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





THE FAILURE OF THE FEHBP DEMONSTRATION PROJECT: ANOTHER BROKEN PROMISE?

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

                                HEARING

                               before the

                   SUBCOMMITTEE ON THE CIVIL SERVICE

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 12, 2000

                               __________

                           Serial No. 106-195

                               __________

       Printed for the use of the Committee on Government Reform


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

                   U.S. GOVERNMENT PRINTING OFFICE
70-437                     WASHINGTON : 2001

_______________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Printing 
                                 Office
Internet: bookstore.gpo.gov  Phone: (202) 512-1800  Fax: (202) 512-2250
               Mail: Stop SSOP, Washington, DC 20402-0001


                     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 
HELEN CHENOWETH-HAGE, Idaho              (Independent)
DAVID VITTER, Louisiana


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                    Lisa Smith Arafune, 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
                      Garry Ewing, Staff Director
             Jennifer Hemingway, Professional Staff Member
                         Bethany Jenkins, Clerk
            Tania Shand, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 12, 2000...................................     1
Statement of:
    Carrato, Rear Admiral Thomas F., USPHS, director, Military 
      Health Systems Operations, Tricare Management Activity; and 
      William E. Flynn III, Director, Retirement and Insurance 
      Programs, Office of Personnel Management...................    49
    Norwood, Hon. Charlie, a Representative in Congress from the 
      State of Georgia; and Hon. Jim Moran, a Representative in 
      Congress from the Commonwealth of Virginia.................     6
    Partridge, Colonel Chuck, U.S. Army, retired, co-chair, 
      National Military and Veterans Alliance; Kristen L. Pugh, 
      deputy legislative director, the Retired Enlisted 
      Association, on behalf of the Military Coalition; and Hon. 
      Randy ``Duke'' Cunningham, a Representative in Congress 
      from the State of California...............................    23
Letters, statements, etc., submitted for the record by:
    Carrato, Rear Admiral Thomas F., USPHS, director, Military 
      Health Systems Operations, Tricare Management Activity, 
      prepared statement of......................................    52
    Flynn, William E., III, Director, Retirement and Insurance 
      Programs, Office of Personnel Management, prepared 
      statement of...............................................    62
    Moran, Hon. Jim, a Representative in Congress from the 
      Commonwealth of Virginia, prepared statement of............    11
    Morella, Hon. Constance A., a Representative in Congress from 
      the State of Maryland, prepared statement of...............    19
    Partridge, Colonel Chuck, U.S. Army, retired, co-chair, 
      National Military and Veterans Alliance, prepared statement 
      of.........................................................    25
    Pugh, Kristen L., deputy legislative director, the Retired 
      Enlisted Association, on behalf of the Military Coalition, 
      prepared statement of......................................    33
    Scarborough, Hon. Joe, a Representative in Congress from the 
      State of Florida, prepared statement of....................     7

 
THE FAILURE OF THE FEHBP DEMONSTRATION PROJECT: ANOTHER BROKEN PROMISE?

                              ----------                              


                       WEDNESDAY, APRIL 12, 2000

                  House of Representatives,
                 Subcommittee on the Civil Service,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:14 p.m., in 
room 2203, Rayburn House Office Building, Hon. Joe Scarborough 
(chairman of the subcommittee) presiding.
    Present: Representatives Scarborough, Miller, Mica, 
Morella, and Norton.
    Staff present: Garry Ewing, staff director; Jennifer 
Hemingway, professional staff member; Bethany Jenkins, clerk; 
and Tania Shand, minority professional staff member.
    Mr. Scarborough. I would like to call this meeting of the 
House Civil Service Subcommittee to order. Good afternoon. I 
would like to welcome all of you here.
    Today, the subcommittee is going to scrutinize the 
administration's implementation of the demonstration project 
established in last year's Defense authorization bill to allow 
Medicare-eligible military retirees and certain others to 
enroll in the Federal Employees' Health Benefits Program.
    The purpose of this project is to test the FEHBP as an 
option of providing military retirees and others quality, 
affordable health care.
    When I assumed the chairmanship of this subcommittee, I 
stated that one of my highest priorities would be to improve 
the health care available to families to the men and women who 
serve or have served our Nation as part of the armed forces. 
Military retirees who are eligible for Medicare are 
particularly ill-served by the current military health care 
system. The overwhelming majority of them are locked out of 
TRICARE and the dwindling number of military treatment 
facilities that are still left where they can go. They are the 
only retired Federal employees who are expelled from their 
employer's health benefits program after a lifetime of 
dedicated service. Members of Congress are not. You can bet 
your life on that. Nor are retired civilian employees.
    Congress hears almost daily from military retirees and 
active duty personnel about their difficulties with this system 
and with TRICARE. For this reason, our subcommittee has 
carefully monitored the implementation of this demonstration 
project, including a hearing that we held last year on June 30, 
1999.
    The previous hearing focused on whether, as implemented, 
the demonstration project would fairly test the effectiveness 
of allowing the military community to access FEHBP. At the June 
30th hearing, Admiral Carrato told this subcommittee that 85 
percent of the eligible beneficiaries in the test sites would 
enroll. In fact, that was the Department of Defense's 
justification for severely limiting the total number of 
eligibles in test sites.
    I remember back a year ago, understanding that the admiral 
was only doing his job and only bringing the message to us that 
the DOD wanted him to bring to us, but I remember a year ago 
saying there was no way we would get anywhere close to 85 
percent, that there was no way we would get close to 50 
percent, and, in fact, that we would probably be lucky to get 
into double digits.
    Well, I think other members of this subcommittee agreed 
with me and the witnesses at the hearing. They were also very 
skeptical of that estimate, and, as it turns out a year later, 
for very good reason.
    The actual numbers are in, and with enrollment at roughly 4 
percent of those eligible actually enrolled. This abysmal 
number is in stark contrast to the size predicted by both the 
Congress and the administration, and it would have even been 
worse if DOD and OPM had not extended their enrollment system.
    Remember, I remained terribly concerned that the Department 
of Defense's decision to artificially limit the total number of 
eligible beneficiaries in the test sites has contributed to the 
dramatically depressed enrollment in this demonstration 
project.
    In addition, this subcommittee has been advised of a number 
of other deficiencies in the implementation of this 
demonstration project. These include unsatisfactory marketing 
to potential participants and an information center that could 
not answer the key questions that enrollees had and poorly 
planned health fairs.
    Consistent with my and this subcommittee's overall 
legislative priorities, I believe we have to keep our ongoing 
commitment to promote the health care needs of America's men 
and women in uniforms.
    The FEHBP demonstration project is a critical component of 
Congress' efforts to improve health care for our military 
retirees and their families, and I just hope that the 
Department of Defense will use this opportunity to show us that 
this truly was a good faith effort on their part to provide 
military retirees the choice of the FEHBP as an option to meet 
retirees' health care needs.
    The questions that I want and that I think we need answered 
today are as follows.
    Has FEHBP been given a fair test? If not, why?
    What should Congress do in light of the results of this 
year's open season?
    After all the testimony today, I certainly hope we will 
come to a better understanding of how we, as a committee, and 
we, as a Congress, can prevent such an abysmal failure over the 
next 12 months.
    [The prepared statement of Hon. Joe Scarborough follows:]

    [GRAPHIC] [TIFF OMITTED] T0437.001
    
    [GRAPHIC] [TIFF OMITTED] T0437.002
    
    Mr. Scarborough. With that, I would like to recognize the 
gentleman from Florida, former chairman of this subcommittee, 
John Mica.
    Mr. Mica.
    Mr. Mica. Thank you, Mr. Chairman.
    I didn't conceive, in my worst possible dreams, that the 
administration could screw up a demonstration project for the 
intent of this subcommittee, but I think they have managed to 
accomplish that.
    When we first launched this venture to provide FEHBP access 
to our dependents, retirees, and other families that didn't 
have access. We knew that there were gaps out in the service 
areas, and it doesn't take a rocket scientist to see that, 
because of base closures, because of shut-downs in DOD health 
care facilities and other changes in the structure of health 
care delivery by the Government, that there were people left 
out across the country in gaps.
    We proposed coverage and access to FEHBP on a broad basis. 
Of course, we were fought on that, and what we got as a result 
was a narrow demonstration project that maybe was destined to 
fail because it really didn't address the audience and those in 
need that we intended to serve.
    I am most disappointed in the way this whole demonstration 
project has been handled, most disappointed in the limited 
scope of making this available to many who are still in need. 
It is almost without a week or without time that I run into 
military dependents and others who do not have service or find 
service through TRICARE--or, as they term it, ``try to get 
care,'' sadly.
    We have launched a demonstration project that has not been 
successful and really didn't encompass the original intent of 
our desire to see that all of our personnel, retired and 
others, and their dependents, have access to health care on an 
affordable basis.
    So I hope this hearing will help us get back on track. I 
look forward to working with the subcommittee and the chairman 
in that regard.
    Thank you.
    I yield back.
    Mr. Scarborough. Thank you.
    Mr. Miller.
    Mr. Miller. I just wanted to thank you for having the 
hearing. I was here last year for the hearing. I am very 
disappointed and hope to find out some answers. I appreciate 
it, and I am just waiting as we are looking forward to hearing 
the straight talker come forward.
    Mr. Scarborough. All right. Thank you.
    Our first panel--two of which are going to be arriving 
shortly--is comprised of Charlie Norwood, Jim Moran, and Randy 
``Duke'' Cunningham, three Congressmen who have, obviously, 
been very, very interested in this issue for some time.
    Representative Norwood represents Georgia's 10th District. 
He has dedicated much of his time and effort and energy this 
session to improving military health care, and, most 
importantly, introduced H.R. 3573, the Keep our Promises to 
Military Retirees Act, with Representative Childs. I am proud 
to be a cosponsor of that.
    Congressman Norwood, we are proud to have you here.

    STATEMENTS OF HON. CHARLIE NORWOOD, A REPRESENTATIVE IN 
   CONGRESS FROM THE STATE OF GEORGIA; AND HON. JIM MORAN, A 
  REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF VIRGINIA

    Mr. Norwood. Thank you very much, Mr. Chairman.
    I am proud that you are a cosponsor, as all but one of the 
members of your subcommittee, and as are 277 Members of 
Congress in a very bipartisan way.
    I thank you and the members of your subcommittee for the 
opportunity to testify today, frankly on an issue that is very 
near and dear to my heart, the health of our Nation's veterans, 
and military retirees, in particular.
    I represent, Mr. Chairman, a District much like yours. It 
has a very high concentration of military retirees and a very 
rich history of military service. Many of these men and women 
aren't just constituents. Many of these men and women I have 
known for years and are close friends, and I think I am very in 
touch with what is happening with their health care, and, in 
particular, what is happening in their health care around 
Eisenhower Army Hospital.
    As a Vietnam veteran, I have seen first-hand the sacrifices 
that our men and women in uniform make on a daily basis in 
order to keep this country safe and free.
    I appreciate the opportunity today to discuss the progress 
of the Federal Employees Health Benefits Program demonstration 
project, Mr. Chairman, but I have to disclose a bias up front 
on this issue. I don't very much like demonstration projects. 
It has been my experience that Congress only passes 
demonstration projects when we want to appease groups that we 
would like to help but just simply don't have the backbone to 
do so. The FEHBP demonstration project epitomizes that lack of 
backbone.
    We all know that the military health care system is in 
shambles, and if you are connected to it in any way and don't 
know that, shame on you. TRICARE is the worst HMO in the 
country. Many military retirees have little or no access to 
health care, and senior retirees are getting kicked out of the 
system altogether when they turn 65. So the question is: what 
do we do?
    Well, we pass an extremely limited and poorly planned 
demonstration project and hope that this problem will just go 
away. Mr. Chairman, this problem is not going to just go away. 
That is why I have introduced legislation supported by 275 
other Members that would expand the FEHBP option to all 
military retirees, not just those in places like Puerto Rico, 
New Orleans, and Humboldt County, CA.
    Grassroots military retirees from all across this Nation 
support this common-sense legislation because it addresses 
their concerns in a fair and equitable manner.
    I would like to send a message today to our visitors from 
the Department of Defense. You all know, I hope, that I am as 
staunch a defender of the military as there is in this 
Congress. I will fight tooth and nail every day to ensure that 
we have the best-trained, most well-equipped military in the 
world. Our men and women in uniform certainly deserve nothing 
less, not to mention the security of this country. But we in 
Congress need your help in addressing the vital issue of health 
care for retirees.
    I hear over and over again the red herring thrown up that 
expanding the choice of FEHBP to all retirees would somehow 
hurt military readiness, but I will tell you what hurts 
military readiness: the fact that many retirees are reluctant 
now to encourage new recruits to enter the military in the 
first place, because they feel like they have been shafted by 
their Nation.
    In the military academies, much deference is given to the 
legacies, the sons and daughters of academy graduates, and the 
one reason for that is common sense to realize that those who 
come from families with rich and honorable military traditions 
generally make very good soldiers, sailors, airmen, and 
Marines.
    But how much do we hurt the military readiness when those 
graduates are reluctant to encourage their sons and daughters 
to enter the military, as I hear is so often the case these 
days? How much is the retention rate being hurt by the fact 
that those now in the military see every day that the promises 
made to their predecessors are broken on a consistent basis?
    Again, I will do everything I can to help our Defense 
Department, but I want to ask their help today. When I look at 
the egregious mismanagement of a simple demonstration project 
that contributed greatly to its failure, I can only wonder, Mr. 
Chairman, whether or not it was, in fact, deliberate 
incompetence. To what end, I can only speculate, but I suspect 
that some turf war is being played out at the expense of the 
health and well-being of the men and women who sacrificed 
nearly their entire adult lives for the freedom and security 
that we all enjoy today.
    We need to end these shenanigans and work together to do 
what is right for the military retirees of this Nation.
    Mr. Chairman, I want to commend you and your dedication to 
this issue. Your passion for veterans' health care is, frankly, 
second to none in Congress. I look forward to working with all 
of this subcommittee as we continue to address this issue.
    Every Congressperson simply needs to ask themselves a 
simple question: would you trade your FEHBP health care plan 
for TRICARE? And, if we think TRICARE is so great, if it is so 
adequate for the men and women who serve this Nation, then I 
suggest we also offer it to ourselves and see if we really 
think that is the kind of health care that we need.
    Now, I didn't come up and Ronnie Shows didn't come up with 
this solution. It is important to note this was worked out 
talking to the men and women who are retirees. What they need 
to hear from us is they need a signal that this country does 
care about their services. They need to know that we are going 
to keep our word.
    Make no mistake about it, we gave them our word. I don't 
care what anybody comes to this table and says, the Federal 
Government, through its recruitment team in the military, sold 
this to our military retirees that, ``If you will just come 
serve with us as a career, we may get you killed, we will 
certainly send you all over the Nation and all over the world 
and your family life won't be very good, we are not going to 
pay you much, and we will even, if you live through it, give 
you a small retirement, and,'' we said, ``We will give you very 
good health care when you retire.''
    It is time this country stood up and kept its word to what 
I consider the patriots of America.
    I thank you, Mr. Chairman.
    Mr. Scarborough. Thank you, Mr. Norwood.
    I appreciate, again, your leadership. You are right, a 
promise was made and a promise has been broken, and I think the 
fact that the Secretary of Defense is now saying that publicly, 
that every member of the Joint Chief's staff is saying that I 
think gives us an opening. We are not fighting. We are 
certainly not fighting the men and women that run our military 
and the Pentagon. I think we need to get moving.
    Thank you for your help on that.
    Congressman Moran, thank you.
    Mr. Moran. Thank you, Chairman Scarborough. It is nice to 
see you and Mr. Mica and Mr. Miller, and I thank you for your 
abiding interest in this issue.
    Good testimony, Charlie.
    Mr. Norwood. Thank you.
    Mr. Moran. Boy, that was compelling.
    As you know from previous appearances before this 
committee, I have worked with many of you to establish the 
Federal Employees Health Benefits Plan as a demonstration 
program for military retirees over the age of 65. I would 
rather it not be a demonstration program, unless it is a 
universal demonstration program. We ought to just do it. But we 
are trying to at least get our foot in the door with a 
demonstration project.
    The measure received overwhelming response--292 cosponsors. 
If that isn't overwhelming response, I don't know what is. It 
certainly illustrated the commitment of the Members of Congress 
to provide for the health care needs of our military retirees.
    With approximately 1.4 million Medicare-eligible military 
retirees in the country, we cannot ignore the health care needs 
of this population. It is irresponsible, from a public policy 
standpoint, but also from a moral standpoint.
    I don't need to remind any of you--and Mr. Norwood said it 
far more eloquently than I can--of the sacrifices that military 
retirees have made to their country. They saved our country. 
This is the base. We have climbed on their shoulders. They gave 
us democracy and free enterprise.
    But, as they face escalating costs and challenges in 
getting health care coverage, we shouldn't turn our backs on 
them, and that is exactly what we are doing.
    In the past year, there has been a groundswell of support 
in all of our Congressional Districts for improving health care 
coverage for the military retirees. The Military Coalition of 
Service Retirement Organizations has done a terrific job. All 
of the organizations have done a terrific job in terms of 
developing grassroots support.
    I am supportive of wider efforts to strengthen health care 
coverage for all military retirees, but we also need to achieve 
that balance between maximizing the best health care benefit 
for retirees that we can while balancing the financial costs 
that are incurred by covering a very fast-growing population of 
retirees.
    There is no question that the number of people are 
increasing dramatically, so we have got to make sure that when 
we make a commitment we can follow through on the commitment, 
that we are going to have the money available.
    Because the FEHBP plan has such a proven record of success 
among civilian employees and retirees, it is a logical choice 
to extend it as an option to military retirees. Many of us have 
large number of constituents who are military retirees, and we 
are familiar with the enormous difficulties that those retirees 
are experiencing in accessing affordable health care, 
especially when they need it the most.
    In the past few Congresses, a number of us have sponsored 
legislation to grant Medicare-eligible military retirees the 
option of participating in FEHBP, and that was what H.R. 205 
did. Once they became eligible for Medicare, they were being 
denied access to the military health care system and shut out 
of military medical treatment facilities because they were 
placed last on the priority list for receiving care, so we 
created a system where military retirees, once they reach the 
point in life where they need health care the most are given 
the least from their former employer. It is the only large 
organization in the country, maybe in the world, that does not 
provide health insurance upon retirement if they had it while 
they were employed.
    So our legislation ensures that retirees, whether they have 
served their Nation in the armed forces or as a civilian 
employee, they are treated with the same dignity and have an 
equal opportunity to have participated in the FEHBP.
    As many of you know, we have an extraordinary rate of 
satisfaction with FEHBP. DOD cannot be the only organization 
that kicks its people out of its health insurance program once 
they need it the most. They don't do it with civilian 
employees, and so they shouldn't do it with military employees, 
enlisted employees.
    Let me skip some of this stuff. I have got too much down 
here.
    What we are trying to do is to ensure that we have an 
option, in addition to Medicare subvention, it doesn't subvent 
Medicare subvention. These are complementary approaches, but I 
don't think Medicare subvention, alone, is going to address the 
need. The majority of Medicare-eligible military retirees don't 
live within catchment areas surrounding a medical treatment 
facility. I don't bill Medicare subvention, alone, will make 
available more resources to ensure that all who need care can 
be accommodated.
    FEHBP is nationwide and can ensure this, and DOD can also 
benefit from this legislation because it has the ability to 
bill third-party insurers for the direct care it provides to 
cover the retirees in military medical treatment facilities.
    In order to achieve a worthwhile demonstration program, OPM 
and DOD have to ensure that enrollment is at least 66,000 
beneficiaries. I thought that was too much. But when we hear it 
is only 1,800 people, employees, that is a laugh. It is comical 
to think that they would think that that is an adequate 
demonstration. The main reason is that no one in their right 
mind is going to leave their insurance program, enroll in 
FEHBP, if they can't be sure that after 2 years they are not 
going to get cutoff. That doesn't make sense. Military retirees 
are not crazy. They understand. They are responsible. They can 
read. And they certainly are not going to leave their family 
without health insurance if a demonstration program sunsets, so 
we need to address that.
    The limited scope of the demonstration project, even if it 
gets up to 3,000 enrollees, is not adequate. It doesn't give us 
a fair demonstration. We can't use the results. OPM and DOD 
have to improve their marketing and educational efforts to 
achieve a full participation rate authorized by law; 66,000 was 
minimal. At least get it up to 66,000.
    We have sent a letter to DOD, which I am going to include 
for the record, to Dr. Bailey, who is the Assistant Secretary 
for Health Affairs, detailing our concerns with the 
implementation of the demonstration. We highlighted the 
insufficient marketing of the demonstration, including 
inadequate mailings and educational information provided to 
eligible retirees, and the reasons why we think that we had an 
unacceptably low response rate.
    I commend the Department of Defense for adding two 
additional test sites to the FEHBP demonstrationsite, but I 
have got to say I am disappointed. These two sites, even though 
one of them is in Georgia and another is in Iowa, they don't 
necessarily represent a large enough geographic area with a 
sufficient number of participants. We need larger areas to be 
tested.
    The DOD needs to get out to town hall meetings, needs more 
effective oversight. They need to be able to cross State lines 
to reach their participation rates. They need to do much more. 
Basically, they need to get serious about this demonstration 
program.
    Mr. Chairman, our Nation's leading military service 
organizations have endorsed this bill. They recognize that 
allowing the Medicare-eligible military retirees to join the 
FEHBP is a fair and efficient means by which we can live up to 
our prior promises. I hope you will agree--and I trust that you 
will--that this approach represents part of a solution to a 
serious health care problem, that the demonstration project is 
a critical first step in providing our Nation's military 
retirees with high-quality, reasonably priced health care.
    I appreciate your consideration, and we look forward to 
working with the subcommittee, as well as OPM and DOD and the 
executive branch, to ensure a full and fair test of the FEHBP 
demonstration, and we will include this letter for the record, 
because the letter, since it was written with the help of 
staff, was far more articulate than I can be, and so we will 
put that in for the record, as well, Mr. Chairman.
    Thank you for your attention, and the members of the panel.
    Mr. Scarborough. And thank you for your very articulate 
testimony.
    [The prepared statement of Hon. Jim Moran follows:]

    [GRAPHIC] [TIFF OMITTED] T0437.003
    
    [GRAPHIC] [TIFF OMITTED] T0437.004
    
    [GRAPHIC] [TIFF OMITTED] T0437.005
    
    [GRAPHIC] [TIFF OMITTED] T0437.006
    
    Mr. Scarborough. I think I know the answer to this 
question, obviously, from your testimony, but I am going to ask 
both of you to just give me briefly your insights on what has 
gone wrong with the way DOD and OPM has implemented this 
program. Of course, Representative Moran, you started that. 
Obviously, they were predicting 85 percent, they only came up 
81 percent short at 4 percent. What caused that gap and what 
can we do to improve it over the next year?
    Mr. Moran. Obviously, lack of marketing effort, lack of 
information, and lack of reasonableness. They are not going to 
join it if they can't be confident that it is going to be 
sustained. They are not going to put their families in the 
lurch losing their health insurance.
    I am amazed we only have 2,000 to 3,000 enrollees. Charlie, 
being a doctor, I think can add additional perspective.
    Mr. Scarborough. Let me ask you briefly, what can this 
program do to ensure sustainability to somebody coming in--you 
talked about it. Obviously, military retirees aren't crazy, 
aren't dumb. They know that it doesn't make sense for them to 
get a new program when the carpet can be yanked out from 
underneath them 2 years from now.
    Mr. Moran. DOD will own this program, and understand it 
needs to be done. It will get it done. The Defense Department 
can get done whatever it wants to get done. I think the issue 
is whether or not it wants to do this right, adequately, and in 
a way that will prove that we were right--that this program 
works and should complement the existing level of military 
health insurance.
    Mr. Norwood. Mr. Chairman, I think we ought to be of as 
much help to DOD as we can, and, in doing so, in this dadgummed 
demonstration project, and pass 3573. Then you will find that 
many, many military retirees will use this as an option because 
there is stability to it once you pass that language.
    It is of great interest to me that when CBO scored our bill 
they scored it at $9 billion the first year. Now, that will be 
on a declining amount, because we are losing 1,000 veterans a 
day, but they scored it at $9 billion based on a 50 percent 
participation. In other words, 50 percent of the retirees would 
choose to go into FEHBP rather than using TRICARE.
    Now, my gut tells me that is probably a little high, but 
somebody has it wrong when we have a demonstration project with 
4 percent or less joining up, and CBO is, on the other hand, 
saying at least 50 percent are going to sign up on the FEHBP 
plan once we codify it into law and give them the stability 
they need.
    I agree with Congressman Moran. Why in the world would 
somebody sign up when they don't know for sure what is going to 
happen at the end of the project 2 or 3 years later.
    What made that even worse, the information system available 
to them was just absolutely confusing to people who would call 
to try to find out. In other words, they were of no help.
    That is why we have got such a mess with the demonstration 
project now, Mr. Chairman.
    Mr. Scarborough. What is the fastest, quickest way--and I 
am going to lob this off to you first, Mr. Norwood, and then, 
Mr. Moran, let you answer it--what is the best way for us to 
assure that we can keep the promise to the men and women in 
uniform and their dependents to give them the health care that 
they deserve?
    Mr. Norwood. Well, I and the other veterans and retirees 
across this country think that the fastest, surest way is to 
end this demonstration project and go to the floor and pass 
3573. Bingo.
    Mr. Scarborough. You see this demonstration project as a 
detriment to that effort?
    Mr. Norwood. Well, it is being used by those, whoever they 
may be, wherever they may be, who don't want to keep our 
promises, to talk negatively about us going into FEHBP. But I 
will just tell you honestly, I would like to know the civilian 
employees that would rather go into TRICARE rather than FEHBP.
    Mr. Scarborough. Right.
    Mr. Norwood. You find me a few.
    Mr. Scarborough. All Members of Congress, as you said.
    Mr. Norwood. Well, I can guarantee you Members of Congress 
won't want to do that.
    Mr. Scarborough. Right.
    Do you know how many men and women who served in World War 
II are dying daily?
    Mr. Norwood. Yes. We are losing 1,000 a day.
    Mr. Scarborough. 1,000 a day. So if we go another year with 
the failed demonstration project that only pulls in 4 percent, 
5 percent, 10 percent, that means we are going to lose almost 
half a million by the time we come back next year.
    Mr. Norwood. And if you will listen, Mr. Chairman, once a 
week I go to the floor and talk about one of those families 
personally that has, in fact, run into a great deal of problem 
with their health care as they go into their latter years and 
having so many health care problems. In fact, many of the cases 
I bring up personally are people who have died simply because 
they did not get proper health care.
    Mr. Scarborough. In our field hearing in Florida a week or 
two ago, it was the belief of Congressman Cummings, myself, and 
many that testified that the Federal Government is just simply 
doing a slow roll. It is cheaper to just sit back, with all 
these people dying, than to provide them health care in their 
final years. Do you all agree with that?
    Mr. Norwood. Yes. Yes. If you wait long enough, the patient 
will die and you don't have to pay for the care.
    Mr. Scarborough. Congressman Moran.
    Mr. Moran. We are sort of doing that on the notch issue. I 
hope we don't do it on the issue of military retirees.
    I agree with Mr. Norwood. H.R. 3573 is a better bill. I 
would rather just do it. But I also have to say, you know, we 
need to pass this supplemental that included $4 billion for 
military health care, that the Senate shouldn't be messing 
around with it.
    We are not going to have the money in the 2001 budget. It 
is not in the budget resolution. We are not going to have that 
latitude within the Defense appropriations bill to do it in 
2001.
    We can't just pass the legislation. We have got to be 
prepared to fund it.
    Mr. Scarborough. Right.
    Mr. Moran. And it is going to be substantial. We are 
talking about $9 billion a year. That is why DOD has been 
reticent to do it. But I think it is the right thing to do. I 
think we ought to do it.
    Mr. Scarborough. Does that price go down over time, again, 
with a lot of these veterans getting older and older and 
passing on?
    Mr. Norwood. Yes, Mr. Chairman. It will decline.
    Mr. Scarborough. Significantly.
    Mr. Norwood. That price goes away at some point.
    Mr. Scarborough. So it is not a $9 billion this year and 
then going up. It actually will go down.
    Mr. Norwood. One of the few things I have ever known in 
Congress that was passed that the cost would go down.
    Mr. Scarborough. Yes.
    Mr. Moran. The only caveat--and I don't disagree with Mr. 
Norwood--is that we will still have military retirees coming 
into the system every year, and we want to maintain our 
military force. I don't think that it is too much now. It is at 
a minimal level, as far as I am concerned. But the cost of 
medical care also is going to go up. That is a variable, and we 
just have to be prepared to meet the cost as it is incurred.
    Mr. Scarborough. Last question I want to ask you all--and 
if you want to comment on that, you can--the last question that 
I have for you pertains to the alternative that is coming up in 
the Senate that the majority leader supports, and that is 
Senator--I think it is Senator Warner's bill, which is a 
compromise on yours.
    What are the positives or negatives on that bill?
    Mr. Norwood. Mr. Chairman, I don't pay a lot of attention 
to what they do in the Senate, but my understanding is that it 
is too little too late. It is just simply not adequate enough 
to get to the problem.
    Congressman Moran is right--more people will be coming into 
the system. But what we all need to keep in mind is that our 
bill addresses retirees differently who were part of the 
military pre-1956 versus those post-1956, and that we do more 
for those pre-1956. In other words, we pay their entire cost, 
as was promised.
    In 1956, Congress basically says, ``OK, we will furnish you 
your health care, but it is based on a space-available basis,'' 
and on that basis those that are post-1956 have to pay part of 
their health care, just like we do.
    I don't really like that very much. I don't think that was 
the trade, but that is how the bill ended up.
    So yes, more will be coming on, but this has a declining 
cost to it all the way out.
    Mr. Scarborough. Thank you.
    I would like to now recognize the gentlelady from the 
District of Columbia, Ms. Norton.
    Ms. Norton. Thank you, Mr. Chairman. I have no questions 
for my colleagues here, because I could not agree more with 
what I was able to hear of their testimony. I apologize I 
didn't hear it all. I will be far more interested in the 
response of our third panel with the OMB and the TRICARE 
management people, because this is mystifying to me and it 
demands an explanation, and I think the Members have raised 
just the right questions.
    Thank you.
    Mr. Scarborough. Thank you.
    I would like to recognize now the Congresslady from 
Maryland, Mrs. Morella.
    Mrs. Morella. Thank you, Mr. Chairman. I appreciate your 
having this hearing.
    I think it is important for us to recognize whether the 
demonstration programs we establish do work, and I thank my 
colleagues for being here to indicate what the intention was 
and their feeling of dissatisfaction with what we had.
    It appears to me that there was a concern about the fact 
that the number was a demonstration program but a limited 
number fell far, far under that number, and that education was 
necessary, further information and marketing, and so, again, I 
look forward to hearing why, how, and what we can do in the 
future.
    I thank you for being here.
    I ask unanimous consent that an opening statement be put in 
that record.
    Thank you, Mr. Chairman.
    Mr. Scarborough. Without objection, thank you.
    [The prepared statement of Hon. Constance A. Morella 
follows:]

[GRAPHIC] [TIFF OMITTED] T0437.007

[GRAPHIC] [TIFF OMITTED] T0437.008

[GRAPHIC] [TIFF OMITTED] T0437.009

    Mr. Scarborough. Congressman Mica.
    Mr. Mica. I thank my colleagues. Mr. Moran and I served 
together. I think he was the ranking member when we initiated 
some of this. Our intent at the beginning was to have total 
coverage. We got beaten down. They said the sky would fall, 
that people would be signing up in droves, that it would be the 
end of the world and sliced bread as we knew it. None of that 
occurred.
    It is sad, though, in the meantime that tens of thousands 
have been denied care and that our original intent was to 
provide coverage to that gap.
    I can't totally blame DOD, because others lobbied that the 
sky would fall, too, that this would become some type of 
incredible burden, and organizations ran around behind our back 
and said it had to be done on a very narrow basis, and how much 
harm it would do. It is sad that they have left these people 
behind.
    Now we need to get this demo behind us, open this up to 
everyone, to people who need it, fill in the gaps, and meet our 
commitment to these people that served this country and their 
dependents.
    Thank you, Mr. Chairman.
    Mr. Scarborough. Thank you, Mr. Mica.
    Next we will recognize the gentleman from Florida, Mr. 
Miller.
    Mr. Miller. I appreciate your statements and am very 
supportive.
    Mr. Moran, you have a lot to do on the Federal employee 
health plan, and one of the reasons, I guess, the demonstration 
project was thought about was that we don't want to destroy 
something like that. Does that concern you? I mean, to jump 
totally into it, which I think is a concept--but, you know, to 
go to a $9 billion addition to Federal employee health benefit, 
what does it do with that plan? Do you have concerns about the 
fact that they have failed here on a simple demonstration 
project?
    Mr. Moran. Well, it is an excellent question, Mr. Miller. 
We do keep two different pools so that we would not compromise 
the civilian rates for civilian employees. We don't think that 
it is going to adversely affect the overall insurance rate if 
you did melt both pools, but we keep them separate.
    Mr. Miller. For the administrative structures?
    Mr. Moran. That is right. And they are large enough that 
you don't lose economies of scale by doing so. But we do that 
so that it--for one thing, we didn't want any opposition from 
the civilian employee ranks, and I don't think we have it, and 
there is no reason that we would. It is the same benefit 
structure, but we will separate the two pools.
    Mr. Miller. Like my colleagues, I am glad you are here, but 
we are really looking forward to the next panels to get some 
answers, maybe.
    Thank you.
    Mr. Moran. Thanks.
    Mr. Scarborough. Thank you. I thank both of you for coming 
today, and certainly also greatly appreciate the fact that you 
all are helping Congress and the administration remember a 
promise that has been forgotten and has been broken to the men 
and women that have protected our country for so long. Thank 
you for your work and your testimony.
    Mr. Moran. Thank you, chairman.
    Mr. Norwood. Thank you, Mr. Chairman.
    Mr. Scarborough. Next, I would like to call up panel two. 
They are Chuck Partridge and Kristen Pugh.
    Colonel Partridge currently serves as co-director of the 
National Military and Veterans Alliance. He has been the 
legislative counsel for the National Association of Uniformed 
Services since May 1984. Colonel Partridge's military career 
spanned 31 years of enlisted and commissioned services in the 
Reserve and active forces. He served in Vietnam, Germany, and 
Korea, and in several installations in the United States.
    Kristen Pugh currently serves as deputy legislative 
director of the Retired Enlisted Association. Today she is 
going to be testifying on behalf of the Military Coalition.
    Both Colonel Partridge and Ms. Pugh testified at our 
previous hearing on the demonstration project. Both have been 
involved in the demonstration project from the very start and 
worked very hard to create it. I would like to welcome them 
back for their comments today.
    Colonel Partridge.

 STATEMENTS OF COLONEL CHUCK PARTRIDGE, U.S. ARMY, RETIRED, CO-
  CHAIR, NATIONAL MILITARY AND VETERANS ALLIANCE; KRISTEN L. 
    PUGH, DEPUTY LEGISLATIVE DIRECTOR, THE RETIRED ENLISTED 
  ASSOCIATION, ON BEHALF OF THE MILITARY COALITION; AND HON. 
 RANDY ``DUKE'' CUNNINGHAM, A REPRESENTATIVE IN CONGRESS FROM 
                    THE STATE OF CALIFORNIA

    Colonel Partridge. Thank you, Mr. Chairman. It is a 
pleasure to be here. And it is also a pleasure to hear the line 
of questioning and hear the testimony of the Members of 
Congress before us.
    With base hospital closures, reduction in medical 
personnel, perennial medical funding shortfalls, the increasing 
lack of available health care continues to be a major concern 
to active and retired personnel, alike. In fact, the situation 
will clearly get worse as additional hospitals are converted to 
clinics and medical personnel downsizing continues.
    Furthermore, each year the Secretary of Defense proposes 
additional rounds of base closures. Sooner or later, more 
closures will occur. This means hospitals will close and 
additional thousands of retirees will lose their health care 
benefit.
    Our members remain concerned that the Department of Defense 
has no plan that the promised health care benefit will be in 
place by a certain date. In fact, military retirees are the 
only Federal employees that do not have a lifetime benefit. 
That is why we support providing FEHBP as an option. This is 
also why H.R. 3573 in the House and S. 2003 in the Senate have 
such strong grassroots support. Those bills would solve the 
problem.
    FEHBP is widely available. There is a variety of plans and 
options. Its availability is not dependent on troop deployment 
or base closures. It is widely accepted by physicians and other 
providers. And it is cost effective for DOD, with low 
administrative costs.
    Military hospitals and associated networks should remain 
the primary source of care for military personnel and their 
families and beneficiaries who could be guaranteed care. 
However, the FEHBP option is badly needed to ensure that 
everyone who served and was promised a health care benefit have 
access to a DOD-sponsored health care program.
    Regarding the demonstration program, specifically, based on 
information received from our members and the test sites, there 
are several reasons for a low participation rate. They include 
lack of aggressive marketing by DOD. Initial explanations at 
the health fairs did not fully cover the interaction of FEHBP 
plans with the Medicare program. This was remedied during a 
second round of health fairs, and the fact that the enrollment 
period was extended, but by that time a lot of people had made 
up their minds.
    A 3-year limit on the demonstration also deterred 
enrollees. They were concerned that the test would fail and not 
be extended and they would be faced once again with changing 
health plans.
    Thus, we believe that allowing those who enrolled to remain 
in the program, even if FEHBP is not adopted worldwide, would 
allay these fears.
    One feature of the test which locked FEHBP enrollees out of 
military treatment facility was also a deterrent. We believe 
that enrollees should no longer have fully paid care in MTF but 
should be allowed access with FEHBP being billed for the care, 
to include prescription drugs. This would allow MTF commanders 
to be reimbursed for space-available care, result in more-
effective use of MTFs, and contribute to medical readiness by 
making these people available for the graduate medical 
education programs. Further, it would allow DOD to recover part 
of the premium cost.
    The geographic limitations of the test also contributed to 
the lack of participation. Our recommendation last year and the 
recommendation this year is that the geographical limits be 
removed, and, if you are going to continue a test rather than 
make it permanent, raise the cap. Set the cap at some level and 
then enroll people until the cap is hit. That would give you a 
much better test, because, as has been stated, the current test 
proves nothing. It was flawed, and now we don't have sufficient 
data on which to base the decision.
    The requirement to establish a separate risk pool for such 
a small population also could result in higher premiums; 
however, we would like to state that this was avoided by some 
carriers who decided to establish the same rate regardless of 
the risk so that they could get some feel for what this meant 
for military retirees.
    Mr. Chairman, the National Military Veterans Alliance, the 
National Association for Uniformed Services, and the Society of 
Military Widows thank you for holding these hearings and thank 
you for letting us testify.
    Mr. Scarborough. Thank you, Colonel Partridge, for all your 
hard work and your testimony.
    [The prepared statement of Colonel Partridge follows:]

    [GRAPHIC] [TIFF OMITTED] T0437.010
    
    [GRAPHIC] [TIFF OMITTED] T0437.011
    
    [GRAPHIC] [TIFF OMITTED] T0437.012
    
    [GRAPHIC] [TIFF OMITTED] T0437.013
    
    [GRAPHIC] [TIFF OMITTED] T0437.014
    
    [GRAPHIC] [TIFF OMITTED] T0437.015
    
    Mr. Scarborough. Ms. Pugh, welcome back.
    Ms. Pugh. Thank you very much. Good afternoon, Chairman 
Scarborough, Mr. Mica, and Mr. Miller.
    The Military Coalition appreciates the opportunity to 
discuss reasons we believe have led to the dismal enrollment 
numbers in FEHBP 65 tests. Today, of course, 2,562 
beneficiaries, about 4 percent of the 66,000 enrollees 
authorized by Congress, have enrolled in this test. This number 
reflects the extended enrollment period from December 1999 
through March 2000.
    To better understand the reasons why retirees, both 
enlisted and officers, were and were not enrolling in FEHBP 65, 
in January the Military Coalition sent 7,410 health surveys to 
affiliated eligible association members residing in test sites 
offering FEHBP 65 only. For those 2,622 that responded, only 13 
percent enrolled, while the other 87 percent did not enroll.
    In one question, those not participating could mark one or 
more reasons for non-enrollment, and many entered additional 
comments explaining why they chose not to enroll. Some of these 
conclusions that were drawn--the Coalition believes the 
extremely low participation rate is contributed to a variety of 
reasons, to include lack of timely delivery of accurate and 
comprehensive information about FEHBP 65 to eligible retirees.
    The first health fairs sponsored by DOD were not conducted 
until the first week of November, a month later from the 
targeted TMA marketing plan. The fairs were planned hastily, 
with little or no notification for eligible enrollees.
    Reading comments from those surveyed, ``The town hall 
meetings were very unsatisfactory. No one had answers to 
questions.'' ``The town hall meetings were poorly planned and 
publicized.'' I believe this is the reason for such a poor 
participation in the program.
    Also, the call centers lacked knowledgeable specialists to 
provide answers to simple questions and to send adequate 
educational materials.
    Survey comments: ``Requested forms and information to 
enroll, but never received information.'' ``Getting information 
was very frustrating. The DOD information center did not appear 
to ever get a grasp of what the program was all about.''
    There was fear of venturing into an unknown health care 
program with the worry they would have to change plans again 
when the test authority expired in 2002. The limited, 3-year 
test deterred many eligible beneficiaries from enrolling.
    Survey comments: ``Just couldn't risk having to try to get 
insurance at age 73 should the demonstration fail to be 
renewed.'' ``FEHBP 65 program may not last.'' Another quote, 
``I plan on enrolling in FEHBP 65 when the program becomes 
available to all military retirees on a regular basis, not a 
test basis.''
    Beneficiaries were concerned about pre-existing medical 
conditions if the tests terminated and they needed to resume 
their Medigap coverage.
    There was a lack of understanding by the target population 
about FEHBP, including the potential cost savings of their 
existing Medicare supplemental insurance if they were to opt 
for an alternative.
    Beneficiaries were concerned about the benefits provided 
under the various FEHBP plans to those enrolled in Medicare 
part B. DOD marketing materials failed to adequately highlight 
that copays and deductibles are waived for fee-for-service 
plans for Medicare eligibles enrolled in part B. Virtually all 
potential enrollees, 93 percent, are enrolled in Medicare part 
B.
    DOD did not market FEHBP in a timely manner to a population 
of members new to the FEHBP plan, unlike Federal civilian 
retirees.
    There was a 10 percent error rate in DOD's first mail-out, 
but to date DOD has made no effort to correct this data base.
    Finally, it is in the opinion of the coalition that if DOD 
wanted this program they would have marketed appropriately to 
this population of eligible enrollees.
    Marketing material from past and future DOD programs 
demonstrate their lack of commitment to properly market the 
FEHBP 65 test.
    The TRICARE senior prime test and TRICARE senior supplement 
were illustrated in glossy and informative marketing materials 
that are attractive to the customer and user friendly, too. A 
post card, a nice brochure, and a nice book--I might want to 
participate in--in comparison to the inadequate, misleading 
materials sent to FEHBP 65.
    If I was a retiree and I received this, I would probably 
throw it away because I have TRICARE on it, and if you are over 
65 you can't enroll in TRICARE, and this was a post card that 
came out that was due on July 15th that didn't come out until 
August 15th.
    In conclusion, the coalition recommends a guaranteed 
enrollment beyond the test date, an aggressive education and 
marketing program, mailings to all eligible beneficiaries in 
each site, and expansion in number of enrollees in the upcoming 
years for a truly fair assessment of FEHBP 65.
    Thank you.
    Mr. Scarborough. Thank you. We appreciate the testimony.
    [The prepared statement of Ms. Pugh follows:]

    [GRAPHIC] [TIFF OMITTED] T0437.016
    
    [GRAPHIC] [TIFF OMITTED] T0437.017
    
    [GRAPHIC] [TIFF OMITTED] T0437.018
    
    [GRAPHIC] [TIFF OMITTED] T0437.019
    
    [GRAPHIC] [TIFF OMITTED] T0437.020
    
    [GRAPHIC] [TIFF OMITTED] T0437.021
    
    [GRAPHIC] [TIFF OMITTED] T0437.022
    
    [GRAPHIC] [TIFF OMITTED] T0437.023
    
    [GRAPHIC] [TIFF OMITTED] T0437.024
    
    [GRAPHIC] [TIFF OMITTED] T0437.025
    
    [GRAPHIC] [TIFF OMITTED] T0437.026
    
    Mr. Scarborough. I wanted to start by asking you all a 
question. You two have obviously been key leaders in the 
implementation of this, as far as lobbying for it, encouraging 
better efforts by DOD and OPM. Let me ask both of you to 
separately grade DOD and OPM on their implementation of the 
program.
    I see you smiling, but what would it be? You have been 
there from the beginning?
    Ms. Pugh. I will answer first. I guess, on the very 
beginning, if we can walk back to the July hearing that we had, 
there were great concerns of what OPM's role was, as well as 
the Department of Defense.
    The information provided--there was a true disconnect, 
because DOD, in the very beginning, did not know. They thought 
the health fairs were going to be sponsored by us or the health 
insurance companies. That is a disconnect. The material that 
was provided from them we never reviewed before it was sent 
out. There was no real commitment.
    The information from OPM is the information that they 
provide to all Federal employees, and if you haven't retired as 
a Federal civilian servant you don't know what those numbers 
mean. You don't know. When you look at a chart, you don't 
understand it.
    So I feel that DOD did very poor marketing, and OPM put out 
what they needed that was provided and required by law.
    Mr. Scarborough. Colonel Partridge.
    Colonel Partridge. I will underline that. Our concern all 
along was that the selection of the sites were done on a random 
basis, probably for good reason, but that helped in the failure 
of it. It is just not a passing grade in terms of laying a 
program out that we could get behind early on, get our people 
informed, and help inform.
    Mr. Scarborough. Throughout the process--and I know you 
talked about a disconnect--throughout the process, did you find 
DOD and OPM responsive to military retiree groups, concerns 
that you had? Let us talk about that dialog. Let us talk about 
the disconnect, particularly with DOD, who thought that you all 
were going to be implementing these health fairs or sponsoring 
the health fairs. How responsive were they to your concerns?
    Colonel Partridge. Once we saw where this was going, we 
went over and began to express our concern at the staff level, 
and I think at that point they began to react, but it was too 
late.
    Much of the material was already out there. People had 
already made up their mind by the time we started the second 
round.
    Ms. Pugh. I guess another thing to add, too, is concerning 
the fact that we knew where we were in July. We needed to take 
our time and start marketing in August, and one post card did 
not provide any adequate information. We needed to start doing 
health fairs then.
    Again, when you do a health fair in November and the 
November enrollment season starts 10 days later or 5 days later 
and you weren't notified of that health fair, how can you make 
a decision in 2 months?
    Mr. Scarborough. Hearing your testimony, it sounds like 
marketing may have been the biggest effect. Is that a fair 
assessment of your testimony? Was poor marketing----
    Ms. Pugh. It is a very fair assessment.
    Mr. Scarborough. That was part of it?
    Ms. Pugh. Not only just the marketing aspect, but the 
education materials behind the marketing. As I pointed out in 
my testimony, people didn't really understand the protections 
on the Medigap policy.
    Mr. Scarborough. Yes.
    Ms. Pugh. If you are over 65, the last thing you want to be 
doing is dropping the current plan that you have to go into a 
program where you don't know if you will be protected.
    I guess the caveat is the insurance carries out there, the 
Medigap, couldn't answer that question, nor could the call 
center.
    As an example, one of my members called me and I sent him 
the law that he would be protected on the Medigap policy.
    Mr. Scarborough. Yes.
    Ms. Pugh. That should have been done at the very beginning.
    Mr. Scarborough. Right.
    Colonel Partridge, marketing problems?
    Colonel Partridge. Yes, sir.
    Mr. Scarborough. Do you think that was the main problem?
    Colonel Partridge. Marketing was a major problem, but the 
policy was also a problem. The short duration, the way it was 
designed--in other words, if you enrolled the first year, you 
have 3 years.
    Mr. Scarborough. Right.
    Colonel Partridge. If you wait till the second year, you 
have 2 years. If you enroll the third year, you have 1 year, 
and the fact that they couldn't continue in the program.
    I think the fact that they knew it was a test and they 
would have to get out was a major factor.
    Mr. Scarborough. And how do we get around that? I mean, 
here we are a year into it. Again, if you look at the number, 
we have lost over 300,000 World War II veterans in the past 
year who were short-changed, who had their promises broken to 
them, just like my grandfather did as a veteran of World War II 
and the Korean War. He died bitter at the Government because 
the Government broke the promise.
    Are we going to be wasting another 2 years? I mean, even 
with the best of marketing, is there any way to make this 
program work with only 2 years left?
    Colonel Partridge. No. I would say that the odds are 
greatly against us. If we leave the program just as it is, 
leave the 2-years as it is, tell people, ``You are going to 
have to get out of this program at the end,'' I don't see how 
we can fix it at this point.
    Mr. Scarborough. What if DOD tries to improve the program 
and we still only have 2 years?
    Colonel Partridge. I think the 2-year limit is a major 
factor. I think that will, in itself, be a major deterrent 
against people signing up.
    Mr. Scarborough. Is there any way around that, or not?
    Colonel Partridge. Of course, what we would like to do is 
make it permanent. One way to fix that is, if you enroll in the 
program, you are in for the rest of your life, whether we 
continue the program or not.
    So let us say suppose we had 66,000 people enrolled in it--
and you have got what in the Federal plan, several million? I 
mean, what difference? There would be no reasonable cost there. 
You could allow that to happen. Let them stay in.
    Of course, our view would be let us go ahead and make it 
permanent, and if you want to control the cost, control the 
cost by setting caps of who can enroll in it each year.
    Mr. Scarborough. Ms. Pugh, are we kidding ourselves by 
thinking that we can now improve marketing a year into the 
program and do all these other wonderful things and set up 
better call centers and set up better health fairs while still 
not providing a lifetime benefit? Are we kidding ourselves 
saying that there is any way to make this work?
    Ms. Pugh. I think, on the first note, we have already 
marketed to this population, so they are already turned off.
    Mr. Scarborough. Right.
    Ms. Pugh. So I don't know how we capture that population 
again, No. 1.
    No. 2, with 2 years left, again, the same conclusions are 
going to be drawn from retirees--dropping current health care, 
what they already know to go into something for 2 years.
    I think the only thing--and what Colonel Partridge 
indicated to, as well--is expanding it and making it a 
permanent program, or, at the very least, grandfather the 
population now and then in the future so there is a sense of 
security that they can go into this program for their life.
    Mr. Scarborough. OK.
    Mr. Miller.
    Mr. Miller. That sounds good.
    Do you have any feeling about the 4 percent, that 1,600? Do 
you have any sense of what their experience is so far?
    Ms. Pugh. Yes, I do. I told you I did a survey, and----
    Mr. Miller. That is great you did a survey.
    Ms. Pugh. Yes. And we can provide and place in the record 
the information that we received. But, going through some of 
the comments, from even people that enrolled I went through 
some comments. People still were uncertain when they enrolled 
in the program. They took a chance, is basically what they 
said. So that is one conclusion.
    Some of the other observations were reasons why people 
didn't participate is maybe they already had a FEHBP, and that 
is----
    Mr. Miller. These are the ones that already participate?
    Ms. Pugh. Are participating.
    Mr. Miller. So that 4 percent, which I know is not a very 
large sample to talk about--I mean, 1,600 people signed up.
    Ms. Pugh. Some of the survey responses, people are very 
content. They are very content from the FEHBP product. Going 
into it, they were wary, but now, being in the program, they 
are very happy to see that they have a pharmacy benefit and a 
true wrap-around to the Medicare coverage.
    A caveat to that is we have got some people who responded 
to the survey who already are retired civilian employees, and 
they indicated in their comments, ``We are so happy to see, for 
the first time, that some of the people that we served 
alongside get to have this benefit.''
    Mr. Miller. When they get to choose, do they have similar 
choices that we, as Federal employees, have?
    Ms. Pugh. Yes.
    Mr. Miller. The same type of choices?
    Ms. Pugh. Yes.
    Mr. Miller. But they don't pay--you know, we have a 
different rate. We choose whichever plan we want, the more we 
pay.
    Ms. Pugh. The rates were adjusted because it is a separate 
risk pool.
    Mr. Miller. Right.
    Ms. Pugh. Actually, we were surprised. Some of the rates 
were a little lower, and that is actuary work done by the 
insurance carrier. But they do have to pay. I mean, DOD pays 
the 72 percent and they have to pay the rest of the percentage.
    Mr. Miller. Better marketing, information, and the 
guarantee that they are going to be able to stay in the 
demonstration--for those that sign up, they are good for the 
rest of their lives, as long as they want to. And then, if we 
could enlarge the size of the pool--what about the question of 
the sites selected. I don't think Florida got selected, did we?
    Mr. Scarborough. No, and I am having a hard time figuring 
out why.
    Mr. Miller. I think three of us from Florida are on this 
committee.
    Mr. Scarborough. Well, that is why.
    Mr. Miller. But what impact--I think you said that it was a 
random selection process. How much of a problem was the sites 
to you?
    Colonel Partridge. My only point there was that perhaps by 
deliberately picking sites, which might have been politically 
unfeasible from the prospect of DOD, but by actually picking 
sites, even with a small number we could have gotten a better 
test than the random selection, because the way the random 
selection process worked, it truly was random. I am sure that 
just by a little analysis and judgment we might have been able 
to have done a better test. I don't know for sure.
    Ms. Pugh. And, just to add to that point, we have always 
said, from the very beginning, working with this committee and 
the staff on this committee, especially, we should never have 
had sites, per se. It should have just been opened up 
nationally with 300,000 enrollees eligible to participate, 
because we are seeing 66,000. We have a little under 2,600 who 
enrolled.
    Mr. Miller. Do you see problems if we opened it up 
nationally to, say, 300,000, rather than target it? I mean, the 
logic was you wanted to have certain geographic regions that 
are fairly compact to work with, but do you see any problems 
why that would work if you just said anyone in the country that 
wanted to join it could do it?
    Ms. Pugh. From the very beginning, no, I don't. And 
actually the language in the Senate side, S. 2087 that the 
chairman referred to earlier, does have a provision to give DOD 
authority to drop those barriers, but it still limits the 
enrollment to 66,000. We have always said to open it up.
    Colonel Partridge. The good part about doing that 
nationwide is that you could start the enrollment and control 
it by caps and suppose, after you finish the enrollment period, 
you have got 50,000 people waiting to get in, then you would 
know that. The way we do it now, we don't know. We don't really 
know who wants it and didn't get it. It is just not there.
    Mr. Cunningham has a bill, H.R. 113, that would have done 
that. It would have removed the geographical limits, as would 
the current bill in the Senate.
    Mr. Miller. Thank you, Mr. Chairman.
    Mr. Scarborough. I thank you, Mr. Miller.
    I would like to welcome Congressman Cunningham here.
    Why don't we do this--let me thank you all for coming and, 
again, helping us out from the very beginning, and we will 
dismiss you now.
    I have got a couple other questions that I am going to 
forward to you all in writing. If you could return them to me 
in a couple weeks, that would be great.
    Thanks again.
    While we are changing panels, Congressman Cunningham, we 
certainly would appreciate your testimony and invite the third 
panel up.
    Mr. Cunningham. Thank you, Mr. Chairman. I am going to be 
blunt.
    Mr. Scarborough. What a departure, Randy. [Laughter.]
    Duke is going to be blunt. Can you believe that? Next you 
are going to tell me Mike is going to be blunt.
    Mr. Cunningham. We are going to draw that trail in the 
sand, line in the sand, whatever you want to call it.
    I know that the previous panels have covered what the 
problems are. We have FEHBP for Federal workers, and the bottom 
line is we don't have it for Federal workers in the military 
that have substandard living, where the children are ripped out 
of the schools, the family can't make investments because they 
are moved all over the country, they are asked to go on, in 
this administration, multiple deployments and ripped away from 
their families, and in many cases they don't come back because 
they are killed and the children are left without fathers or 
mothers in many cases, and that is just wrong.
    Regardless of what it takes, it is time that we, as a 
Nation, live up to our word and give our military retirees, 
veterans, the health care that has been promised to them.
    If you have a civilian worker that gets this and a military 
that goes out and fights for this country and makes these 
sacrifices, it is just wrong, whatever it takes.
    If you want to get it--and I told you I would be frank--you 
need to get rid of a White House that has an anti-military 
bias, and we plan on doing that. I have talked to both Governor 
Bush and John McCain and people on the Senate side, and we are 
going to make this happen after November and we are going to 
push it through and we are going to support our military and we 
are going to support our veterans. And I am tired of excuses 
from both Republicans and Democrats on why we can't do this and 
giving in to it.
    If you need to take a look, yes, lift the artificial 
geographical and numerical demonstration limits. This was a 
plan that was failed to doom--and we said it--when the 
administration limited us in the scope in which we wanted to do 
this and they said it would cost too much.
    We need to get this done, and we need to take those limits 
off for the same reasons that the testimony was given before 
and why it failed.
    Not only was it not marketed a couple of months before--and 
I don't fault DOD that much, because I know the problems they 
have had with 149 deployments all over the country and looking 
at what their budgets are and looking at the limits that they 
have to take care of their people.
    The subvention bill was my bill. TRICARE is a Band-aid. 
Where it is available, then it is not a bad program, but in 
many cases it is not. And those are Band-aids, and it is time 
that we go forward and move with this damn thing.
    We need to lift the prohibitions on the MTFs and FEHBP 
participants and allow those military facilities to charge 
FEHBP plans for retiree services. That hasn't been done, and we 
can do that.
    You ask, ``Is it legitimate to go out and market a plan 
with 2 years?'' And I agree with the previous thing. No, 
because when you tell people that they may not even be able to 
get back into their original plans if they go on this pilot 
program, they are scared, and they are not going to do it. I 
sure wouldn't do it.
    Until we come up and we extend the timeline and we open 
this thing up, it is going to be a waste of time, but the 
bottom line, Mr. Chairman, is we need to open this thing up and 
give the military Federal retirees the same as civilian.
    I can have a secretary, when I was in the military, work 
side by side with me, and they are good. She can get FEHBP, I 
cannot as a military retiree, and that is wrong.
    I yield back, Mr. Chairman.
    Mr. Scarborough. Thank you very much, Congressman 
Cunningham.
    Thank you, once again, for your hard work and for your 
testimony before this committee. If you can stick around, I 
look forward to you answering some questions.
    Rear Admiral Carrato, welcome back. We are happy to have 
you here again. We had you in Florida a few weeks ago and had 
you here last year and certainly look forward to your 
testimony.
    Same with you, Mr. Flynn. Welcome back.
    Rear Admiral Carrato.

STATEMENTS OF REAR ADMIRAL THOMAS F. CARRATO, USPHS, DIRECTOR, 
    MILITARY HEALTH SYSTEMS OPERATIONS, TRICARE MANAGEMENT 
 ACTIVITY; AND WILLIAM E. FLYNN III, DIRECTOR, RETIREMENT AND 
       INSURANCE PROGRAMS, OFFICE OF PERSONNEL MANAGEMENT

    Admiral Carrato. Mr. Chairman, Mr. Miller, I appreciate the 
opportunity to discuss our progress in implementing the FEHBP 
demonstration program.
    The demonstration makes FEHBP enrollment available to 
certain military health system beneficiaries, principally 
military retirees who are Medicare eligible and their family 
members.
    The Department of Defense has worked closely with OPM in 
implementing this program.
    Pursuant to the statute, last year we selected eight sites 
for the program, told eligible beneficiaries about the program, 
and conducted an open enrollment season coincident with the 
usual FEHBP open season in November and December for health 
care enrollment effective January 2000.
    Enrollment during the open season was very low. Through 
December 30, 1999, there were about 1,300 enrollees. This 
represented less than 2 percent of the total eligible 
population.
    We were very concerned by the low enrollment and wanted to 
make sure everyone had gotten the word and understood the 
opportunity. The Department worked with OPM to develop an 
additional mailing for late December to do three things: to 
emphasize the significance of the opportunity, to clarify the 
relationship of FEHBP plans to Medicare coverage, and to 
provide additional time for beneficiaries to consider 
enrolling.
    This was in keeping with normal OPM policy to provide 
additional time for beneficiaries to enroll, even after open 
season has technically ended, if they have not had sufficient 
time to consider the opportunity.
    In addition to the mailing, DOD arranged and conducted 18 
town hall meetings across the eight demonstrationsites during 
January 2000. I would like to acknowledge the participation of 
Congresswoman Kay Granger, Congressman Richard Burr, and 
Congressman Mike Thompson in our town meetings, as well as the 
help and participation of several other congressional staff 
members.
    As a result of the additional marketing, over 1,000 more 
beneficiaries are covered by the demonstration. Nearly half of 
the growth of enrollment was in Puerto Rico, where there were 
308 persons covered as of December 30 and over 950 as of early 
April.
    Actual enrollment has fallen far short of even the most 
modest estimates of participation. The Department shares the 
committee's concern about the level of enrollment.
    We take congressional mandates seriously and have spent 
over $4 million in establishing the mechanisms to support the 
program and market it effectively to eligible beneficiaries. 
This represents an investment of over $50 per eligible person, 
or, looked at another way, over $1,700 for every enrollee in 
the demonstration.
    GAO is conducting a beneficiary survey to evaluate in 
detail why beneficiaries enrolled or not, and we would defer to 
their findings in this regard.
    We would point out that enrollment response has been the 
best in those sites with very limited access to military health 
care--Puerto Rico; Greensboro, NC; and the northern California 
area.
    Given that enrollment falls far short of the levels 
authorized for the demonstration, the Department believes that 
it would be appropriate to add two more sites to the 
demonstration, bringing the total number of sites to the 
statutory maximum of ten.
    On April 6 we randomly chose two seed counties for the new 
sites in the three TRICARE regions still available. The 
statutory authority limits us to one site per TRICARE region, 
so only regions 3, 11, and the central region were eligible. 
The counties chosen at random were Coffee County, GA and Adair 
County, IA. We are going to be adding counties to these seed 
counties to reach 25,000 additional eligibles per site. 
Enrollment in the new sites will begin in the fall 2000 open 
season.
    The Department, in cooperation with OPM, has made a 
concerted, sustained effort to get the word out, to fully 
inform beneficiaries about this important opportunity, and to 
give them adequate time and support in their decisionmaking. We 
are gaining valuable information about beneficiary preferences 
and desires, and we look forward to GAO's detailed findings on 
the beneficiary survey.
    As the Department conducts these tests--FEHBP, TRICARE 
senior, and other approaches for meeting the health care needs 
of our senior beneficiaries--we always remember the substantial 
sacrifices that these people made for their country. We take 
increased devotion to our daily tasks from their honorable 
service, and we keep in mind their fallen comrades who gave 
their last full measure of devotion.
    Thank you.
    Mr. Scarborough. Thank you, Admiral.
    [The prepared statement of Admiral Carrato follows:]

    [GRAPHIC] [TIFF OMITTED] T0437.027
    
    [GRAPHIC] [TIFF OMITTED] T0437.028
    
    [GRAPHIC] [TIFF OMITTED] T0437.029
    
    [GRAPHIC] [TIFF OMITTED] T0437.030
    
    [GRAPHIC] [TIFF OMITTED] T0437.031
    
    [GRAPHIC] [TIFF OMITTED] T0437.032
    
    [GRAPHIC] [TIFF OMITTED] T0437.033
    
    [GRAPHIC] [TIFF OMITTED] T0437.034
    
    Mr. Scarborough. Mr. Flynn.
    Mr. Flynn. Thank you, Mr. Chairman and Mr. Miller and other 
members of the subcommittee. We appreciate very much your 
invitation to appear before you today.
    I want to discuss OPM's perspective on the initial 
enrollment results under the Federal employees health benefits 
demonstration project for Medicare-eligible military retirees 
and members of their families.
    Enrollment in the demonstration project to date is slightly 
under 1,700 new members, encompassing a little over 2,500 
people. From a total eligible base of about 66,000, these 
initial results, as you have heard this afternoon, are, 
admittedly, disappointing.
    Both OPM and the Department of Defense have invested 
considerable resources and cooperated closely on every aspect 
of implementation. We believe our experience has demonstrated 
that we can and will do things even better in the second year, 
and we welcome the opportunity today to discuss that with you.
    At the outset, we made two basic decisions in undertaking 
implementation of this project.
    First, we felt it was important to carry out the pilot 
program so that, as much as possible, it looked just like the 
Federal Employees Health Benefits Program.
    Second, we acknowledged that this group would need special 
information. Unlike Civil Service retirees, these individuals 
were largely unfamiliar with the Federal Employees Health 
Benefits Program and how it worked.
    With these factors in mind, we in the Department of Defense 
divided up our respective responsibilities to run the project 
and reflected that in a memorandum of understanding. We 
developed a substantial set of materials tailored to the 
population covered by the project, and we provided copies of 
those materials to the subcommittee, and I would be happy to 
answer any questions you might have about them.
    In addition, both the Department of Defense and our staff 
worked with representatives of the military coalition and 
alliance groups in sharing information as implementation of the 
project progressed.
    While marketing did go beyond the conventional scope of 
activities for regular Civil Service retirees, only about 500 
persons were enrolled by the official close of the 1999 open 
season. Because of this, as Admiral Carrato has mentioned, we 
allowed belated open season enrollments, with coverage and 
premiums taking effect retroactive to January.
    These figures suggest that we should increase even more the 
amount of information needed to introduce this program to 
individuals who are not familiar with it. Persons making this 
choice clearly want more information not only about the Federal 
Employees Health Benefits Program, but also about how it 
compares with available alternatives. Similarly, more direct 
contact with eligible individuals before the open season seems 
warranted.
    However, lack of familiarity with the Federal Employees 
Health Benefits Program is only one of the dynamics in this 
project. Anecdotal evidence suggests that many eligibles may 
not perceive our program as the preferred option. For example, 
of over 66,000 people contacted, only about 3,600 requested 
enrollment materials.
    Similarly, as you have heard, enrollment rates in the 
project show that areas such as Greensboro, NC; Dallas, TX; and 
Humboldt County, CA were higher than project sites where 
military treatment facilities are located. This suggests that, 
when access to military treatment facilities is available, 
individuals are less likely to sign up for the Federal 
Employees Health Benefits Program.
    As well, Medicare eligible retirees with zero premium 
Medicare plus choice HMO contract coverage might prefer that 
arrangement.
    And, since the project is limited to 3 years, as you have 
heard again this afternoon, there is evidence that individuals 
were reluctant to sign up because of a concern about being 
uninsured at the end of the project.
    And, as you have heard this afternoon, the law does 
expressly entitle beneficiaries to reacquire coverage without 
preexisting condition limitations when they no longer 
participate in the project. Nonetheless, it seems clear that 
some individuals are concerned about this.
    Your invitation asked us to talk about the difficulties 
that low enrollment could create for participants in health 
plans. As you know, and in testimony before this subcommittee 
last year, we anticipated that possibility and consulted with 
the health plans to develop a risk mitigation strategy to help 
insulate premiums from the impact of utilization. In most 
cases, that seems to have had the desired effect, as you have 
heard earlier, about the premiums and their relative position 
to the regular FEHBP premium.
    Certainly, we share your concerns about where we go from 
here to improve this project, and I have outlined some actions 
that seem warranted. In addition, the GAO survey that has been 
mentioned will be useful in understanding the interests of this 
population and planning improvements for the future.
    Mr. Chairman, that concludes my statement. I would be happy 
to answer any questions you or the other Members may have.
    Thank you.
    Mr. Scarborough. Thank you. We appreciate your testimony.
    [The prepared statement of Mr. Flynn follows:]

    [GRAPHIC] [TIFF OMITTED] T0437.035
    
    [GRAPHIC] [TIFF OMITTED] T0437.036
    
    [GRAPHIC] [TIFF OMITTED] T0437.037
    
    [GRAPHIC] [TIFF OMITTED] T0437.038
    
    [GRAPHIC] [TIFF OMITTED] T0437.039
    
    [GRAPHIC] [TIFF OMITTED] T0437.040
    
    [GRAPHIC] [TIFF OMITTED] T0437.041
    
    [GRAPHIC] [TIFF OMITTED] T0437.042
    
    [GRAPHIC] [TIFF OMITTED] T0437.043
    
    [GRAPHIC] [TIFF OMITTED] T0437.044
    
    Mr. Scarborough. Let us talk, Admiral, first of all, about 
marketing. Again, to recap--and I know you have heard this 
before, but we had a discussion last year about the turn-out, 
and I had said it was going to be low, you had said that DOD 
believed it would be as much as 85 percent, and, quite frankly, 
I was right, you were wrong. But I think the one thing that I 
think you probably couldn't even foresee last year was just how 
bad your marketing was going to be. I mean, you may have spent 
$4 million on marketing this thing, or DOD may have, but they 
sure didn't spend any money on marketing materials.
    Our last panel showed this to us. Again, the TRICARE 
materials are exceptional. I think I could even convince a few 
dumb Members of Congress to get into TRICARE after reading 
this. But you look at the FEHBP thing. Seriously, I mean, first 
of all, unmarked. A lot of them didn't know where it was coming 
from. This card is just absolutely unbelievable. I mean, 
compare it to this. There is absolutely no comparison. And on 
this FEHBP material you actually--I mean, this seal, it was 
done on somebody's computer, and it wasn't even a good computer 
that it was done on. There is pixelation here. I don't want to 
get in great detail, but I guarantee you you could buy a $500 
computer at Office Depot and put something together that looks 
better than this.
    I mean, we understand. This matters. We have got e-mails up 
from people that called in and threw it away and looked at it 
as junk mail, and I don't think it is being too cynical to 
believe that somebody putting these materials together really 
didn't care whether people read it or not, and if it got thrown 
away that was a win for DOD.
    How do you explain marketing materials this bad? And please 
don't tell me that you are in charge of printing or anything 
like that. Hopefully it is somebody else over at the DOD. But, 
I mean, it is awful. I mean, do you agree with me that this 
stuff is not the top-quality material that you would prefer 
come out to promote this project?
    Admiral Carrato. Let me start by saying I am responsible 
for this demonstration program and I put an excellent team in 
place to implement this program, in cooperation with OPM. On 
the DOD side, there is largely the team that is responsible for 
other 65 demonstrations, so I can tell you that we made every 
effort to make this a successful program.
    Mr. Scarborough. Did you sub out this work?
    Admiral Carrato. Let me just draw a distinction between 
marketing and education. For TRICARE senior prime, we were 
actually involved with educating, marketing, bringing people 
into a Medicare plus choice plan, the DOD Medicare plus choice 
plan. The purpose of these activities was to get the word out 
that there was this opportunity to enroll in FEHBP, and 
marketing really is largely a function of the individual plan, 
choices, so the individual plans would have large 
responsibility for marketing.
    What we wanted to do was fully inform our beneficiaries 
that this was an option. We wanted to let them know that this 
program was in place. We needed to let them know about health 
fairs and really wanted them to take full advantage of the 
literature and the marketing materials from the plans that 
participated in FEHBP.
    To directly answer your question, in retrospect we probably 
should have paid more attention to those materials, and we 
certainly will do that next go-round.
    Mr. Scarborough. There are, again, e-mails up here, and I 
want to read briefly one or two of them, because, again, the 
biggest concern is that the DOD sent out materials without 
letterhead or a seal indicating its involvement or sponsorship.
    According to one eligible member from Camp Pendleton, they 
wrote, ``The mailing came in an unmarked envelope. The contents 
included an FEHBP general description, with no indication of 
the sender, no letterhead or signature block; a frequently 
asked question sheet about DOD FEHBP; and a list of town hall 
meetings--again, no indication of the sender. The entire 
mailing appeared to be junk mail.''
    Another beneficiary from Dallas, talking about the lack of 
notification, stated, ``I have read all the mailings, called 
all the phone numbers, checked all the Websites to no avail. I 
attended a town hall meeting last November and it was a 
farce.'' And this is a real insult--``There was more order in a 
Washington cocktail party, with people talking to each other 
all at once, and no one to whom you could even ask a question. 
I left in disgust. I have yet to meet a single individual who 
can discuss this program intelligently. I have no idea who was 
responsible for 'getting the word out,' but he stumbled 
badly.''
    How do you respond to the inability of an eligible 
beneficiary to distinguish this congressionally mandated 
mailing with what they called ``junk mail.'' I think, again, 
our previous panel said that is a concern that others have had.
    Admiral Carrato. Yes. Sir, honestly, at last year's hearing 
I did rely on some estimates. Ours were based on GAO and CBO 
estimating up to 83 percent enrollment in the program, and the 
great enthusiasm with which this demonstration authority was 
received by certainly the leadership of our coalition and 
alliance organizations, I did think we would have significant 
enrollments, and I am greatly disappointed by the effort.
    In terms of the town hall meetings and the health fairs, 
when we discovered that the enrollment rates were as low as 
they turned out to be, as we looked at the initial results from 
the open season--and we had been communicating since January 
with the coalition and alliance, requesting their assistance 
and getting the word out through their channels--we immediately 
called a meeting with representatives, including Ms. Pugh and 
Colonel Partridge, and said, ``Look, how do we get this thing 
turned around?'' We met with Members of Congress. Congressman 
Burr, as I mentioned before, was very interested. ``What do we 
do?''
    We got together with Mr. Flynn's shop and decided to go out 
with some additional materials.
    One of the big concerns--and I guess I underestimated 
this--is the fact that this is a new program and, dealing with 
this population, it does take some time to feel comfortable 
with the decision you are going to make, particularly when it 
involves a demonstration.
    We asked if we could work together and prepare some 
additional material that would clarify the relationship between 
Medicare and FEHBP, and we worked with OPM to do that and 
worked with the coalition, able to extend the period. And, 
working with some Members, we were able to establish a whole 
new round of town hall meetings, which we held in January.
    So I think we learned a great deal of lessons, which is the 
purpose of a demo. We reacted, I think, very quickly to try and 
get additional educational material out to our beneficiaries to 
make them know what this program offered.
    It offers a very, very rich supplement to their Medicare 
benefit. We think it represents an outstanding deal.
    Mr. Scarborough. Congressman Cunningham, let me ask you to 
help me out here, because obviously Admiral Carrato is a good 
man. He has committed his life to military service. In fact, we 
are trying to help him out. I mean, we are trying to help you 
out. We are trying to help out the men and women, not only who 
are military retirees now, but the people that are going to be 
retired 10 years, 20 years, 30 years from now to make sure we 
keep the promise that we made to them.
    What happened? I mean, where is the disconnect here? I 
mean, comment on what you have heard today.
    We have certainly heard your testimony, but you are, 
obviously, representing San Diego and the District where my 
late grandfather lived. I mean, you have seen this from the 
ground floor. What happened here? Were there some people that 
just weren't as interested in this succeeding as Congress? I 
guarantee you 99 percent of the people here believe, or was it 
just people shooting themselves in the foot?
    Mr. Cunningham. Mr. Chairman, as I stated, it is not all 
DOD's fault. Sometimes many of us feel like Billy Mitchell when 
he said that we need air power, and someone said, ``Well, I 
will put a ship out there and we will bomb it,'' and you know 
what the result was.
    When we testified at the beginning of FEHBP, we told the 
committees what would be required. When the White House limited 
us and told us what the marketing--you know, how they were 
going to market it, how they were going to limit it, they 
weren't going to let people go to military facilities that 
existed, and then the scare tactics--if you join this pilot 
program, you may not be insured after the program dies--they 
are scared. And you may have an education program going one 
way, but on the other side you have got a negative program that 
is more powerful in fear.
    That was not handled well, in my opinion.
    Second, the cost analysis that came out to scare people 
off, you take a look and it was their own testimony. People 
with TRICARE, people with other programs aren't as likely to go 
to this if they have the facility there. But a lot of our 
retirees are not covered, and TRICARE is terrible for them.
    Yet, they said if 100 percent of these people come into the 
FEHBP it is going to break the bank, and that is just not true, 
so the analysis was flawed, itself.
    If you take a look at Medicare part B, many of those people 
were not informed that in other plans that there were 
copayments and deductibles, and the fairs--when you have a 
fair, and a week later you have to make that decision--you 
know, I have town hall meetings myself, and I know probably 
every Member, Republican or Democrat, does, too. How many 
people out of your population do you have at those town hall 
meetings? And then, if you don't have someone there that is 
organized, that knows the system, that can brief the system--
and it is called marketing. Are you going to sell cars? Are you 
going to sell Chevys? Are you going to sell Toyotas? If your 
marketing is flawed and you are working in an uphill way, 
anyway, if you had an old car in 1970's, and American-made car 
that was a Toyota without shine, you had a hard time selling 
that car.
    It is the same thing with FEHBP. If you tell our retirees 
that FEHBP will be their plan, like it is for civilians, to 
help them with Medicare, I guarantee you they are going to 
accept it, but if they have doubts in that they are not going 
to accept it because they are scared. That was the flaw, 
itself, in this.
    Mr. Scarborough. Is there any way around that? Let me ask 
you that question on that. Is there any way that we can make 
this program succeed by people coming in now knowing that they 
can only be in it for 2 years?
    Mr. Cunningham. Yes. We will after November, because we 
will open up the plan. Guaranteed.
    Mr. Scarborough. OK. Let me ask you one final question 
here. I wanted to talk about Medicare coverage. It wasn't until 
after the initial enrollment period was closed that the DOD 
included in its materials information that was still without 
letterhead or signature block, clear information about Medicare 
coverage. Mention was made in the frequently asked questions 
provided by the Department; however, neither the plan brochure 
nor the initial mailing was adequate information specified.
    Participants were told that Congress--when they called the 
telephone center, they were referred to the providers, 
themselves, for questions pertaining to Medicare.
    Mr. Cunningham. Mr. Chairman, would you yield just for 1 
second on that?
    Mr. Scarborough. Sure.
    Mr. Cunningham. I have got to leave, and there is one other 
point I wanted to make.
    Mr. Scarborough. Right.
    Mr. Cunningham. If you drive out to Bethesda, look at the 
big signs that talk about ``TRICARE is the plan.''
    Mr. Scarborough. Yes.
    Mr. Cunningham. Go to Balboa and San Diego. You look at the 
big signs, the marketing that makes you want to join those 
programs.
    Mr. Scarborough. Right.
    Mr. Cunningham. There is nothing at our military hospitals 
or facilities or anything to help market this plan.
    I am sorry. I have got to leave.
    Mr. Scarborough. OK. Thank you.
    Mr. Cunningham. Thank you.
    Mr. Scarborough. Let me ask you, Admiral, why was this 
important feature not highlighted in the marketing materials, 
particularly in the plan brochure that was passed out to 
potential enrollees?
    Admiral Carrato. I think there are two questions in there. 
The first was clarification of the relationship to Medicare.
    We originally used some material that OPM had prepared, 
standard material for Federal annuitants, and we quickly 
discovered that that did not satisfy the requirement for 
someone who had not been familiar with FEHBP, so we worked 
together to get a concise statement out that explained the 
relationship of this program to Medicare, so that is the answer 
to the first question. We learned, we reacted, got the message 
out.
    The second issue is really sort of a fine technical point, 
and that has to do with Medigap coverage, and in the early 
1990's the Government decided that Medigap Medicare 
supplemental plans needed to be regulated, and after that 
regulation was implemented--I think it was about 1991--there 
were 10 approved Medigap coverages. The provision in the 
statute allows you to return to that coverage with no 
preexisting penalties.
    The issue and the reason some individuals were told to talk 
to their coverer, their insurer, was that some of this 
population actually had purchased supplemental plans pre-dating 
the early 1990 change in statute, so we didn't want to provide 
misleading information, and that is why we recommended that the 
enrollee contact their insurer to get the complete answer on 
it.
    Mr. Scarborough. Let me ask you, because I am going to have 
to run to some votes here--and I hope both of you don't mind, I 
am going to have some written questions provided to you, and if 
you could answer in the next couple of weeks that would be 
great.
    Let me ask you the same question--and if I could get a 
brief response--do you think it is possible for this program to 
succeed in the next 2 years with enrollees knowing that they 
may only be able to be in the program for 2 years before being 
kicked out.
    Admiral Carrato. I will try and be brief.
    Mr. Scarborough. Go ahead.
    Admiral Carrato. I think the answer is what we heard in 
Pensacola from the representative of TROA. I think one of the 
most powerful marketing tools in the military health system is 
chats at a club over the back fence, and I think when we have 
some word of mouth with people who have enrolled and are 
satisfied with the program, I think that might help get the 
message out and boost enrollments.
    I think we will certainly make every effort we can, working 
together with OPM and our coalition and alliance partners, and 
we will do everything we can to make it more successful.
    Mr. Scarborough. Mr. Flynn, do you think you can be more 
successful? Do you think you will be successful at all, again, 
with people knowing that they can be kicked out in 2 years?
    Mr. Flynn. Clearly, Mr. Chairman, we have heard that 
concern. I have to treat it as a valid concern because of the 
wide number of people who said it. I think, nonetheless, we can 
do better. I do think, however, that sense of it being a pilot 
and people thinking that they won't have coverage after will 
have an influence on how successful we can be.
    Mr. Scarborough. OK. Admiral, last question. The $64,000 
question. You said you can do a better job. Are you going to 
get your 83 percent next year when we have this hearing?
    Admiral Carrato. Just to show you I am not a complete 
idiot, no comment, sir. [Laughter.]
    Mr. Scarborough. Oh, come on. I am offended, even though I 
do have last year's testimony here where you predicted--in 
highlighter--83 percent.
    Admiral Carrato. I predict we will do better, sir.
    Mr. Scarborough. Will we get to 50 percent?
    Admiral Carrato. That is CBO's prediction in their scoring 
of the bill.
    Mr. Scarborough. CBO says 50 percent?
    Admiral Carrato. Yes, sir.
    Mr. Scarborough. OK. And you are confident we are going to 
get there?
    Admiral Carrato. We will do better, sir.
    Mr. Scarborough. Well, I hope we do much, much, much 
better.
    I thank both of you for coming on this very, very important 
subject, and I look forward to discussing it with you again.
    We are adjourned.
    [Whereupon, at 3:51 p.m., the subcommittee was adjourned.]

