. Flynn. Well, yes, Mr. Mica, I believe so. In fact, if I 
might just take a moment. One of the things that you were 
particularly concerned about at that hearing was the estimate, 
if you will recall, of about $17 million for information 
disclosure, which I think has potential to have a direct impact 
on people's health. And let me take one example----
    Mr. Mica. Again, direct medical benefit, can you point to 
one single direct medical benefit?
    Mr. Flynn. Yes, sir, I believe I can. I was just trying to 
do that very quickly. I think that the evidence is ample 
throughout the United States that one of the ways in which 
people stay healthy is by following the instructions of their 
providers, by following the instructions that are contained on 
the prescription medicines that they're supposed to take, and 
so on and so forth. And there is a great problem with people's 
understanding of that.
    Mr. Mica. So it costs us $35 to $40 million----
    Mr. Flynn. No, sir.
    Mr. Mica [continuing]. For that benefit?
    Mr. Flynn. No, sir, not at all.
    Mr. Mica. Let me just ask you, since I don't have a lot of 
time. We had testimony before about the amount of increase in 
premiums, the average increase in premiums. What was the 
percentage?
    Mr. Flynn. The average increase in the total premium last 
year was just over 10 percent and about 7.4 percent, if I 
recall correctly, for individuals.
    Mr. Mica. So a 10 percent increase in premiums. Didn't we 
also have a reduction in the number of people participating as 
far as plans?
    Mr. Flynn. We had a reduction in the number of plans 
participating, Mr. Mica, of about 60 to 65 or thereabouts, yes, 
sir.
    Mr. Mica. Dropped out.
    Mr. Flynn. Mostly small health maintenance organizations 
comprising less than 2 percent of the total enrolled 
population.
    Mr. Mica. Patient's bill of rights with no tangible direct 
medical benefits, an increase of 10 percent, and then a 
reduction in choices of plans available is sort of my take on 
this.
    Mr. Flynn. Well, I think it would be a mistake to draw that 
conclusion, Mr. Mica. I think that we've demonstrated that 
we're talking about less than $10 per year per person with a 
total premium of $4,400, and that seems to us to be a prudent 
investment in some of these protections.
    Mr. Mica. As the former Chair of the subcommittee, I have 
had a chance in the last month and months since I left that 
position to talk with hundreds of Federal employees. And most 
of them are concerned about less money in their paycheck and 
higher premiums and concerned again about a system that was 
pretty cost effective and accessible to them, now getting 
expensive and inaccessible.
    And then I talked to the other folks, the providers, and 
they're boxed in by more regulations, more mandates. In fact, 
one of my other concerns is the inability of some of the 
vendors who are providing these services to know exactly what 
they're to provide or be able to provide it and still stay 
competitive in our system that was modeled to provide 
competition.
    I guess my time is about up. But what do you think about my 
responses to those folks that are looking for lower premiums, 
rather than higher premiums, and vendors who are providing 
services who are looking at fewer regulations and mandates and 
paperwork as opposed to more, which we're imposing?
    Mr. Flynn. Mr. Mica, the way I would respond to that is to 
say, first of all, I would want to have an opportunity to 
listen to and consult with anybody who expresses those kinds of 
concerns. If there are good ideas to make this program run 
better, I certainly want to make sure that we take a look at 
them.
    I would also say that the overwhelming evidence that we get 
from participants in this program and from the health plans 
with whom we participate is exactly the opposite of that, and 
that most people do, in fact, believe they have a good health 
program.
    They are concerned about the costs, but they get good value 
for the dollar. And I think we have a demonstrated track record 
of partnership with the health plans that participate in this 
program.
    Mr. Mica. Mr. Chairman.
    Mr. Scarborough. Thank you, Mr. Mica. Mr. Allen.
    Mr. Allen. Thank you, Mr. Chairman. I want to make a few 
comments following up on Mr. Mica's comments and then turn to 
some questions for you, Mr. Flynn.
    First of all, I guess I would point out that, as you have 
testified, the prescription drug costs in this program are 
going up by 17 percent last year.
    Mr. Flynn. In that range, yes, sir.
    Mr. Allen. In that range, 17 to 20 percent. In fact, for 
prescription drugs, the purchases, total purchases for 
prescription drugs across the country have been going up 15, 
16, 17 percent, now year after year after year. And if we're 
talking about how to save money on programs and we're worried 
about $8.61 per year to put in patient protections, we ought to 
turn our attention to the pharmaceutical industry, which is by 
far the most profitable industry in this country.
    There are lots of ways of measuring profits. But in terms 
of return on revenues, the pharmaceuticals earned 18.5 percent, 
No. 1 in the country; return on assets, 16.6 percent, No. 1 in 
the country; return on equity, 39.4 percent, No. 1 in the 
country. If we're looking to control costs in any health care 
plan and we do not pay attention to the prescription drug 
costs, we are making a fundamental mistake.
    Let me turn more narrowly now to a specific issue. The data 
that we have for the Blue Cross and Blue Shield program is that 
I think you said 20 percent of the program's total expenditures 
were for prescription drugs. I don't know if that was the 
Federal Employees Health Benefits Plan overall or the Blue 
Cross and Blue Shield portion.
    Mr. Flynn. Overall. But I would suspect that the Blue Cross 
and Blue Shield is not much different from that.
    Mr. Allen. OK. Assuming that it's 20 percent or somewhat 
higher, one of my concerns is how that benefit is managed and, 
in particular, you have a 20 percent copay for members who buy 
their drugs at pharmacies, but no copay if they buy it through 
mail order.
    One of my concerns is that at the local pharmacy today, 
people get some advice. They get some help; the pharmacists 
know their drugs and can help people manage them. I question 
whether you get the same kind of hands-on management from mail 
order.
    My question is really if you can talk to us about how that 
prescription drug benefit is managed and also how--whether or 
not you think that the utilization, the overall use of 
prescription drugs might be driven down if you equalized sort 
of the playing field between mail order and retail pharmacies.
    Mr. Flynn. Mr. Allen, first of all, you've brought up what 
is a very important issue and something that has been an 
important issue between us and the Blue Cross and Blue Shield 
Federal Employee Program in the course of our negotiations with 
them.
    Let me try and answer the larger issue about copayments 
between the local pharmacy and mail orders first and then talk 
a little bit about the situation with respect to Blue Cross and 
Blue Shield.
    With the 285 plans that participate in this program, we 
really rely on them for expertise and benefit design in the 
establishment of copayments and copayment differentials; and we 
look to them to propose how to modify those designs from one 
year to the next.
    As long as they are reasonable and seem to be within the 
general mainstream of practice, we negotiate and generally 
accept different kinds of benefit designs for prescription drug 
programs from one health plan to another.
    With respect to the Blue Cross and Blue Shield prescription 
drug program, it is no secret, because it has been talked about 
in testimony before this subcommittee on a couple of occasions, 
that the Federal employee program does believe that the 
imposition of a copayment on Medicare-eligible retirees for 
their mail order drugs would be an important way to rationalize 
their benefit design and to insert some utilization controls at 
that particular distribution point.
    I note from reading their prepared testimony that this 
remains an issue with them. I'm not surprised that it is. And 
I'm sure that we will have long and fruitful discussions over 
that over the course of our negotiations this summer. But I'm 
not really in a position to talk about the outcome of that at 
this point.
    Mr. Allen. One followup, is there any concern that the 
primary mail order contractor for the program Merck-Medco is 
owned by a manufacturer and might have some conflict of 
interest in terms of encouraging utilization of its own 
products?
    Mr. Flynn. No, Mr. Allen. Again, just to clarify, what 
we're talking about here is the Blue Cross and Blue Shield drug 
program, not the drug program for the Federal Employees Health 
Benefits Program in general. When Merck-Medco was established, 
that was a concern, the fact of its affiliation with the 
pharmaceutical manufacturer, Merck, and a number of fire walls 
were put into place to assure that there wasn't some sort of 
incorrect or improper influence applied.
    I think Blue Cross and Blue Shield can speak more directly 
to that. But I know it was a matter that was looked at by the 
Federal Trade Commission. And, of course, Merck-Medco as the 
mail order pharmacy benefit manager for Blue Cross and Blue 
Shield covers lines of business that are far more extensive 
than the Federal employee program.
    All of our indications, I might add, from the customers' 
satisfaction surveys we've done, show people are very satisfied 
with the service they get from that particular contractor.
    Mr. Allen. Thank you. Thank you, Mr. Chairman.
    Mr. Scarborough. Thank you, Mr. Allen. Ms. Norton.
    Ms. Norton. Thank you very much, Mr. Chairman.
    May I note that in the rear are students from Bruce Monroe 
Elementary School who are part of a program that I started 
called D.C. Students in the Capitol. Its purpose is to make 
sure that every youngster in the District has to come to the 
Capitol at least once, meet their own Congresswoman, see what 
the Capitol is like, especially since so much of our business 
unfortunately gets transacted here.
    These students happen by chance to go to the same 
elementary school I went to, and I have said to them that I was 
particularly pleased to see Bruce Monroe here, because when I 
went to Bruce Monroe there was no representative to come to 
see, there was no Mayor and there was no city council. So to 
see them here is for me especially poignant.
    Like Mr. Allen, I am very concerned about the 
pharmaceutical costs and recognize that the burden is on the 
plans to be competitive here and to hold down costs. I wonder 
if you are aware of changes from year to year in the number of 
Federal retirees who may have changed their vendors for 
prescriptions from local pharmacies to mail order purchasing.
    Mr. Flynn. I don't have any of those numbers at my 
fingertips, Ms. Norton. We probably have some data that we 
could extend or extrapolate to the overall program to 
demonstrate the movement into mail order, particularly for 
maintenance drug therapy. We could provide this to you at a 
later point, if that would be of interest.
    Ms. Norton. Well, I mean it's of interest. One of the 
reasons--I ask about retirees. They may have been slow to 
change vendors because they are used to going into the local 
pharmacy.
    Well, of course, without some substantial education, you 
may not know that the best delivery may be in the mail, where 
the same delivery can occur and then the costs are 
substantially less often for those kinds of transactions, 
except that if that's not the way you've done it for most of 
your life, most of your adult life, it's not most likely to 
occur.
    This kind of education--is this kind of education a part of 
what you do at OPM? How do you change people's habits? If it is 
your job to hold down costs, isn't part of that job to help 
people recognize that they can get the same benefit, for 
example delivery, that you might have gotten from the local 
pharmacy, at a greatly reduced cost?
    Mr. Flynn. Part of our job, Ms. Norton, is to educate and 
inform. We do a great deal of that through the materials that 
we produce. The health plans that participate in the program do 
so as well.
    I would just point to another area of this program as an 
indication of the degree to which this particular retired 
population is willing to change. The Office of Personnel 
Management, among all agencies that pay retirement benefits, 
has the highest rate of EFT participation, about 90 percent.
    Ms. Norton. Say that again.
    Mr. Flynn. We have the highest rate of electronic funds 
transfer participation, among all benefit-paying agencies, at 
about 90 percent for our retirees. When we do surveys of the 
National Association of Retired Federal Employees and others, 
we find that computer utilization, Internet access, things like 
that, are all way above the national averages.
    So I think this sort of tangential evidence is good, but I 
do think we have an educational challenge in front of us. There 
will always be ways we can do it better, but we have 
responsibilities. We share them with the health plans, and we 
want to make sure that people understand how they can get that.
    Ms. Norton. Maybe retirees have a great incentive to watch 
this sort of thing. It may be--the problem may be with 
employees. I mean, I suppose at--the root of my question is 
what kind of education are you doing on this kind of change 
with employees and retirees, because unless these habits are 
changed by the consumer, then you're going to have problems 
holding down costs because you haven't educated people about 
holding down costs.
    I ask about this cost--I've had experience myself in the 
difference between ordering something from a vendor, that's 
covered by a plan, and going to the drug store and there is a 
very substantial difference here.
    Mr. Flynn. Yes, there is.
    Ms. Norton. When one gets information that says you can 
change your health care plan, you almost want to put it down, 
unless there's something that very easily indicates what the 
differences would be and points them out to you. Is that kind 
of information available to employees?
    Mr. Flynn. Yes, it is, Ms. Norton. And we make extensive 
efforts to provide it. In fact, I will just mention one very 
quickly. We've been involved, in partnership with the health 
plans, in a major effort to make sure that our informational 
and educational materials are written in plain language so that 
we broaden the base of people who understand and who can act on 
the basis of good understanding of what's in their best 
interests. I think that's been an important effort. And I look 
forward to some of the results of that.
    Ms. Norton. If I might ask a question about the costs of 
the patient's bill of rights. One of the costs was direct 
access to OB/GYN, as I recall, it was $2.9 million.
    I was interested that that cost was only a million dollars 
less than the costs of transition costs, the transition costs 
of keeping people on plans. I really didn't understand that 
figure, particularly since most younger women, and I think even 
middle aged and older women, use OB/GYN--or one or the other 
far more than anything else.
    Aren't there two transactions? I mean, why isn't that 
saving money, if, in fact, the great majority of women use an 
OB and/or GYN?
    If I go first to my internist, then he says why don't you 
go see my gynecologist, then, of course, there are two charges. 
I don't understand why there is this $2.9 million for women to 
go straight to OB/GYN, and I would like to see some figures 
that would indicate why there would be an increased charge--an 
increased cost, I'm sorry.
    Mr. Flynn. Sure. And I will be happy to go back with our 
actuaries and provide for you for the record if that's 
acceptable.
    Ms. Norton. What percentage of women use a physician mostly 
for OB and/or GYN?
    Mr. Flynn. I don't personally know that today. Certainly we 
can provide that information for the record.
    Ms. Norton. You have no idea why this $2.9 million is 
listed as a cost of going directly to OB/GYN?
    Mr. Flynn. It is----
    Ms. Norton. Or what accounts for the costs?
    Mr. Flynn. It is primarily the change in the benefit 
pattern within those few plans that didn't already provide 
direct access to OB/GYN.
    Ms. Norton. I'm sorry. Changing the benefit pattern--if I 
can just get this clarified. What does that mean? I can't 
answer what you mean.
    Mr. Flynn. It essentially allows women to have direct 
access for routine screenings and other preventive care without 
having to go through a primary care physician. As to the basis 
for that $2.9 million cost estimate, I don't have all the 
details in front of me, but, as I say, I would be happy to 
provide it. But it's a very, very small number in the final 
analysis, in any event.
    Ms. Norton. Small number. I don't know why it's $2.9 
million. You see the hypothesis, what you have indicated is 
counter-intuitive.
    Mr. Flynn. It is counterintuitive.
    Ms. Norton. My hypothesis would be instead of two 
transactions there ought to now be one, since I believe most 
women use an OB/GYN. And so I would like an explanation for 
that figure, and I would like it to be provided both to the 
committee and to me.
    Mr. Flynn. Mrs. Norton, absolutely I understand it is 
counterintuitive, and that's why I would like to provide a more 
complete answer if I could.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T0956.024
    
    Mr. Scarborough. Thank you for this line of questioning and 
also for this great program. What is it called, Classroom in 
the Capitol?
    Ms. Norton. D.C. Students in the Capitol.
    Mr. Scarborough. Why don't you all raise your hands? What 
grade are you in, sixth grade? OK. Well, thanks for visiting us 
today and go home and tell your families and all of your 
friends that are of voting age that Mrs. Norton continues to 
fight for you in committees and on the House floor, and that 
she's also a great champion for you, a great example of what 
you can do. One of you ought to come and take her place after 
she retires.
    Mr. Mica. Soon.
    Mr. Scarborough. Not soon, Mr. Mica, not soon. Just ignore 
Mr. Mica, he's a mean-spirited Republican. You can go back and 
tell your parents that, too. So thank you for coming. We 
appreciate it.
    Speaking of mean-spirited Republicans, Mr. Mica has one 
very quick followup question, and if anybody over here in the 
gentle section wants to ask a quick followup, we will be fair. 
Mr. Mica.
    Mr. Mica. Well, again, you've described this as only $10 a 
year more, the President a dollar a month, and actually we're 
at a $35 to $40 million a year increase. And you said there was 
a 10 percent increase last year on average. I believe those are 
the correct statistics.
    What contributed the most to the increase in the last year? 
Was that prescription drug costs?
    Mr. Flynn. Yes, sir.
    Mr. Mica. And that leads me to my question: What did the 
patient's bill of rights do to help in that area? Anything to 
bring down the costs or deal with the problem of the biggest 
escalating factor?
    Mr. Flynn. Well, Mr. Mica, the patient's bill of rights is 
not intended to address any particular aspect of health care 
per se. It's designed to provide access to information, 
safeguards to assure----
    Mr. Mica. Did it do anything to help in that area that 
we've experienced the greatest amount of costs?
    Mr. Flynn. The only way that I could really answer that, 
Mr. Mica, is to say that the patient's bill of rights wasn't 
per se intended to reduce costs. It was intended to better 
balance the rights of individuals who participate in managed 
care health insurance programs.
    Mr. Mica. And one area where it could have reduced costs, 
for example, in the direct access to OB/GYN services, which was 
pointed out here, we haven't seen that happen?
    Mr. Flynn. Only because of my own inadequacies, Mr. Mica. I 
would be happy to provide additional information for the 
record.
    Mr. Mica. We look forward to your additional information.
    Thank you, Mr. Chairman.
    Mr. Scarborough. And, Mr. Mica, let his humility be an 
example to you talking about inadequacies.
    Mr. Allen, you have a followup, also.
    Mr. Allen. I just thought in light--I guess I should say, 
Mr. Mica, if you want to sign on to a bill that would reduce 
prescription drug costs for the elderly, I have a bill for you. 
But we can talk about that afterwards.
    I just thought it would be useful to put the numbers on the 
table we were talking about, on the one hand, about $35 million 
being the overall global costs for the patient's bill of 
rights.
    Could you give me two numbers: one, give me the dollar 
number that reflects the 10 percent premium increase; and then 
the 100 percent, the total premiums paid by Federal employees 
under this Federal health care plan.
    Mr. Flynn. Well, in round numbers, 10 percent----
    Mr. Allen. All I'm asking is round numbers.
    Mr. Flynn. Ten percent increase in round numbers is going 
to be about $1.7 billion. And the total premium income to the 
program--and I don't have my calculator with me--but if you 
figure an average premium, Mr. Allen, of about $4,400 per year 
and 4.1 million policyholders in the program, you should get 
pretty close to the total costs.
    The thing that I would just emphasize is that that total is 
then on average split 28 percent being paid by the individual 
employee or retiree and the balance of 72 percent being paid as 
the government contribution toward the cost of that care.
    Mr. Allen. I thank you. I just wanted to have the numbers 
in context.
    Thank you, Mr. Chairman.
    Mr. Scarborough. Thank you, Mr. Allen.
    We certainly appreciate your testimony here today. And I 
know you're a very busy man, and I apologize for keeping you 
waiting 20 minutes at the beginning. But thanks again. We look 
forward to seeing you soon.
    Let's call up our next panel. We have Steven Gammarino who 
is senior vice president of the Federal Employee Program, Blue 
Cross and Blue Shield Association. We have Dr. Joseph Braun, 
chief medical officer at George Washington University Health 
Plan, and we have Bobby Harnage, Senior, president of the 
American Federation of Government Employees.
    All right, gentlemen, if you could raise your right hands.
    Dr. Braun. I happen to be a Quaker. Could I affirm to the 
oath instead of swearing to it, please?
    [Witnesses sworn or affirmed.]
    Mr. Scarborough. Please have a seat.
    And let's start with Mr. Gammarino, senior vice president, 
Federal Employee Program, Blue Cross and Blue Shield 
Association.

  STATEMENTS OF STEPHEN W. GAMMARINO, SENIOR VICE PRESIDENT, 
     FEDERAL EMPLOYEE PROGRAM, BLUE CROSS AND BLUE SHIELD 
 ASSOCIATION; DR. JOSEPH BRAUN, CHIEF MEDICAL OFFICER, GEORGE 
 WASHINGTON UNIVERSITY HEALTH PLAN; AND BOBBY L. HARNAGE, SR., 
     PRESIDENT, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES

    Mr. Gammarino. Good morning, Mr. Chairman and members of 
the subcommittee. I thank you for the opportunity to appear 
before this body today about the changes for the year 2000. I'm 
also pleased to note that this is my first appearance before 
the subcommittee since you became chairman, Mr. Scarborough. 
Blue Cross and Blue Shield looks forward to continuing a 
productive relationship with the subcommittee.
    My testimony today will highlight several trends affecting 
the program currently that we believe are adversely impacting 
the well-being of the program.
    These trends are: the increasing administrative burdens on 
participating carriers, reduced carrier flexibility, movement 
away from a level playing field, and the standardization of 
health plan administration.
    Before I go further, Mr. Chairman, since I will be 
summarizing my testimony, I would like my full written 
testimony to be put into the record.
    Mr. Scarborough. Without objection, so ordered.
    Mr. Gammarino. These trends will be reflected in my 
comments today in the following areas: the impact on costs and 
quality of the policies set forth in this year's call letter 
and other matters of concern to the Blue Cross and Blue Shield 
Association.
    Your invitation requested our views on how the provisions 
of OPM's call letter for the year 2000 are likely to impact the 
costs and quality of health care coverage. Implementation of 
the patient's bill of rights is one case in point. For example, 
we have a requirement that patients have a right to obtain and 
amend his or her medical records.
    This will potentially require us to change our provider 
agreements. Such contract changes are inappropriate, we feel, 
for our plan. With a network of more than 400,000 providers and 
provider contracts developed, in most cases, for the Blue Cross 
and Blue Shield plans' commercial business, directing our local 
plans to recontract for these issues would come at a tremendous 
cost and, we think, add very little value to the program.
    We simply have no reason to be involved in the relationship 
between the physician and the patient with regard to medical 
records. We're also concerned that should we attempt to 
recontract for this issue it is possible that some providers 
may simply refuse, thus reducing in size the broad networks 
which our enrollees expect and rely on today.
    With proper consultation between the agency and carriers 
and reasonable flexibility, as was shown last year, it is 
possible that the substance of the patient's bill of rights 
could be implemented without major adverse impact on the 
program.
    However, I should note that the set of requirements OPM is 
requiring are quite distinct from any of the various patient 
right acts currently being considered before Congress.
    Indeed, despite the assertion by some that the FEHBP 
experience demonstrates that the pending patient's bill of 
rights would not be costly, the requirements of the bill being 
implemented in the FEHBP last year and this year are 
significantly less onerous for health plans than some of those 
being discussed on Capitol Hill today.
    One final initiative mentioned in the call letter concerns 
the Department of Defense Demonstration Project for 
Participation by Military Retirees. Now, this area is also a 
cause for concern. While we share the agency's interests in 
setting premiums that are at an attractive level for eligibles, 
we are concerned about their intent to ensure participation 
while mitigating carrier risk. We have, in discussions with 
OPM, told them we believe their intended course of action with 
regard to financing this project is contrary to law and 
incompatible with the very structure of the program.
    Please let me explain. One percent of the premium in the 
plan in the program is set aside in the administrative reserve, 
the purpose of which is to cover OPM expenses in administering 
the program, OPM uses only a small fraction of the available 
amount and the unused portion is distributed to carriers based 
on their market share in accordance with the directions in the 
law.
    We understand that the agency proposes to utilize the 
unused portion of the reserve to pay off any deficits carriers 
may incur because of the demonstration project without regard 
to the statutory instructions.
    We find absolutely no basis in current law for this action. 
The legislation that authorized the demonstration project gave 
OPM access to the reserve to defray any additional costs it may 
incur, but it said nothing about carrier costs and did not in 
any way alter the distribution scheme set forth in the basic 
law.
    Now why is this important? It is important because OPM's 
proposed action is incompatible with the concept of an insured 
competitive program, which is what the FEHBP is in law and in 
fact.
    OPM would, in effect, be redistributing the premium income 
among the carriers, taking money that was derived from one 
carrier's premium and giving it to another. In a self-insured 
program, this would not be a problem; but in a competitive 
insured program, it undermines the integrity of the rate-
setting process and erodes the basis for carrier liability.
    Now, while the call letter draws attention to specific 
program-wide initiatives for the coming year, there are, of 
course, other issues affecting the FEHBP in general that are 
not addressed in the call letter. One area of great concern to 
us is the administration's continuing efforts to impose the 
cost accounting standards on this program. These standards, 
which are developed primarily for contractors doing business 
for the Department of Defense, are overseen by the Cost 
Accounting Standards Board.
    As you know, upon the requests of this subcommittee and the 
Committee on the Government Reform, Congress included a 
provision last year exempting carrier contracts in this 
program. The administration, specifically OMB, opposed this 
provision at the time, even though OPM was on record as 
recognizing the inherent difficulties in attempting to fit 
these standards in this program.
    We note that the President's fiscal year 2000 budget 
proposes to delete this exemption. The Blue Cross and Blue 
Shield Association actively sought this exemption last year 
and, with your help, obtained that exemption. Simply put, for 
reasons stated by many--before many subcommittees before, Blue 
Cross and Blue Shield Association, as the agent for the plans, 
cannot sign a contract with OPM that contains a cost accounting 
standard clause, or that otherwise applies cost accounting 
standards coverage.
    Given the administration's reluctance to recognize the 
inappropriateness of applying the cost accounting standards to 
our program, as evidenced by the proposal to delete the 
exemption, we're also convinced that congressional intervention 
is required. Once again, we ask for your assistance in 
retaining this statutory exemption.
    The second area of significant concern is the lack of 
sufficient flexibility to adapt our benefit structure to the 
trends affecting us today. The cost trends, for example, in 
prescription drugs continue to outpace by far all other benefit 
trends. The demand for new, expensive drug therapies continues 
to increase, fueled by direct-to-consumer advertising.
    Other factors, such as the aging of enrollee population, 
also contribute to the rising costs, as I testified last year. 
And in the Service Benefit Plan, we continue to experience 
wastage and high utilization that is encouraged by the 
availability of ``free drugs'' for some of our enrollees. We 
have sought to control our costs by introducing cost sharing, 
but in the past 2 years we have simply been told no.
    In summary, the fundamental strength of the FEHBP has been 
derived from a number of important features: the ability of 
enrollees to select from a number of competing health plans 
that best meet their needs; the ability of carriers to compete 
on a level playing field, and to bring needed and attractive 
products to the marketplace; and, finally, the ability of the 
program administrators to make intelligent choices, consistent 
with the law and regulation.
    Thank you, Mr. Chairman, once again, on behalf of Blue 
Cross and Blue Shield. I appreciate the opportunity to come 
before you, and I would be pleased to answer any questions at 
this time.
    Mr. Scarborough. Thank you, Mr. Gammarino.
    [The prepared statement of Mr. Gammarino follows:]

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    Mr. Scarborough. Mr. Harnage has a flight that he has to 
catch at 1. Why don't you go ahead and we will take your 
testimony now, and then we will go back to Dr. Braun. If you 
can stay through his testimony also, I will ask panel members 
to direct their questions to you, and you just stay as long as 
you can.
    Mr. Harnage. I appreciate that.
    Mr. Scarborough. If that works for you.
    Mr. Harnage. It works for me.
    Mr. Scarborough. All right, Mr. Harnage.
    Mr. Harnage. Thank you very much, Mr. Chairman. It's a 
pleasure to see you this morning, and I appreciate the 
opportunity to you and the subcommittee members to testify on 
this important issue this morning. I am the national president 
of the American Federation of Government Employees, AFL-CIO, 
and represent a little better than 600,000 Federal and DC 
government employees.
    I know that my written comments will be submitted for the 
record and I will simply try to summarize this morning. Many 
people point to the Federal Employees Health Benefits Program 
as a model health insurance program. But I assure you that 
AFGE's perspective is the program is anything other than a 
model.
    Although, we know that health care costs have gone up 
everywhere, we also know that the program costs have gone up 
far more than--much more than they should have, and Federal 
employees have had to shoulder much more of the costs and 
increased costs than they should have.
    I want to focus my comments this morning on three related 
issues within the Federal Employees Health Benefits Program. 
The first issue is the premium inflation. The second issue is 
the need to make sure that OPM obtains from the program 
contractors the cost accounting information necessary to verify 
the accuracy of the bills they submit. These accounting 
standards affect all businesses which sell services to the 
government and are important safeguards against contractors 
overcharging for anything from health care services to fighter 
aircraft.
    The third issue is our continuing effort to convince OPM to 
permit employee representatives to play a more important and 
active role in annual negotiations with program carriers over 
benefits and premiums as well as quality standards.
    This is a clear case where the government and its unions 
have a mutual interest in a partnership to create a program 
that works better and costs less. I hope the members of this 
subcommittee will support our efforts in this area.
    Over the past 2 years, the premium--program premiums have 
risen an average of more than 18 percent; in 1998, it was 8.5 
percent; in 1999, it was 10.2 percent. And experts have warned 
that we are in for more of the same.
    Instead of pledges to bring this inflation under control, 
our stern warnings to the insurance companies that the program 
will not tolerate a repeat of the 1980's decade-long nightmare 
of double-digit increases. All we hear from OPM are vague 
repetitions of the industry's own propaganda.
    What it amounts to is blaming Federal employees, the 
victims of this inflation, for causing the inflation. The 
program requires Federal workers to shoulder an usually high 
cost-sharing burden when compared to other larger employer-
sponsored plans, both private and public sector. We need 
serious long-term relief from these costs.
    Federal workers who have been continually denied the full 
pay raises due to them are now expected to continue to pay the 
full amount of every program premium increase OPM approves.
    This brings me to the subject of the government's cost 
accounting standards. In cases where cost data supplied by 
contractors is used to negotiate contract prices or 
reimbursement, the government has to be able to verify the 
accuracy of this cost data.
    The method for doing this is a rigorous application of cost 
accounting standards. Experts in this area use a rule of thumb 
estimate that the government saves about 5 percent of 
expenditures as a result of these standards; yet one carrier in 
the program managed to insert in last year's omnibus spending 
bill, a free ride for 1999.
    You heard right: there are no standards governing the 
measurement, assignment, and allocation of costs to the 
program's experienced rated contracts.
    Instead of allowing this 1-year exemption to continue or to 
become permanent law, I urge the subcommittee to insist that 
OPM and the carriers resolve any disputes on this issue so that 
Federal workers can be assured that all unnecessary costs will 
be eliminated.
    Despite the fact that the program's financing structure 
requires Federal employees to pay at least a quarter, but on an 
average 28 percent of premiums, in addition to substantial out-
of-pocket copayments, we are denied any meaningful voice in 
setting the program's benefits or its prices. AFGE has 
developed an excellent track record in working with Congress 
and other agencies throughout the government to bring about 
changes which are beneficial to the government and employees 
alike.
    FEHBP is a prime example of a program which could benefit 
from serious employee input. One of the main issues OPM 
highlighted in this year's call letter to carriers, concerns 
the details of covering the President's executive memorandum on 
the patient's bill of rights. That is primarily an issue of 
enrollees in managed care.
    Let me say that I appreciate Congressman Cummings' inquiry 
into our participation with the previous person testifying. He 
did, prior to the testimony, give me an invitation that he did 
want to work with us more closely; but I assure you, his idea 
of us working more closely is far from what my idea is.
    I'm not looking for formal consultation. I'm looking for 
full participation at the table when we talk about and when we 
review the data and talk about the benefits and talk about the 
price increases. Consultation doesn't get us anywhere.
    And on the issue of including the view of Federal workers 
in setting quality standards, OPM's approach has been to 
conduct an annual Gallup poll of customer satisfaction. That in 
no way substitutes for us being at the table, able to deal with 
the rising costs,
both to the Government and to the Federal employee on costs of 
this benefit program.
    That concludes my statement. I will be happy to answer any 
questions that you might have.
    Mr. Scarborough. Thank you, Mr. Harnage.
    [The prepared statement of Mr. Harnage follows:]

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    Mr. Scarborough. Dr. Braun.
    Dr. Braun. Thank you, Mr. Chairman. Mr. Chairman and 
members of the committee, my name is Dr. Joseph L. Braun; and I 
am the chief medical officer of the George Washington 
University Health Plan in Bethesda, MD. The GW Health Plan has 
over 25,000 members enrolled in the Federal Employees Health 
Benefits Program.
    Today, I will be testifying on behalf of the American 
Association of Health Plans, the principal national 
organization representing health maintenance organizations and 
preferred provider organizations and similar network-based 
plans in the United States. A significant number of AAHP 
member-plans participate in the FEHB program.
    Given that the FEHB program serves as a model for health 
coverage, we urge caution in interfering with this program's 
success. The success depends in large part upon the flexibility 
Congress accords to the OPM in administering the program.
    AAHP and its member-plans have a long-standing relationship 
with the Office of Personnel Management and have worked closely 
with OPM in the past years to resolve benefit, administrative, 
and other issues.
    We look forward to continuing our partnership with OPM to 
improve the FEHB program and to relay our concerns about the 
carrier letter for proposed benefits and rate changes in the 
contract year 2000.
    Between 1998 and 1999, 95 health plans decided not to renew 
their contracts with the FEHB program. While many of these 
terminations were attributable to health plan consultations and 
acquisitions, some plans terminated their contracts because of 
insufficient FEHB program enrollment, a noncompetitive FEHB 
program premium, and unpredictable utilization risk from a 
small number of enrollees.
    AAHP and its member-plans are concerned that many of the 
requirements imposed by current bills in Congress and other 
recently passed mandates would micromanage health plan 
operations and freeze medical practice and present day 
patterns.
    As a result, these legislative proposals, if enacted, would 
significantly drive up health care costs and the number of 
uninsured Americans while doing nothing to improve and, in 
fact, potentially reducing the quantity and quality of care.
    The President's patient's bill of rights--let me just say a 
few things about this. By working in collaboration, OPM and 
health plans have insured that many of the protections 
contained in the President's health care consumer's bill of 
rights could be implemented smoothly.
    However, there are several requirements which may be 
especially difficult for health care plans to implement. We 
caution Congress that administrative and benefit mandates have 
the danger of making the FEHB program unwieldy, more expensive, 
and less responsive to the beneficiaries' needs.
    One example of this is the area of information disclosure. 
Health plans routinely make information readily available to 
enrollees. However, we believe the OPM's information disclosure 
requirements are overly broad and burdensome. Some information 
such as disenrollment rates may be difficult for health care 
plans to keep current.
    And while health plans are committed to informing the 
members upon requests about how participating physicians are 
paid, we caution that such information may be difficult for 
members to understand and may, therefore, lead to further 
confusion.
    The second area of concern relates to transitional care. 
Health plans believe that patients who change from one provider 
to another included from a nonnetwork provider to a network 
provider should be assisted in making this transition as easy 
as possible.
    OPM's interpretation of the President's bill of rights 
could impose unnecessary requirements in this area.
    Many health plans already have voluntary procedures to 
facilitate the transfer of care from one practitioner to 
another when in the best interests of the patient.
    Now let me turn to the topic of assessing quality health 
care. We support OPM's efforts to improve the FEHB program 
through enhanced quality measures. In an effort to reduce the 
administrative burden on plans, OPM decided to adopt a health 
plan and employee data information set more popularly known as 
HEDIS as its quality measure.
    While we greatly appreciate the use of HEDIS, we have two 
concerns. First, the OPM requires that health plans collect 
additional HEDIS data specifically for children, but a single 
plan may not have a large enough survey pool for results to be 
statistically valid.
    Furthermore, while the OPM has provided each plan $7,000 to 
cover the costs of this survey, this amount does not begin to 
cover the actual costs of such a survey.
    In the issue of provider contracts, let me just say a few 
words. OPM encourages health plans to provide access to 
nonphysician providers when appropriate; however, we are 
concerned with this lack of adequate accreditation standards 
for nonphysician providers.
    While, in some cases, nonphysician providers may broaden 
the health care delivery system for plan members, many such 
providers may not contract with managed-care organizations, and 
additionally some nonphysician providers, such as nurse 
midwives, may be required to be under the supervision of a 
licensed physician under State law.
    The President's plain language initiative is such another 
example of how OPM is working with the health plans to improve 
the quality of care received by FEHB members. The plain 
language initiative facilitates better consumer understanding 
of health care plan options and benefits.
    OPM has worked closely with the AAHP and its member-plans 
to revise the FEHB program brochure in plain language. Let me 
just say AAHP member-plans are working hard and succeeding at 
providing access to high quality care for their FEHB program 
members.
    We cannot forget, however, that one of the greatest 
barriers of access to care is affordability, even in the FEHB 
program market. Health plans have played a key role in keeping 
health care affordable for millions of Americans by focusing on 
continuous quality improvement and developing innovative 
strategies to provide patients with the care they need.
    In order to promote affordability, to improve access and to 
do no harm, Congress and the OPM must continue to allow health 
plans the flexibility to meet the needs of the Federal 
employees. We caution Congress against the urge to micromandate 
and manage programs, an urge that can alter the FEHB program's 
role as the national standard-bearer for health care coverage.
    I thank the ladies and gentlemen for this opportunity to 
speak on this vital subject.
    Mr. Scarborough. I thank you, Dr. Braun.
    [The prepared statement of Dr. Braun follows:]

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    Mr. Scarborough. Mr. Mica has a meeting coming up, and I 
would like him to begin the questions. Mr. Mica.
    Mr. Mica. Thank you, Mr. Chairman. Welcome back, Mr. 
Gammarino. And Mr. Gammarino, my interest has been to bring 
down the costs for Federal employees. I happen to be a Federal 
employee. I am happy to participate in one of those, and I am 
not interested in increased costs. You ought to hear my wife 
when the costs go up; it's not a pleasant scene.
    I am interested in benefits, and I represent a lot of 
senior citizens in central Florida and retirees--the benefits 
and the quality of care is very important to them.
    I preface this question in light of that background. Has 
OPM ever invited you to suggest an innovative benefits package 
design that would help cut the costs of health care for our 
employees, for our retirees, and taxpayers while still 
providing high-quality coverage?
    Mr. Gammarino. Before I answer that question, it's good to 
see you again.
    Mr. Mica. Thank you.
    Mr. Gammarino. Specifically, the answer to that question is 
no. But I don't know that that's OPM's job. I do think though--
--
    Mr. Mica. Maybe you could provide to the committee, because 
you know Mr. Gammarino, you're probably the biggest coverers, 
aren't you? You cover the most Federal employees, retirees.
    Mr. Gammarino. We cover the most Federal and retired 
employees.
    Mr. Mica. And I think Mr. Harnage represents the most 
Federal employees. I would love to see you guys get together 
and sit down, even without OPM, because they might be a 
distraction, and you said you wanted to participate and come to 
us with an alternative, because you sure as hell aren't going 
to get it done through them. And it doesn't seem to be their 
objective.
    Most of the things they come to us with drive up the costs. 
And you just heard testimony here of increasing costs. And if 
it's a patient's bill of rights that mandates these costs, if 
it's prescription drugs that account for the largest increase, 
we need to be looking at some alternatives that bring more 
people coverage and access at reasonable costs. So I would 
really appreciate if--and I'm asking you to work with us and 
maybe sit down with----
    Mr. Gammarino. If I can just followup more specifically to 
your question. When I said they haven't asked, I really think 
it's our obligation. I think we do have roadblocks. You've 
pointed out many of them.
    But the major one we need is flexibility of benefit design. 
It does no good to have any proposal if we have significant 
hurdles and roadblocks in terms of OPM accepting any innovative 
benefit design.
    Mr. Mica. If you were going to look at the No. 1 area in 
which we could possibly have the potential for cutting costs, 
would that be the item that you would address, flexibility and 
design of the package?
    Mr. Gammarino. Yes, it would, and it would be specifically 
on prescription drugs. I know everybody here has indicated such 
a significant concern and our enrollees express that time and 
time again.
    Mr. Mica. Mr. Harnage had complained that we had given a 
waiver for 1 year on the accounting standards. If we impose 
that, what is going to happen? And is there any way that the 
costs and other things that OPM has a way to verify them, check 
them now?
    I mean, we want to do what he would like to do, but what's 
going to happen if we do the alternative? We've given you a 
waiver how can we ensure that we are getting that information 
or OPM is accurate?
    Mr. Gammarino. Right. I would be pleased to address that 
question. First, a point of clarification, we have a permanent 
exemption relative to the cost accounting standards. It is not 
a 1-year waiver at all. Somebody is going to have to repeal 
that and hopefully they won't succeed.
    Mr. Mica. If it was repealed, what would happen? And then 
the other thing, too, is since you have this permanent status, 
how is the Federal Government taxpayer and the Federal 
employees representative group assured that they are good 
provisions for OPM to check on these costs?
    Mr. Gammarino. Right. I would be happy to answer that 
question. First, let's talk about costs. When it comes to the 
cost accounting standards in this program, first of all, we're 
only talking about, on average, 7 percent of the overall costs.
    Ninety-three percent of the costs of this program are 
related to benefit dollars. Those are provider liabilities that 
are passed through the program that we actuarially rate for, so 
they would not be included in CAS at all. So that just leaves 7 
percent.
    Today, under the Federal Acquisition Regulations, which are 
commonly called the FAR, there are very specific cost 
accounting standards that we and other carriers have to abide 
by; and there's been previous testimony before the GAO panel on 
CAS last year that the agency has found over the last 39 years 
that those types of regulations that we have today are quite 
adequate to ensure that the government is being charged 
appropriately.
    I might also add that we do have an administrative cap. 
Although it is a cost reimbursement program, we can never 
exceed that cap; and it's adjusted each year by inflation and 
by how well you do in the marketplace.
    Mr. Mica. The final question. There has been some talk 
about the costs of the patient's bill of rights, and the 
President, I think, has said that it wouldn't cost much more to 
impose his patient's bill of rights, his proposal across the 
board and in a congressional mandate for all health care folks. 
There are some differences between what he's proposed at large 
and what FEHB has enacted.
    What are those major differences, is the first part of my 
question. And then the second is, what would be the costs? I 
know at least one of those is to allow the suit of the 
carriers. What effect would that have on FEHB, and then again 
are we comparing apples and oranges here?
    Mr. Gammarino. Well, I think from my perspective we are 
comparing apples to oranges. As my testimony indicates, the 
agency has been quite reasonable in terms of how they 
interpret, I guess, the overall design of the patient's bill of 
rights. And we do not see that reasonableness necessarily in 
some of the legislation up on Capitol Hill today relative to 
the President's proposal.
    So I would be very cautious about using any figures in 
terms of cost effectiveness relative to this program and 
transferring that over to the national scene.
    Mr. Mica. Well, there are two major differences between 
most of the pending Federal legislation, I guess, external 
review and the right to sue----
    Mr. Gammarino. Right.
    Mr. Mica [continuing]. If they were instituted in the 
patient's bill of rights as it affects your program. Would we 
see another round of increases in cost?
    Mr. Gammarino. I'm sure we would, Mr. Mica. But I don't 
have any figures to that effect.
    Mr. Mica. OK. Thank you, Mr. Chairman.
    Mr. Scarborough. All right. Thank you, Mr. Mica.
    I would like to now turn it over to the ranking member, Mr. 
Cummings. And again, Mr. Harnage, any time you need to leave we 
certainly understand.
    Mr. Cummings. What time is your plane, Mr. Harnage?
    Mr. Harnage. 1 o'clock.
    Mr. Cummings. You actually fly out at 1 o'clock? Let me ask 
you some quick questions, and then I think you need to go. I 
don't know where you're flying out of--BWI, the greatest 
airport known.
    Mr. Harnage. Thank goodness it's out of National and I 
thought 3 hours would be enough. But I have some important 
business with the subcommittee. You can't always start on time, 
and I understand that.
    Mr. Cummings. Let me just get to--my questions are pretty 
simple. You said you want to be a player at the table, and I 
understand that. It makes a lot of sense. I'm trying to figure 
out--I mean I'm sitting here thinking--and I was listening to 
Mr. Mica and trying to figure out what it is that you think you 
all could bring to the table that would reduce benefits, and at 
the same time--I mean, not reduce benefits but reduce premiums, 
and at the same time have the kind of benefits that your 
members want and need.
    And I guess I'm trying to figure out what--because I kind 
of get the feeling from Mr. Flynn, I can't speak for him, but I 
got the feeling, I wonder whether--as I listened to him, 
whether they even think you all have something to bring to the 
table that deals with those two situations. And I'm just 
curious as to what you see yourself and your organization 
bringing.
    Mr. Harnage. Well, one thing we would bring is the 
employees' perspective. You know, what we see is not 
necessarily the dealing with one party at the table. We may 
very well be able to work with the providers and helping them 
reduce some restrictions that provide them a better way of 
delivery of service or less costly way of doing it, where they 
can't get past OPM.
    Maybe the two of us can come in here and convince Congress 
where they need to make some changes legislatively in order to 
make the system work better, you know. So we would not always 
or necessarily be in opposition to what the providers want to 
do, and at the same time, would not necessarily be always 
opposed to what OPM is trying to do.
    The problem is that we are not at the table, and it clearly 
appears to us that somebody is not doing all that can be done; 
and until we are convinced of that, we're always going to be 
critical of the program.
    AFGE is not a stranger to the health benefit program. We 
were in the business at one time. We got out of it because of 
OPM playing their role in it. We decided it was better for us 
to get out of the business and try to make the program better, 
rather than stay in the business.
    And to give you an example, we tried to come up with a 
Cadillac plan, but because our costs increased so much with the 
Cadillac plan, OPM turned it down on costs, even though our 
benefit was better than any other carrier and our cost was less 
than any other carrier.
    It was turned down simply because the premium increase was 
too much, not that it costs more or that it wasn't, you know, 
worth the money.
    So I know the bureaucracy of the government. It sometimes 
makes no sense in trying to provide services to its employees 
and to the taxpayers. And I think we can bring some common 
sense to the table.
    Mr. Cummings. I think it was you that said a little bit 
earlier ago a poll was taken by OPM trying to figure out 
satisfaction or whatever. What are you hearing from your 
employees, your members, with regard to the benefit package and 
where it stands right now, the benefits side of it?
    Mr. Harnage. Well, the benefit side of it is fairly good, 
but the problem is that our people every year don't go shopping 
for the best benefits; they go shopping for what they can 
afford.
    Mr. Cummings. No doubt about that.
    Mr. Harnage. No doubt about that. And the statistics show 
there's lots, thousands, of Federal employees who don't have 
any insurance because they can't afford it. So they're talking 
more about premium increases and they tell me about, yes, I did 
get a small pay increase, but my taxes went up and my health 
insurance premium went up; and I actually took $2 less home 
than what I had before I got the pay increase. You know, there 
are numerous examples of that.
    Mr. Cummings. Now Mr. Gammarino talked about one of the 
things that he would like to see is flexibility with regard to 
benefits. Am I right, Mr. Gammarino?
    Mr. Gammarino. Yes, sir.
    Mr. Cummings. I mean, do you see that as something that 
would be helpful to you? I mean, is that something that you 
like?
    Mr. Harnage. Well, again, we're talking about the provider 
to be able to market shop rather than the employee being 
provided a particular benefit. I think that's one of the 
problems in the Federal Government. Look how many participants, 
how many carriers we have in the Federal Government, that look 
for segments of the market where they can be successful and 
make a good profit.
    We're not looking at what the Federal employee needs in 
health benefits and who wants to provide it and at what costs. 
We don't hesitate to study Federal employee jobs for 
privatization, for contracting out, supposedly because it saves 
money.
    But we don't even think about that in the health industry. 
Why don't we have over 100 carriers? Why don't we come up with 
4 or 5, maybe 6, plans so that Federal employees can choose 
what best benefits them and put that out there to the industry 
and say, OK, you guys, which one of you can provide this at the 
least cost?
    How come we're not thinking about that in--privatization 
saves money. It works both ways.
    Mr. Cummings. Last question. You said in your statement 
that as far as long-term care insurance is concerned few 
Federal employees would or should have it. Can you just comment 
on that, since that's----
    Mr. Harnage. Say that again.
    Mr. Cummings. Long-term care insurance.
    Mr. Harnage. Long-term care insurance. And I really admire 
those that are trying to, you know, address this subject. I 
know you are, and you've been working with some of my staff and 
Mrs. Morella, as well, but it's hard for me to get enthused 
about the long-term care. I don't like to leave anybody behind.
    And when we have Federal employees that can't even afford 
the basic health care, long-term care isn't going to help them 
at all because they can't afford that either.
    And this is not a benefit to the Federal employee except 
for the fact it's a group-rated plan. They're still going to 
foot the entire plan, but it will be a group-rated plan and, 
therefore, supposedly lesser costs.
    But with OPM's record in the other area, I, again, can't 
get too enthused that it is going to be done right.
    One of the problems with the administration and one of the 
positive things about yourself and Mrs. Morella--the 
administration did not talk to us about the inclusion of long-
term care and the Federal sector. They should have--if they 
really are partners they should have, you know, got us involved 
in the beginning, which you did and Mrs. Morella has done.
    We're going to work with you. We think it's a good idea. We 
think it can work, but there are some things that we have to 
work out.
    Mr. Cummings. Thank you, Mr. Chairman.
    Mr. Scarborough. Thank you, Mr. Cummings.
    Mr. Harnage, before you leave, is there anything you would 
like to comment on, other than what you've commented on, 
regarding the testimony either of OPM or the testimony of the 
gentleman sitting to your right?
    Mr. Harnage. I will hasten to get out of here, I'm getting 
a little nervous about that flight. But I do want to say I 
really appreciate this opportunity and finally having the 
opportunity to meet you, Mr. Chairman. I look forward to us 
meeting again and having some in-depth conversations about 
where you want to go and where we can help.
    Mr. Scarborough. That's great. I appreciate you being here 
and certainly apologize for the delay in starting this and ask 
next time you're back up here if you will come by my office.
    Mr. Harnage. We will do. Thank you, Mr. Chairman.
    Mr. Scarborough. Thanks a lot. Ms. Norton.
    Ms. Norton. Thank you, Mr. Chairman.
    I would like to ask Dr. Braun and Mr. Gammarino what their 
view is of why health care costs or premium costs arose at such 
a slower rate in the early 1990's than they are rising at 
today?
    Mr. Gammarino. If I can take a first shot at that Mrs. 
Norton. In the early 1990's, all of the indices related to 
health care were relatively low. On the provider side we saw 
many of us, including Blue Cross and Blue Shield, get 
significant discounts from those providers, and we were able to 
pass those along to the consumer.
    What has happened starting in the late 1990's is we've had 
a significant spike relative to prescription drugs. It's really 
that simple, and it's that localized. You can see it, OPM has 
seen it, I think every health plan has witnessed the same 
thing.
    Ms. Norton. Dr. Braun.
    Dr. Braun. Yes, ma'am. I would like to echo Mr. Gammarino's 
comments about that. The early days of managed care were days 
when the major vehicle employed to lower costs was that of 
contracting; and most of the decrease in inflation was due to 
discounts and the elaborate patterns of contracting by the 
managed-care organizations.
    Now, what we've seen is over the last 10 years, the 
increasing pressure on medical costs due to increased 
technology were able to do a lot, the fact that the population 
in general is aging.
    And, finally, what I would say is a change in the 
definition of perception of what we consider to be health 
nowadays, we're doing a lot of things. We're covering a lot of 
things that we couldn't consider to be health--health in that 
sense.
    The real challenge for managed care at this point lies in 
the fact that where the opportunities were to improve costs----
    Ms. Norton. Wouldn't consider to be health. What do you 
mean?
    Dr. Braun. Things like Viagra, for one thing. There are a 
lot of things that are out there, that kind of life-style 
enhancing treatments. And these are things not only 
pharmaceutical but also in terms of mental health benefits and 
things like that. There's an old saying in the managed-care or, 
actually, in the medical profession that America is the only 
country that seems to believe that death is a preventable 
disease.
    I mean, we really do spend an awful lot of time trying to 
take and not only improve, like we did in the past, the state 
of disease, but improve the state of health. And--by the same 
time, I mean we're seeing the companies coming along with 
things to improve appearance. I mean, you know, Retina A, 
things like Propecia, and things like that.
    So there really is a lot of things out there that are 
really changing the perception of what we mean by health. 
Again, the true challenge for managed care nowadays is the fact 
that we are in a situation where there's variation, a lot of 
variation in managed--or medical care practices in the United 
States.
    And Jack Lynnberg's work on the fact that, you know, you've 
got pneumonia in two towns in New England that are 15 miles 
apart and it costs four times as much in one town than it does 
in the other to treat this. You know, that's where the true 
savings lie. Those savings are harder.
    Contracting was easy, because you were dealing with large 
entities, large groups of doctors, large hospital systems. 
Nowadays what we're having to do is go out and, in effect, 
change the way that physicians actually practice. And, I mean, 
this is a much harder thing for managed care to do.
    Ms. Norton. Do you agree with Mr. Gammarino that 
prescription costs are the No. 1 factor in driving up health 
care costs?
    Dr. Braun. They are certainly a large part. I've got to 
tell you I got my pharmacy results from the first quarter, and 
I almost fell over. I mean this is really going to be a very, 
very expensive year for that.
    Ms. Norton. Dr. Braun, let me just ask you. At one point--
one can understand and nobody here is going to be soft on the 
pharmaceuticals--but at what point are we going to see what is 
surely the case that some of these drugs are a tradeoff for the 
kinds of procedures physicians were doing, which are themselves 
far more costly than putting somebody on medicine.
    Dr. Braun. Well, yes, ma'am.
    Ms. Norton. As long as you can say it's them, not us, then, 
of course, we can expect that there's just no tradeoff there, 
but that also defies common sense.
    Dr. Braun. I've got to say that the pharmaceutical 
companies have brought along some miraculous new classes of 
drugs. I remember when I first started practicing medicine, the 
treatment for ulcers was mostly surgery. You would go in and do 
a very invasive procedure. Nowadays we have medications that it 
is very unusual to have to do a procedure for ulcers and we now 
treat pharmacologically.
    Another example would be some of the newer generation of 
antibiotics that come along. There are medications like Proscar 
that can be used as an alternative to prostate surgery.
    I mean, we've done a lot of pharmaceuticals. There's a lot 
more out there that is going to happen. I mean, there's some 
wonderful new technologies that are going to be coming along in 
genetics.
    The medicines that we have nowadays certainly do more. It 
has been miraculous, what's happened.
    Ms. Norton. Don't they ultimately cost less than doing 
invasive procedures?
    Dr. Braun. The medications, you mean?
    Ms. Norton. Yes.
    Dr. Braun. Sometimes, yes, on a time-related average, they 
do. The fact is, though, as there is a pressure in the fact 
that the aging population there are more chronic diseases out 
there, too.
    One of the big pushes by the pharmaceutical industry 
recently have been medications and things like arthritis. We 
are doing a really good job of keeping people alive, but as 
they get older unfortunately a disease changes from a pattern 
of acute diseases to one of chronic diseases. You start getting 
things like heart failure problems, arthritis, diseases that 
require constant maintenance, constant medications.
    These are things that are not very amenable to surgery, 
unfortunately, at least at this point. So they do require 
expenditures of the medications and, you know, for many people, 
some of these medications really are lifestyle changing 
medications because it allows them to go back to work, you 
know, do their activities of daily living where they couldn't 
do them before because of the disease.
    Ms. Norton. Thank you very much.
    I see my time is up.
    Mrs. Morella. Thank you, Congresswoman Norton.
    I hope you haven't answered this before; and if you have, 
just tell me. The patient's bill of rights that we had before 
us in the last Congress, right now there are probably three 
bills that are pending on the House side. There has been an 
attempt to try to change some of the patient's bill of rights 
the last time and to put it into something else.
    I know Mr. Ganske has got a bill and Mr. Norwood and 
probably Mr. Dingell. I wonder if you had a chance to look at 
those versions to tell whether there is one that stands out as 
being the most effective and workable recognizing the fact that 
we are moving toward reform.
    Maybe Mr. Braun feels stronger about it. You can be 
somewhat objective as you look at it, Mr. Gammarino. I wonder 
if there is one of them that you think stands out or certain 
elements within a measure.
    Mr. Gammarino. I haven't read each one individually so I 
can't comment on that.
    I did address Mr. Mica's question. I don't know if you were 
in the room then in terms of the difference between what OPM 
was trying to do and what was up on the Hill. I did caution 
that in our estimation, we do have to be very careful between 
what is up on the Hill and the very soft way OPM has 
implemented these so-called patient bill of rights, at least 
the framework of it.
    That is my primary observation. In terms of which one is 
better than the other, I think generally we should be very 
cautious that we don't have unintended consequences that would 
actually reduce access for enrollees, which none of us wants.
    Dr. Braun. Again, I have to echo Mr. Gammarino's comments. 
I have read them to some degree, but my concern with all of 
them is the same and this has been alluded to by many of the 
witnesses here and also members of the panel.
    When you add administrative costs to a program, there is 
only a certain amount of money that goes around them. When you 
start spending things on administrative things, my concern is 
that there won't be enough money that will actually reach down 
and help treat the patient.
    I mean, as we have talked about before, there are 
increasing pressures from things like pharmaceuticals and 
technology and like that. There is more demand for the health-
care dollar. We want to be spending that on the patients and 
not on the administrative things.
    Ms. Norton. Would the gentlelady yield for a question on 
that?
    Mrs. Morella. Yes.
    Ms. Norton. Mr. Braun, haven't some of your health plan 
plans voluntarily adopted----
    Dr. Braun. Yes, ma'am. Many of the provisions we totally 
agree with.
    Ms. Norton. Haven't some of them been adopted in total, the 
patient's bills of rights?
    Dr. Braun. I don't know if in total. I know many of the 
provisions have been voluntarily adopted. Most of the health 
care plans nowadays--I worked for some of the big ones. I 
worked for NYLCare which is now Aetna. I worked for Pacific 
care. I worked for United.
    I came up to George Washington University because it is a 
not-for-profit health plan. I feel that there is really a great 
deal to be done with managed care. Where simply a way points 
along the way as this product evolves, and I certainly hope we 
have the freedom to evolve this into a program where there 
really is active medical consumers. I mean, one of the things I 
pride myself at GW is we try to get the individual members 
involved. I would say that even the bigger companies are trying 
to do that more and more, get the health care consumer involved 
in understanding what the costs are.
    This has been one of the problems. We have isolated the 
consumer basically from what the true costs of medical care are 
for years, and they need to have a better understanding and 
participate in that and be active in it.
    Mrs. Morella. Thank you.
    Mr. Allen, I will defer to you, and I will get back to 
questioning.
    Mr. Allen. Thank you, Madam Chair.
    Mr. Gammarino, you testified in response to a question from 
Mr. Mica that flexibility of benefit design, especially with 
regard to prescription drugs would help lower costs. I would 
like to ask you about that but first a preliminary question. 
Can you tell me whether or not Blue Cross gets a system-wide 
price for the various drugs that it orders or buys from the 
manufacturers?
    Mr. Gammarino. No, it does not. Blue Cross Blue Shield is 
made up of individual corporations. They negotiate separately. 
However, for the Blue Cross Blue Shield Federal Employee 
Program, which I manage for all the Blue Cross Blue Shield 
plans, we do negotiate on behalf of the plans for this 
particular program. So we do get specific discounts that are 
passed on to the program that we are allowed to negotiate.
    Mr. Allen. Now, I suspect in trying to think about 
flexibility of benefit design and how it operates that you have 
got at least three factors, correct me if I am wrong, that 
relate to this issue. First, there is a cost. How much you pay 
the manufacturer for particular drugs. Second, there is a level 
of premium. How much you are being paid overall and a certain 
percentage of that is going to obviously go for prescription 
drug coverage and third, the need of the plan beneficiaries. I 
mean, how many drugs and what kinds of drugs do they need.
    I know that is not technical. That is not a technical 
analysis but correct that if that is wrong but then my question 
is--the fundamental question is how would flexibility of 
benefit design lower the cost of prescription drugs and for 
whom? Members of the plan, others or so forth?
    Mr. Gammarino. That is a good question. It would lower the 
costs in a number of ways. As I have testified before this 
committee many times, one of our problematic areas is that we 
have free drugs for a segment of our population. And with the 
new drugs coming on-line, the price increases and the demand-
induced utilization we have through direct consumer advertising 
from the pharmaceutical industry, the demand for these drugs is 
quite high.
    There is no incentive for the enrollee to be a partner with 
their physician, their pharmacist to ask the question not only 
what is best for me but what are the costs relative to what I 
need. And absent that, we feel there is significant wastage 
and, in many cases, overutilization without the patient having 
some financial incentive to be part of the decisionmaking 
process.
    So that is one area of savings that we think would occur. 
Drugs that are unnecessarily being prescribed would not be or a 
different drug would be prescribed that could do the same 
thing, but it is less expensive, like a generic drug.
    What are the other savings? Some of them would flow 
directly to the program in terms of it would cost the 
subscriber more out of his or her pocket to participate and get 
that particular drug. Now, why would you want that? Well, we 
just talked about it. But for years we had an artificial 
benefit design relative to what consumers paid.
    When drugs were--when drugs were on no one's radar screen, 
when they were 5, 6, 7 percent of our premium dollar, we all 
had low copays or no copays. Why not provide that level of 
care? It has changed. And just as we have co-insurance on the 
physician side, we need ample co-insurance on this side too to 
make the consumer aware of the real costs associated with this.
    Mr. Allen. If I could just followup with that. There are 
lots of plans out there, Medicare, Medigap coverage plans for 
people on Medicare which are not widely utilized precisely 
because they have a 50 percent copay, $250 deductible and 
sometimes a $1,500 or $1,200 cap.
    I understand what you are saying basically, if you have a 
copay, then maybe that will help. I would be inclined to add, 
maybe a little. But in terms of annual 15 percent increases in 
costs for pharmaceuticals, it seems to me that there has to be 
another route. And I am just wondering if there is anything 
else about benefit design that would help?
    Mr. Gammarino. Mr. Allen, you are very observant in that 
regard. What I am saying is the benefit design allows us what 
we need to start to get back into the game of having the 
subscriber involved. Is it going to significantly reduce that 
trend line to a single digit? No, it will not.
    And so you are right in that respect. Everybody is fighting 
the same battle and nobody has figured it out in terms of 
trying to break that trend line. I am not sure it is going to 
be broken any time soon. The industry is very innovative. They 
are producing drugs that people want and, in many cases, need; 
and there is a significant demand from the American population 
for that product.
    Mr. Allen. Just in conclusion, the problem is that, but for 
a huge number of seniors that cannot afford to take the drugs 
that their doctors tell them they have to take--and there is a 
great reluctance in this Congress to do the simplest thing, 
which is to allow the Federal Government to negotiate on behalf 
of those seniors, reduce prices for Medicare beneficiaries and 
that is a simple step that could be taken.
    I thank you for your testimony.
    Mr. Gammarino. You are welcome.
    Mr. Scarborough [presiding]. Mrs. Morella, do you have a 
followup?
    Mrs. Morella. Yes, I do. Thank you.
    I am going to, later on this afternoon, go to a press 
conference where Erik Davis the baseball player is going to be 
and, as you guess, is on colorectal cancer.
    I know if you have the colonoscopy every 10 years before 
the age of 50, that is beneficial in detection, and the 
screening may be every year after the age of 50.
    I wondered if under the FEHB program your plans, Blue Cross 
and Blue Shield and the GW plan, do you cover that now?
    Dr. Braun. Ma'am, we take and cover preventive services. We 
use the standards of the President's National Task Force on 
Preventive Services.
    You know, we have a very active program trying to use 
screening tests in the most cost efficacious way. When one 
comes along, we are very quick to take and respond to it and to 
add it if it does, in fact, show that it is going to be a 
benefit.
    You know, the colon--colorectal thing has come on the 
screen quite a bit. There is a number of tests that can be 
done. The hemocults, things like that, that are actually self-
participatory by the members themselves. One of the things that 
we really try to encourage members to do is both preventive and 
screening, preventive in the sense of making sure they eat a 
proper diet.
    As we know diet is very important but the second part of it 
is to also engage in conversation with their doctor to make 
sure they are getting the screening procedures they need, 
especially if they have a family history.
    Mrs. Morella. Assuming you would pay for the screening 
certainly?
    Dr. Braun. Certainly.
    Mrs. Morella. And Blue Cross Blue Shield?
    Mr. Gammarino. Mrs. Morella, we do cover what we call 
routine physicals and related screenings every 3 years for our 
enrolled population if they so choose. That specific service, I 
would have to research that and get back to you.
    I would be more than happy to do that.
    Mrs. Morella. I would be very interested to have that 
response. I might add that to comments.
    Dr. Braun. May I say, oftentimes it is not the problem with 
us covering it or not. It is the reluctance of the patient 
oftentimes to be involved in this process. I would say again 
here this is a great place where consumerism and getting the 
patient involved in a discussion with the physician would be 
very important.
    I mean, you don't see too many people saying, gee, you 
know, I just turned 50, and I got a birthday present, a 
colonoscopy. We have to start getting people thinking about 
this.
    Mrs. Morella. Right. I think this is something we all can 
fulfill. You can fulfill. We can too and that is the education 
part of it, PSAs, public service announcements all working 
together to let them realize what this can do to help the 
quality of life, to save money in all ways.
    On another issue that deals with a different facet, 
coverage for hearing aids. Do either of you have coverage for 
hearing aids? I say that because I had my open season for 
Federal employees health benefits and I was amazed.
    I had so many people there who were all talking about 
hearing aid coverage and I have all the statistics, you know, 
26 million hard-of-hearing adults under the age of 65, the 
average cost of a hearing aid, and I am wondering do you cover 
it? Or do you think about exploring that further? Do you think 
it would have an impact beneficially, adversely? You want to 
offer any comments on that?
    Mr. Gammarino. Mrs. Morella, we, today, do not cover 
hearing aids. We are evaluating whether or not, with our 
purchasing power, we could; and it wouldn't be part of our 
normal benefit design. It would be outside of it, but those 
people that participate in the FEHBP could enjoy a significant 
discount that they could have relative to our purchasing power 
with one or two major vendors in that area. It is not part of 
our benefit design today.
    Dr. Braun. Basically that is the same with us. It is kind 
of in the same category as the vision and the dental. We do 
have programs where we can get discounts, but at this point it 
is not designed or it is not in the benefit design that we have 
given OPM.
    Mrs. Morella. Mr. Chairman, I would like to, with your 
permission and permission of the subcommittee, to be able to 
submit some further questions to our panelists as well as to 
OPM.
    Mr. Scarborough. Great. Thank you. Hearing no objection, it 
is so ordered.
    And gentlemen, I thank you for coming and testifying with 
us today. You certainly have been very helpful as we continue 
to dig into how to best improve our health care system for our 
Federal employees. For the Members, we are going to take a very 
brief break, and then we are going to mark up H.R. 457 and H.R. 
206. This hearing is adjourned.
    [Whereupon, at 12:38 p.m., the subcommittee was adjourned.]

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