[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
RECENT DEVELOPMENTS IN THE FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON THE CIVIL SERVICE,
CENSUS AND AGENCY ORGANIZATION
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
DECEMBER 11, 2002
__________
Serial No. 107-221
__________
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
WASHINGTON : 2003
87-416 PDF
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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 MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California PATSY T. MINK, Hawaii
JOHN L. MICA, Florida CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania THOMAS H. ALLEN, Maine
DAVE WELDON, Florida JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia ------
JOHN J. DUNCAN, Jr., Tennessee BERNARD SANDERS, Vermont
JOHN SULLIVAN, Oklahoma (Independent)
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
James C. Wilson, Chief Counsel
Robert A. Briggs, Chief Clerk
Phil Schiliro, Minority Staff Director
Subcommittee on the Civil Service, Census and Agency Organization
DAVE WELDON, Florida, Chairman
DAN MILLER, Florida DANNY K. DAVIS, Illinois
CONSTANCE A. MORELLA, Maryland MAJOR R. OWENS, New York
JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
C.L. ``BUTCH'' OTTER, Idaho ELIJAH E. CUMMINGS, Maryland
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Garry Ewing, Staff Director
Mary Baginsky, Professional Staff Member
Scott Sadler, Clerk
Tania Shand, Minority Professional Staff Member
C O N T E N T S
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Page
Hearing held on December 11, 2002................................ 1
Statement of:
Blair, Dan, Deputy Director, U.S. Office of Personnel
Management, accompanied by Ed Flynn, Senior Policy Advisor
to the Director............................................ 20
Davis, Hon. Tom, a Representative in Congress from the State
of Virginia................................................ 16
Francis, Walton, economist and author; Carroll E. Midgett,
chief executive manager, American Postal Worker's Union;
Michael Showalter, vice president, Definity Care; Colleen
M. Kelley, president, National Treasury Union; Charles L.
Fallis, president, National Association of Retired Federal
Employees; Bobby L. Harnage, Sr., president, American
Federation of Government Employees; and Greg Scandlen,
consultant................................................. 37
Hoyer, Hon. Steny, a Representative in Congress from the
State of Maryland.......................................... 8
Letters, statements, etc., submitted for the record by:
Blair, Dan, Deputy Director, U.S. Office of Personnel
Management, prepared statement of.......................... 23
Davis, Hon. Danny K., a Representative in Congress from the
State of Illinois, prepared statement of................... 5
Davis, Hon. Tom, a Representative in Congress from the State
of Virginia, prepared statement of......................... 18
Fallis, Charles L., president, National Association of
Retired Federal Employees, prepared statement of........... 77
Francis, Walton, economist and author, prepared statement of. 41
Harnage, Bobby L., Sr., president, American Federation of
Government Employees, prepared statement of................ 97
Kelley, Colleen M., president, National Treasury Union,
prepared statement of...................................... 70
Midgett, Carroll E., chief executive manager, American Postal
Worker's Union, prepared statement of...................... 62
Scandlen, Greg, consultant, prepared statement of............ 109
RECENT DEVELOPMENTS IN THE FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM
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WEDNESDAY, DECEMBER 11, 2002
House of Representatives,
Subcommittee on Civil Service, Census and Agency
Organization,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 11:05 a.m., in
room 2247, Rayburn House Office Building, Hon. Dave Weldon
(chairman of the subcommittee) presiding.
Present: Representatives Weldon, Davis of Illinois, and
Norton.
Also present: Representative Tom Davis of Virginia.
Staff present: Gary Ewing, staff director; Jim Lester,
counsel; Scott Sadler, clerk; Mary Baginsky, professional staff
member; Tania Shand, minority professional staff member; and
Teresa Coufal, minority staff assistant.
Mr. Weldon. Good morning. I want to welcome everyone to
this hearing on the Federal Employees Health Benefits Program.
During the past year there have been important developments
in the FEHBP that are of interest to the subcommittee. The
FEHBP is one of the most important programs this subcommittee
oversees. In fact, Federal employees, retirees, and their
families enjoy the widest selection of health plans in the
country. This year they may choose from 188 plans. Because
these choices are available, FEHBP participants may compare the
costs, benefits and features of different plans to make an
informed choice.
As a physician and the Representative of Florida's 15th
District, I am keenly aware of the importance of the FEHBP.
Over 8 million Federal employees, retirees, and dependents rely
on the program for high quality health care options at
affordable prices. I share their concerns about the program and
look forward to the 108th Congress as an opportunity to improve
competition and encourage innovation in the program.
I have spoken before about the need for innovation in the
FEHBP. In that context, I want to commend the Office of
Personnel Management and the American Postal Workers Union.
Unlike the past years, OPM's call letter for 2003, which
outlines OPM's program guidance for carriers, was not studded
with new mandates. Indeed, OPM challenged carriers to be
innovative.
The American Postal Workers Union accepted that challenge
and developed its new consumer-driven option plan. The new
consumer-driven option plan is unlike any other plan currently
offered to Federal workers and retirees. The plan gives its
members more control over their health care and provides
incentives for them to be wise consumers of health care. It
provides first dollar coverage through personal care accounts.
If the personal care account is exhausted, there is a
reasonable deductible before traditional health care insurance
begins. A major advantage of these accounts is that they roll
over year-to-year for up to 4 years, so members can save for
unforeseen medical expenses.
OPM has approved another new and innovative option,
flexible spending accounts, which will hopefully be available
to FEHBP members in the summer of 2003. Under this program
participants may set aside tax-free dollars from their paycheck
to pay for certain health care costs.
Another important development that we saw this past
September was the continuation of rising premiums for 2003.
According to the Office of Personnel Management, on average,
premiums will rise by 11.1 percent. These continuing increases
are a cause of concern for participants and members alike--
Members of Congress as well.
To put this increase in context, though, it is estimated
that health care premiums in the United States could climb by
an average of 15 percent this year. These increases reflect
cost drivers such as increased utilization of prescription
drugs, an aging population, advanced medical technology, and
hospital costs and consolidation. CALPERS, California Public
Employees' Retirement System, which provides retirement and
health benefits and which many consider an exemplary program,
will experience a 25 percent rate increase for 2003.
In another important development, the program's most
popular carrier, Blue Cross/Blue Shield, nearly was forced to
withdraw from the FEHBP after the House voted to end an
exemption from cost accounting standards that carriers have
enjoyed since 1998. Fortunately, OPM granted an administrative
exemption to the accounting standards that made it possible for
the Blues to remain in FEHBP.
Nevertheless, I remain concerned about this issue. It would
be a tragedy if the most popular carrier in the program,
especially one that so many of our retirees have chosen, were
driven from the program by bureaucratic insistence on imposing
a one-size-fits-all accounting system that would provide not
one whit of benefits for those who participate in the plan or
the taxpayer. Therefore, I believe this next Congress should
seriously consider a permanent statutory exemption.
I look to our witnesses today for their perspectives on
these important developments, and I know this subcommittee is
interested in any recommendations they may have for ways to
improve the program while preserving competition and consumer
choice. Market orientation and consumer choice have been
hallmarks of the program's success. These key features have
made the FEHBP a widely admired model for employer-sponsored
health care programs.
I look forward to hearing the testimony of our
distinguished witnesses today, and I thank them for appearing.
And I now yield to the gentleman from Illinois, Mr. Davis,
for his opening statement.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
And, first of all, let me just say that it has been a pleasure
working with you during this past year, and I look forward to a
delightful year coming. I also want to take this opportunity to
wish and you and your family a happy, healthy and peaceful
holiday season as well as for those who are assembled.
I want to thank you for scheduling this hearing. I want to
thank all of the witnesses including the distinguished whip of
the Democratic Caucus for being with us to testify.
Last year the Democratic members of the subcommittee
requested this hearing to give witnesses with varying views on
medical saving accounts and ideas of how best to reduce the
FEHBP premiums an opportunity to testify before the
subcommittee.
I also may indicate, Mr. Chairman, that this obviously
would be one of the hardest working subcommittees. We may very
well be the only committee that's holding a hearing at this
particular moment and certainly the only one that's well
attended. Though a year later, this hearing is taking place
when there are many new developments in the Federal Employees
Health Benefits premiums, and today's witnesses do indeed have
varying opinions on how these developments will affect the
FEHBP.
Earlier this year, the Office of Personnel Management
announced that the FEHBP premiums for 2003 will increase an
average of 11.1 percent. This increase marks the third
consecutive year that premiums have jumped by more than 10
percent. Representative Steny Hoyer--who, I am pleased to say,
will be testifying on our first panel--introduced H.R. 1307,
which would help keep Federal employees' health care costs
affordable by increasing the government's contribution to
premiums. The bill would increase the government's share of the
FEHBP premiums from 72 percent to 80 percent. This subcommittee
should give this bill serious consideration next year,
particularly since a million Federal employees will see their
pay fall below that of their military counterparts.
OPM also announced that for the first time executive and
legislative branch employees will be offered flexible spending
accounts which allow a pretax payroll deduction for some
insurance premiums, unreimbursed medical expenses, and child
care and dependent care expenses. Additionally, beginning in
2003, the American Postal Workers Union, the APWU, will offer a
new consumer-driven option to FEHBP participants. Consumer-
driven plans are used to give employees more incentive to
control the cost of their health benefits and to reduce
employee spending on health care.
A report entitled ``Can Consumerism Slow the Rate of Health
Benefit Cost Increases,'' by Paul Fronstin with the Employee
Benefit Research Institute, a nonprofit, nonpartisan
organization, stated, ``A movement to consumer-driven health
benefits has implications for health benefit costs, utilization
of health care services, quality of health care, the health
status of the population, risk selection, and efforts to expand
health insurance coverage. Ultimately the success or failure of
consumer-driven health benefits will be measured by its effect
on the cost of providing health benefits and its effect on the
number of people with and without health benefits. Time will
tell what impact the new consumer-driven plan, flexible
spending accounts, and other new developments will have on
premium increases and the quality of health care in the
FEHBP.''
I expect today's witnesses will help shed some light on
what is ultimately coming in FEHBP and how they believe it will
affect plan participants.
I request also, Mr. Chairman, that the record be kept open
for 2 weeks so that Professor James Bedingfield, a member of
the Cost Accounting Standards Board, can submit a statement for
the record.
I thank you for this consideration and yield back the
balance of my time.
[The prepared statement of Hon. Danny K. Davis follows:]
[GRAPHIC] [TIFF OMITTED] T7416.001
[GRAPHIC] [TIFF OMITTED] T7416.002
[GRAPHIC] [TIFF OMITTED] T7416.003
Mr. Weldon. I thank the gentleman for his very kind words.
And let me just add that it's been a pleasure to work with you
for the past--I guess it's about 18 months--and I am looking
forward to working with you and your staff in the future. And
certainly I wish you, as well as your family, a pleasant
holiday.
And without objection we will keep the record open for 2
weeks to allow for the testimony that you are speaking of.
Our first panel today, we have the distinguished Member
from the State of Maryland, Mr. Steny Hoyer. Steny represents
the Fifth District in Maryland, which is home to thousands of
Federal employees and retirees, both military and civilian. Mr.
Hoyer just completed his tenth full term, making him the
longest serving Member of the U.S. House of Representatives
from southern Maryland in history. For over two decades Mr.
Hoyer has been very active in working on issues affecting
Federal employees.
I want to commend Mr. Hoyer for his commitment to the
Federal employees, and I want to congratulate him on his recent
election as minority whip. And I want to thank him for
testifying, and I look forward to hearing his views.
Without objection, your written statement will be entered
into the record. And, Steny, you are recognized for your
opening statement.
STATEMENT OF HON. STENY HOYER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF MARYLAND
Mr. Hoyer. Thank you very much, Mr. Chairman.
And, Mr. Davis, I want to thank you for your comments and
for your cosponsorship of the legislation to which you
referred.
I also want to say to you, Mr. Chairman, I appreciated the
opportunity to work with you on issues of relevance to Federal
employees. You undertook this relatively new responsibility,
and you have undertaken it, I think, with a great deal of
ability and openness; and I appreciate the opportunity to work
with you.
I want to thank you also for inviting me here to testify.
The purpose of this hearing is to discuss recent developments
in the Federal Employee Health Benefits Program, and I
appreciate the opportunity to discuss a few of them with you
and the committee today.
Specifically, I'd like to discuss first of all the
affordability of the Federal Employee Health Benefits package,
H.R. 1307, legislation to increase the Government's
contribution for health premiums, premium conversion, flexible
spending accounts and consumer-driven plans, all of which
you've referred to. Let me say parenthetically, Mr. Chairman,
that I served on the post office, civil service committee for
18 months. That committee no longer exists and essentially this
subcommittee has undertaken its responsibilities. But a study
was done in the mid-1980's about the relative worth of health
benefit programs in the private sector, in the non-Federal
public sector, and in the Federal sector, and that study,
interestingly enough, showed that the Federal sector was the
least generous of the health benefit plans that existed at that
point in time.
A stark example of that was, I did not participate in the
Federal Employee Health Benefit Plan until just a few years ago
because my wife was an employee of the Prince George's County
board of education, and the board of education plan was about
as expensive, a little less expensive, but included dental
benefits and it included a broader spectrum of benefits than
was available under the Federal Health Benefit program. So that
study that showed municipal and State plans to be more
generous, as well as private-sector plans to be more generous,
was very real for me because I found that out.
However, very frankly, over the last 15 years or so that
situation has changed. It has changed in large part because, as
health care costs have escalated, private-sector and State and
municipal plans, not always but sometimes, have increasingly
diminished the options available to employees and have
increasingly provided as the only option a health maintenance
organization, clearly directed at trying to minimize costs.
Since 1998, the FEHBP premiums have increased by nearly 50
percent, not including the average 11 percent jump scheduled
for January 2003. Over the same period, salaries for Federal
employees have increased by less than 15 percent. While those
percentages are different bases, the fact of the matter is that
every year participants of the health benefit program are
digging deeper and deeper into their pockets to pay for their
health care and thereby diminishing their take-home pay. For a
Federal employee choosing Blue Cross/Blue Shield's basic family
option, he or she pays over $2,000 per year in premium costs
alone. Those making $30,000 to $40,000 a year are simply priced
out of receiving coverage from Blue Cross/Blue Shield.
The rising costs of health care premiums is becoming a
liability in retaining hard-working Federal employees, as well
as recruiting those who are considering careers in public
service. That liability is magnified when you consider that the
Bureau of Labor Statistics estimates that Federal employees are
paid 33 percent less than their private-sector counterparts,
and although that is controversial and not universally
accepted, particularly by OMB of both parties on a consistent
basis, nevertheless there is no doubt that the percentage is a
very substantial one. Nobody denies that.
Let me speak to the specific legislation that I have
introduced with Congressman Davis and Congresswoman Morella and
others. When the 107th Congress began, I introduced a bill to
increase the Federal Government's premiums an average of 72
percent. Mr. Chairman, as you know, it is not specifically 72
percent; it is an average of 72 percent, not more than 75. By
increasing it to 80 percent, it would bring the share of the
Federal Government pay more in line with most private and State
employee pay.
Hark back to the 1980's study, which Kaiser Permanente
currently says is approximately 83.1 percent, on average, of
the employers' contribution, private sector and public sector,
non-Federal, which is--83, that's for single health care
coverage. For a family, it is 76.2 percent, so that the 80
percent would be approximately an average of what the private
sector and non-Federal public sector is doing.
There are now 250,000 Federal employees that choose not to
enroll in the FEHBP; therefore, we should be focusing on
reducing that number by making quality health care coverage
available to all of our employees, as well as retirees. I plan
to reintroduce this legislation when the 108th Congress
convenes, and hope that this subcommittee, Mr. Chairman, will
give it an early hearing.
Briefly, on premium conversion, in October 2000 Federal
employees were offered what is called ``premium conversion'' as
you have spoken about in your opening statement. In the midst
of rising health care costs, premium conversion has become a
significant benefit for participants in the FEHBP because costs
for premiums, of course, come out of pretax dollars, saving
participants an average of $450 annually, a very significant
benefit. This is a long overdue benefit, which is similar to
most private-sector plans which have allowed their employees to
deduct health insurance premiums from their taxable incomes for
many, many years.
Unfortunately, the Federal Government does not offer the
same benefit to retired Federal employees. H.R. 2125, the bill
sponsored by Representative Tom Davis, and which I have
cosponsored--and I think there are 200-plus cosponsors on it,
well over a majority--will allow Federal retirees to use pretax
earnings to pay their health insurance premiums. I would hope
the committee will also hold a hearing on that piece of
legislation.
Flexible spending accounts: In the spirit of premium
conversion, I am pleased to see that OPM plans to proceed with
flexible spending accounts in 2003. FSAs will allow Federal
employees to contribute to a personal account out of pretaxed
dollars which they can later tap to pay for uncovered portions
of qualified medical costs and other expenses. However, to make
these accounts work most effectively, I would like to see
Congress consider the President's fiscal year 2003 budget
proposal to allow up to $500 in remaining balances to be
carried over. This would provide employees in the public and
private sector much-needed flexibility.
Last, consumer-driven plans: As the committee knows, the
American Postal Workers Union is now offering a new consumer-
driven option in the FEHBP. This plan allows participants to
receive a health-spending account which you referred to, Mr.
Chairman, and Mr. Davis did as well. Employees will be able to
draw from the account to pay for a variety of medical needs.
While this new option may keep costs down, the Federal
Government should proceed slowly, in my opinion, on these types
of plans; not all participants, possibly, will benefit from the
plan.
But I think the experiment is a very worthwhile one and
that we ought to watch closely. While a healthier person will
benefit, those with greater health care needs could end up
paying higher premium costs down the road. I know the National
Association of Retired Federal Employees is opposed to this
plan, and President Charles Fallis will be addressing the
problems in depth later today.
I hope the APWU plan is not a prelude to a more
comprehensive medical savings account. I know that has been
discussed and some of us have great reservations for medical
savings accounts because we believe, as we referred to them,
the healthy and wealthy will be advantaged by such plans. But
because you would take the healthy and wealthy out of the
insurance pool into savings accounts, you will increase the
risk in the remainder and premiums and costs will go up in the
remaining pool.
When the Office of Personnel Management Deputy Director Dan
Blair testified before the Treasury, Postal Appropriations
Subcommittee, of which I am the ranking member, I asked him if
the administration was pursuing medical savings accounts as a
policy. His answer was that MSAs were, in fact, being
considered.
Let me conclude Mr. Chairman, with a word of caution on
MSAs which frankly I have already given so I will not repeat it
because my time is up, but I would hope that as that is
considered, this committee would look very carefully at the
impact that proposal would have on the insurance pool and the
consequential increase in premiums of the remainder.
Thank you, Mr. Chairman. Again, I appreciate this
opportunity and hope that the committee will seriously consider
increasing the premium contribution that the Federal Government
makes. This is a bipartisan piece of legislation reflecting the
employer's efforts to keep employees insured and whole in terms
of salary increases.
Mr. Weldon. I want to thank the gentleman for his
testimony.
Your comments about taking your wife's insurance plan
reminded me that my parents did the same thing. My father was a
postal worker, my mother was a school teacher, but the family
was on my mother's plan rather than my father's plan because it
was more generous.
Mr. Hoyer. I was surprised--I think it was the Hudson
Institute that ran the study in the mid-1980's for the post
office, civil service committee, and frankly I wasn't on the
civil service committee at that point in time. But I was very
interested, as you pointed out, because I have a lot of Federal
employees. But I was surprised at the disparity between both
the private-sector and municipal and State plans.
Mr. Weldon. It would be interesting to repeat that study
today, and I agree with your assessment. I would conjecture
that the gap is not nearly as it has been in the past----
Mr. Hoyer. I haven't seen the study, but that is my belief
because of the fact, as I said, the private-sector plans and
municipal plans have become less generous because of the
increasing costs.
Mr. Weldon. Your piece of legislation is--your 1307 that
you plan to reintroduce, have you had it scored by CBO as yet?
Mr. Hoyer. We have not, Mr. Chairman, but it is my belief,
and just from speculating on what the costs would be as it
relates to the existing costs at 72 percent, that we are
talking probably at least a couple hundred million dollars a
year.
Mr. Weldon. We did some back-of-the envelope calculations,
and the mandatory spending increase would be on the order of
several hundred million dollars a year. So it would be helpful
to try to come up with some offsets if we are going to try to
pursue legislation like this.
Are you concerned at all about raising the government's
share of the premiums serving as a disincentive for Federal
employees to shop around for the best value?
Mr. Hoyer. Mr. Chairman, I have been one who has supported
the concept of deductibles and the concept of participation by
the insured in the payment of the premium, as well as some of
the costs of health care, to avoid overutilization and to
encourage careful shopping. My view is that frankly the
difference between 20 percent and 28 percent will not be a
difference which will undermine the employees still wanting to
save and get as good a buy from the 20 percent that they are
contributing, particularly as costs go up.
I frankly don't perceive there to be a significant savings
to the Federal employees by this. What I perceive it to be is a
freezing of--in effect, going backward; so that my view is that
if you went to 100 percent, or maybe 95 percent or even maybe
90 percent, that would be a greater problem than simply the
increase of 8 points. But I don't think that will in any
meaningful way affect the consumers' judgment.
Mr. Weldon. Like you, I am concerned about the impact of
higher premiums on the work force. I held a hearing on
cafeteria plans last March. Witnesses testified about the
benefits those plans offer and said they helped employers
recruit and retain well-qualified employees because they allow
employees to maximize the value of benefits offered by the
employer.
A cafeteria plan could be designed to allow employees to
use the government contribution to pay for 100 percent of the
FEHBP premium. Would you be willing to work with me on
examining cafeteria plans for Federal employees?
Mr. Hoyer. Mr. Chairman, the answer is, I would certainly
be willing to work with you. I will be candid in saying that I
have had grave reservations about cafeteria plans. I am not an
expert on the cafeteria plans, particularly as they apply in
the private sector, but I am very worried that cafeteria plans
will adversely affect senior employees in particular, people
who have been here for some period of time.
Newer employees, who have less expense, particularly in the
health care area, may find them to be more advantageous than
more senior employees. But the answer to your question is, I
would certainly look at them with you because obviously in the
private sector they are being utilized; and there's a lot of
discussion about applying them in the public sector, but up to
this point in time, I haven't been very enthusiastic about that
option.
Mr. Weldon. I agree with you that Congress should seriously
consider the President's proposal to allow employees to roll
over up to $500 in their flexible spending accounts. According
to many experts, the use-it-or-lose-it feature of flexible
spending accounts deters many employees, particularly lower-
income employees, from taking advantage of FSAs.
Permitting rollover would also discourage wasteful end-of-
the-year spending.
Do you think we can work together on this issue in the next
Congress?
Mr. Hoyer. Certainly. I look forward to it.
Mr. Weldon. Some experts have suggested that even without a
cafeteria plan, Congress should eliminate the statutory
requirement that employees pay at least 25 percent of the FEHBP
premium. They say it is a disincentive for employees and
retirees to shop for the best value and that employees and
retirees should be able to use the government contribution to
pay for 100 percent of premiums.
Is this something you think the subcommittee should be
examining in the future?
Mr. Hoyer. Well, as I said, I tend to adopt the premise
that a copay plan probably focuses the purchaser, which is the
employee, notwithstanding the fact that there is either 72
percent, or in my proposal 80 percent, contribution by the
Federal Government; and it focuses the purchaser on making the
best buy because they are in fact expending some of their
funds. If you, obviously, give the option of 100 percent pay,
that undermines that.
On the other hand, as health care costs escalate, there may
well be families, particularly at the lower level of pay, that
would be costed out of the market without 100 percent
contribution. So I think we ought to look at it in terms of
affordability of health care.
Frankly, at our level of pay, it really is not a major
issue for us. But at a GS-3, GS-4, GS-5, GS-6, GS-7, with a
family, it is a major, major issue, and we ought to look at it
in that context.
Mr. Weldon. I was thinking of it not so much in the context
of copays, but more in premiums; and it is somewhat in line
with the objectives----
Mr. Hoyer. I'm sorry, you're talking about 100 percent
payment of premiums?
Mr. Weldon. Yes.
Mr. Hoyer. Yes. And my point is, to go back to your
question, if you pay 100 percent of premiums, does the
purchaser therefore not try to make the best buy for it in
this--and we have 100-some odd alternatives. Obviously, as you
well know, all of those aren't available to all Federal
employees; it is a regional thing, and that is the total number
of plans that are available throughout the country.
I think in this area--does anybody know? We have maybe 25,
30--25 or 30 if you are an employee in the Washington
metropolitan area; Chicago, I don't know how many; or in
Florida, central Florida, I'm not sure.
But in any event, I was responding to your concept that can
apply both to copays and to premium payment because the initial
amount of premium does, in fact, determine for an employee what
policy they are going to be able to afford, what policy is best
for them and their families that is affordable by them. That
was my point in terms of saying, obviously the less you're
paid, the more critical becomes the contribution the Federal
Government makes, the employer makes, to the purchase. The
lower the employee, the closer I think we ought to get to 100
percent. That is not what we do now because as we do it at
every level, an average of 72 percent.
Mr. Weldon. I believe my time has expired, and I would love
to explore this more with you. And it is a pleasure to
recognize the ranking member for questions.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
It was very interesting to hear both you and Mr. Hoyer
relate experiences that you had with spouses who work for the
board of education and were members of the teachers union. I
have a very similar experience--that is, when my wife used to
work.
Mr. Weldon. I feel your pain.
Mr. Hoyer. Let me say on behalf of all the wives that
aren't getting salaries, they work.
Mr. Davis of Illinois. They still work. But my question
really becomes, it looks like they have done pretty good jobs
of negotiating benefits packages in their contracts.
Do you feel that OPM has done a competent job, or a good
job, of negotiating coverage for the Federal employees at the
best possible cost?
Mr. Hoyer. Really I don't think the Congressman could say
that they have done the best job, but clearly if you look at
the disparity between the private-sector escalation and the
FEHBP escalation, there is about a 25 percent better buy for
the Federal employee. That would appear to say that we have
done a good job.
On the other hand, it would also be reflective of the fact
that we have approximately 9 million people who are involved in
this program between active Federal employees, dependents, and
retirees. That is a big cohort, so we have a lot of leverage in
negotiation. So it may simply reflect the savings that we
effect from having a large number of purchasers.
On the other hand, I think it would be fair to say that I
think OPM has been pretty vigorous in trying to negotiate well
on behalf of Federal employees.
Let me say in passing, I don't want to get in trouble with
Mr. Weldon. I don't know his position on this, so I have sort
of a gut feeling. But essentially what the Clinton health care
plan recommended in many respects was a replication of FEHBP
with, in effect, the States serving as OPM and managing the
market competition with individuals within States buying, as
they do for FEHBP, from private-sector insurers. I think they
didn't sell it very well, and it wasn't understood that simply,
but in some respects that's what they were saying.
Obviously, that didn't go very well. Harry and Louise took
care of that. But my answer would be, it is hard for me to
judge, had they done the best job they could have? Clearly,
given the bulk of our purchase and the negotiations that we
involve ourselves in, I think we are getting a pretty good
deal.
Mr. Davis of Illinois. And I would be in agreement with
that. Of course, some of the concern that has been expressed is
that, in fact, it is kind of difficult for OPM to take the same
position, let us say, a union might take on behalf of its
membership and therein might be a little bit of the difference
in terms of the kind of agreements that ultimately may have
gotten reached with some of the teachers unions, some of the
other entities that have had to negotiate contracts; and I
certainly agree with your thinking there.
But you mentioned that there were 250,000 Federal employees
who choose not to enroll in the Federal package, and you also
mentioned that the rising cost of health premiums is becoming a
liability to the extent that, in some instances, it prevents us
from being able to recruit and maintain the kind of work force
that we need.
Can you think of any examples of areas where this might
prove true?
Mr. Hoyer. I don't have a specific example, Congressman,
but clearly, as I said, the Kaiser Permanente figure is about
83 percent in the private sector for a single insured and 76
percent for family policies. If that is the case, if an
individual seeks employment at the Federal level and sees a
disparity, an 11 percent difference, 72 to 83, 11 percent
difference on what their health premium will pay, I think for
younger workers it probably won't make any difference. Younger
workers for the most part are not driven in terms of their
employment decision by health care benefits and probably not by
retirement benefits either, but mid-level--recruiting mid-level
people, skilled people who may be in their late 30's, early
40's, they have a family, children, children in their teens;
they are starting to think of that. And although I don't have a
specific example for you, we are going to be, as you know,
faced in the next 6 years with approximately half of the
Federal employees that we have, having the ability to retire.
Now, if that is the case, we won't be able to replace them
all with young workers. We will have to replace some of them
with experienced, skilled workers to replace the skills that we
are going to lose at that point in time; and at that point in
time, I think this will become a very important, competitive
question as it relates to employment.
Mr. Davis of Illinois. Mr. Chairman, I know that my time is
up, but with your indulgence, can I just get one additional
question?
Mr. Weldon. Without objection.
Mr. Davis of Illinois. Have you received any outright
opposition to 1307 in terms of anybody that has just said they
are opposed to it, and what is your feeling about prognosis? I
know you have indicated that you hope the committee would take
a good look at it at the beginning of the year. But what is
your prognosis in terms of movement of it?
Mr. Hoyer. Congressman, as I told you and as you know very
well and as Chairman Weldon knows, this is a bipartisan piece
of legislation. This is not--this is a judgment call that we
need to make as the employer, and that judgment call is, how
much do we contribute to make us competitive and to assure that
our employees have affordable health care for themselves and
their families? I think as a model employer, that is very
basic. We want that for every employee, but certainly we want
it for our employees.
Mr. Weldon raised the point of several hundred million
dollars, a point--and I think we are going to do 4.1 percent,
by the way; I hope you will support that. Speaker Hastert is
supporting 4.1 percent. I think when we come back we are going
to do 4.1 percent.
The President did 3.1 percent under the law. I think he
just followed the law and did that. And I think we will do the
4.1 percent. Having said that, that clearly would be offset by
the premium increase. So we are going to keep Federal employees
relatively even.
Let us say for the sake of argument, it is $250 million.
One point is about $900 million. So we are talking about a
quarter of a point on salary. So when you say on an offset, Mr.
Chairman, obviously the employer's income, whatever you do,
including the doctor's office, a law office, you have to
consider, first of all, how do I pay my people because that is
the critical component of the service organizations that they
are involved in, and the Federal Government is obviously
people-driven in terms of its expenses.
I think $250 million or thereabouts is a relatively small
cost when you consider the $2 trillion budget for assuring
affordable availability of health care for our employees and to
put us in a competitive position. So I don't think it is a
question of offsets. It is a question of dedicating your
resources and whatever other incremental increases we will have
next year. Obviously our revenue will go up, our taxes, and
hopefully will produce more as the economy comes back. I think
it is a justifiable cost we ought to spend, and I have not
heard of any opposition to it, but there will obviously be
concern about costs, as there ought to be.
Mr. Davis of Illinois. Thank you.
Thank you, Mr. Chairman.
Mr. Weldon. I want to thank Mr. Hoyer for his valuable
testimony, and I assure you, we will take under consideration
as we deliberate on these issues in the future. And I am
certainly interested in trying to work with you on some of the
issues that you raise in 1307. I think there may be a way for
us to achieve both of our goals as we work on this issue in the
future.
And with that, I will----
Mr. Hoyer. I look forward to it.
Mr. Weldon. I will let you go ahead and proceed on. I know
you have a busy schedule. It has been a pleasure to have you
here.
Mr. Hoyer. Thank you, Mr. Chairman. The witnesses--I have
seen the list. The witnesses that will speak after me are much
more knowledgeable.
Mr. Weldon. OK.
With that, I would like to now ask our second panel to come
forward. But before I introduce them, we will proceed a little
bit out of order here.
Mr. Davis wanted to say some words about one of the
witnesses.
Mr. Davis of Virginia. On the third panel.
Mr. Weldon. On the third panel, OK.
STATEMENT OF HON. TOM DAVIS, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF VIRGINIA
Mr. Davis of Virginia. Let me just say, Mr. Chairman,
thanks. And let me first commend you for holding this hearing
on a very important issue to me and tens of thousands of my
constituents in northern Virginia on the Employees Health
Benefits program. As you know, the FEHBP has become one of the
most important pieces of the Federal employee benefit package.
It plays a vital role in our recruitment and retention of good
people in government, and it is of utmost importance that we
all work together to ensure that quality and choice are
maintained while we try to constrain costs.
But I thank you for the opportunity to introduce to the
committee somebody who will be on the third panel, and I have
to unfortunately go out to Loudoun County and speak to Federal
Government employees out there.
But we have a newly elected president making his debut
before this committee today, the new president of the National
Association of Retired Federal Employees--Charles, do you want
to get up--and I introduce him to the panel. He just began his
term as the NARFE president on November 1, after having served
two terms as the national treasurer. He is a Virginian. He was
in various leadership posts in the Roanoke Chapter and in the
Virginia Federation of Chapters.
Let me just note that he began his 35 years in the Federal
civilian service as a substitute railway mail clerk, PFS level-
5, rising through the agency ranks to postal inspector, schemes
and routing officer, district manager for Virginia, officer in
charge of Washington, DC, and the director of regional
operations in the Eastern Region. In 1972, he was promoted into
management with the rank of regional assistant postmaster
general, Eastern Region, which includes the States of New York,
Pennsylvania, New Jersey, Delaware, Maryland, Virginia, West
Virginia, and the District.
Charlie's history of government service, I think, and his
many years as an active member and elected leader of NARFE
makes him an excellent source of information and assistance to
this committee, as it has been to me for many years. And his
honesty, his trustworthiness and thoroughness are well known to
those of us who have known him for years; and I think it will
be beneficial to the subcommittee's work, as we try to provide
the best for those who serve our Nation as members of the
Federal civil service.
And Charles, I apologize, I will not be here to hear your
testimony, but I've got your written remarks. They look great.
You are on an outstanding panel with some of the veterans who
have been before this committee before, and we welcome you to
the brotherhood, those of us who are fighting for Federal
employees. Thank you for being here.
And, Mr. Chairman, let me just thank you for letting me
speak out of turn.
Mr. Weldon. Thank you, Mr. Davis. It is a pleasure to have
you here.
[The prepared statement of Hon. Tom Davis follows:]
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Mr. Weldon. I would like to ask the Honorable Dan Blair to
come forward. Mr. Blair is the deputy director of the U.S.
Office of Personnel Management. Mr. Blair is no stranger to the
Committee on Government Reform or to this subcommittee. He had
a long and distinguished career on the House staff, including
on the staff of the Government Reform Committee. He served as
the staff director for the House Subcommittee on Postal
Service.
Before assuming his current post, Mr. Blair served on the
staff of the Senate Committee on Governmental Affairs, where he
helped develop a long-term care insurance program for Federal
employees and the uniformed services, and reforms for the
Federal Employees Health Benefits program and life insurance
programs.
I want to thank you for being here, and as I see, you are
accompanied by Mr. Ed Flynn who--it is a pleasure to have him,
as well, and he will be available for responding to questions,
but does not have a opening statement.
It is the practice of the Government Reform Committee to
swear in witnesses at all of our hearings. I ask that you rise
and raise your right hand.
[Witnesses sworn.]
Mr. Weldon. The court reporter will note that they answered
in the affirmative. You are now recognized for your opening
statement, Mr. Blair.
STATEMENT OF DAN BLAIR, DEPUTY DIRECTOR, U.S. OFFICE OF
PERSONNEL MANAGEMENT, ACCOMPANIED BY ED FLYNN, SENIOR POLICY
ADVISOR TO THE DIRECTOR
Mr. Blair. Good morning, Mr. Chairman, Congressman Davis.
Thank you for that kind introduction. I am accompanied today by
Ed Flynn, who is Director James's senior policy advisor.
You have a copy of my prepared testimony before you, and in
the interest of time, I ask that my complete statement be
entered for the record and I will be happy to summarize.
Director James asked me to testify for her today before
this distinguished subcommittee on developments in the Federal
Employee Health Benefits Program over the past year. I would
like to tell you about her four-point strategy to maintain
quality, to constrain costs in the program, and discuss the
future direction of the program in the fifth pillar that she
has added to her results-oriented strategy for the coming year.
Last March Director James spoke to the FEHBP plan carriers,
and she warned them that OPM was going to be a tough and
demanding negotiating partner. She challenged them to bring us
their best and most innovative proposals. She directed OPM
staff to negotiate hard for quality coverage at the best
possible rate.
She also initiated a comprehensive outside audit to review
mandates affecting participating plans over the past decade and
maintained a close and ongoing relationship with OPM's Office
of Inspector General in support of their joint efforts to
cultivate a culture of accountability at all levels within the
program.
Like all other purchasers, we saw continued premium
increases for 2003. We were able to announce an overall average
increase of 11.1 percent, more than 2 percentage points better
than last year's 13.3 percent increase and well below estimated
national trends. CALPERS, the second largest employer-purchaser
in the country and, as you referenced in your opening
statement, sir, announced a rate increase of up to 25 percent
for 2003.
Keeping our program increases to the lowest possible
translates to tangible dividends of almost $1 billion, and
these results are directly attributable to the Director's
strategy.
Another factor in the program's favorable pay rate increase
is choice. We don't micromanage the health care plans. We
encourage and support the creativity and ingenuity of the
private sector. Giving members a choice of plans promotes
healthy competition, helps contain costs, and enhances the
quality of services. We offer greater choice and variety than
almost any other employer, 188 health plan options for 2003.
All enrollees will have at least a dozen nationwide fee-for-
service options in addition to local HMOs.
Among the options available to enrollees is the new
consumer-driven Standard Option introduced by the American
Postal Workers Union. It is representative of the innovation
that Director James talked about and invited from carriers and
trends in the industry as a whole. We believe this is a very
promising approach, one which may help to hold down health care
costs by giving consumers additional control, as well as an
increased awareness of how they spend their health care
dollars.
In addition to concerns about the magnitude of premium
increases, we face another hurdle for 2003. As a result of
action taken by the House that deleted from our appropriations
bill language that waived application of the cost accounting
standards to FEHBP contracts, Director James had to make a
crucial decision. In September, she used the administrative
process authorized for her use under the National Defense
Authorization Act for fiscal year 2000 to waive the application
of the CAS for all experience-rated carriers in the program.
She acted to ensure that we could conduct an orderly and timely
open season and that members would not face uncertainty about
any plans' participations in the program for the coming year.
She also acted with the knowledge that adequate financial
safeguards are already in place to protect taxpayer and member
dollars. By acting promptly, she was able to preserve choice
for members while maintaining fiscal accountability for health
plans. Director James firmly believes that her action was in
the best interests of the FEHBP program and the more than 8
million employees, retirees, and family members who depend on
it for their health care coverage.
I'm also pleased to report progress toward implementation
of the valuable addition to the Federal benefits package that
will reduce out-of pocket costs for Federal employees. That's
the implementation of flexible spending accounts. OPM has
issued a request for a proposal for a third-party administrator
this fall. Bids are coming in this week. We expect the first
open season to begin in May and both health care and dependent
care accounts to be available in July 2003. After that, the FSA
sign-up season will be aligned with the health care open
season.
We will continue to work with other government agencies, as
well as private-sector and nonprofit organizations, to enhance
patient safety, improve quality and accountability, and
constrain costs in the health care system. OPM will strengthen
these efforts with the addition of greatly enhanced consumer
education in the coming year. We will work internally and with
health plans to make sure that the consumers we serve have the
information they need when they need it, that they understand
it, and that they make choices based upon it. The payoff for
this effort will be enhanced quality, more appropriate
utilization of services, and the adoption of healthy life-
styles and health care choices that will preserve and enhance
the health status of Federal employees, retirees, and their
families.
Again, thank you for this chance to discuss the
developments of the FEHBP program over the last year and to
provide some insights into our plans for the year to come. I'm
very proud of the steps we've taken, but because we recognize
how important the program is to the government as it seeks to
recruit and retain the work force we need to keep our country
safe and secure, we must do more. Director James and I, and the
OPM team, pledge to work even harder to maintain quality and to
control costs. We are committed to collaborate with you and
with our stakeholders to keep the program a model for employer-
provided health care coverage.
This concludes my summarized statement, and I'm pleased to
respond to any questions you or the other Members may have.
Thank you.
[The prepared statement of Mr. Blair follows:]
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Mr. Weldon. I thank you very much for your testimony.
You were here to listen to the testimony of the first
panel, Mr. Hoyer, and he spoke about his legislation to
increase the government contribution to FEHBP from 72 percent
to 80 percent of the weighted average of premiums and to raise
the cap on the share of premiums that the government can pay.
Has OPM estimated the cost of this legislation?
Mr. Blair. We have given initial review of what that cost
would be, and we've determined it to be $1.7 billion for the
first year, 900 of which will be mandatory spending for
annuitants.
Mr. Weldon. Thank you very much. That was very helpful.
Mr. Blair. We'd be pleased to provide you with the
methodology.
Mr. Weldon. Yes. I think I want to have my staff look at
that.
As you know, the committee held a hearing this spring to
examine cafeteria plans. Witnesses at that hearing told us that
cafeteria plans can make it easier for employers to recruit
prospective, well-qualified employees and retain good
employees, because they allow individual employees to maximize
the value of the benefits the employer offers. They are also
becoming more prevalent in the private sector.
Cafeteria plans can also be designed to allow employees to
use the government's contribution to pay for 100 percent of the
health care premiums, if they choose, which is certainly moving
above and beyond the direction Mr. Hoyer was speaking about.
Has OPM considered establishing cafeteria plans for Federal
employees?
Mr. Blair. We have considered it, sir, and we are actually
going about doing so in an incremental way. The first step in
this was a premium conversion which took place in January 2001.
The second step was the implementation of the flexible spending
accounts which we will see at the middle of next year.
I believe further legislation, if we want to move in that
direction, would be required; and we'd be happy to work with
you at reviewing and developing plans.
Mr. Weldon. Can you just give me an idea of what type of
enabling legislation you're talking about?
Mr. Blair. I think you--it depends on what benefits we're
talking about, and there are a whole wide range of benefits
that you can have under a cafeteria plan. We want to make sure
that the plans are contemporary, that they provide choice for
employees. At the same time we would want to contain costs, and
we would want to make sure that employees are using their
dollars wisely.
I think that we need to develop a set of principles on
which to proceed at first. I think that the first two options
that I've described regarding premium conversion and FSAs are a
good start, but we need--we can and we would like to review
different options as well.
Mr. Weldon. Several witnesses at today's hearing will
criticize your decision to allow APWU to establish its
consumer-driven option. They say it will create adverse
selection, which, of course, is one of the issues that is
constantly brought up--medical savings accounts as well.
How do you respond to this criticism?
Mr. Blair. I think adverse selection is something we should
always guard against. The new APWU plan specifically asked for,
when she asked for new and innovative plans--there is a trend
in the industry now. We certainly don't want to stifle
innovation at a time in which we see double-digit increases in
our health benefits premiums.
With regards to adverse selection, these are things that we
can watch out for in our oversight of the program. We would not
have adopted the consumer-driven plan if we thought it would
lead to adverse selection. That said, if the trends show over a
period of years adverse selection is taking place, we have
options available to us to help us contain and restrain that
from happening.
Mr. Weldon. Could you share with the committee what some of
those options would be?
Mr. Blair. Every year we send out a call letter in which we
ask the carriers to come back to us with proposals as to what
the benefit structure should look like. If we see trends
developing in which adverse selection is taking place, this is
the time in which we can nip this in the bud, so to speak, in
which we can make sure the plans are not going in that
direction and make sure that adverse selection is minimized.
Mr. Weldon. Can I get your assurance that you and OPM are
willing to work with the committee if issues of adverse
selection arise?
Mr. Blair. Certainly, sir. Adverse selection is something
that we don't want to see arise at all. It impacts negatively
on the plan. It increases overall cost at times and is not good
for employees. So we will be happy to work with you. We are a
stakeholder and we certainly share your concerns about that.
Mr. Weldon. I am pleased to recognize the ranking member
for questions.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
Mr. Blair, thank you for your testimony and please extend
my regards to Director James, if you would.
You indicated in your statement that the Director had
initiated the comprehensive outside audit to review mandates of
anticipated plans over the past decade so that you can inform
Congress about the cost of mandated health care services.
Could you tell us who is conducting the audit and when will
it be completed?
Mr. Blair. The Hay Group is conducting that audit. We
anticipate it to be completed shortly, probably around the
first part of the year.
Mr. Davis of Illinois. Do you anticipate that the audit
will report health benefits or savings that the plan
participants may have derived from these mandated----
Mr. Blair. I have not seen a draft report yet, so I really
couldn't report on what we anticipate in that.
Mr. Davis of Illinois. Earlier this year OPM announced that
the FEHBP premiums would increase 11.1 percent for 2003. You
stated that the increase was more than 2 percent better than
last year's 13.3 percent increase.
Were any benefits cut to achieve the reduction and, if so,
which benefits were they?
Mr. Blair. To the best of my knowledge, we had no
substantial change in the benefit packages this year, and as a
matter of fact, we also urged all of the carriers to also start
covering colon cancer screenings as well.
Mr. Davis of Illinois. So you were able to achieve this
reduction without reducing benefits?
Mr. Blair. We were able to minimize the increase without an
across-the-board reduction of benefits.
Mr. Davis of Illinois. Which I think is indeed commendable.
You also stated that the Director's strategy in reducing
premiums paid tangible dividend in 2003 by saving taxpayers and
plan participants almost $1 billion.
Now, will these savings translate into expanded benefits or
better quality health care for plan participants?
Mr. Blair. It was a concern that our package was kept
level. I think you will see the same level of benefits as you
did last year, just a lower rate of increase than what we saw
last year.
Mr. Davis of Illinois. So we actually expect that the level
of care is going to remain pretty steady, that the individuals
will not experience any care reduction or difficulty in
accessing benefits?
Mr. Blair. There may be some benefit reductions in one of
the 188 plans that are offered. That said, there were no
benefit reductions across the board. As a matter of fact, we
also expanded care in the areas of colon cancer screening, so I
think that we got a better bang for our buck this year.
Mr. Davis of Illinois. So individuals, as they choose
different plans, they may look at the options that exist there
and make determinations, but you are confident that across the
board they are actually going to be better off?
Mr. Blair. I do not want to say ``better off.'' They should
be at the same position that they are today, currently. There
may be some cost increases.
I was looking at my plan under Blue Cross/Blue Shield, and
the prescription pharmacy benefit, the mail order, did increase
in price from, I think, $25 to $35, so that is an instance
where you may be paying higher amounts for a 90-day
prescription. That said, the benefit that we saw--we said we
saw tangible benefits of $1 billion--was in terms of a
comparison to the overall average increase nationwide of about
15 percent.
Mr. Davis of Illinois. And you indicated that the new
developments in the FEHBP were proposed to contain costs while
maintaining quality and choice in the program?
Mr. Blair. Yes, sir.
Mr. Davis of Illinois. I understand the notion that
consumer-driven plan options contain costs by exposing plan
participants to more of the costs of the health benefits and
services they use, like prescription drugs, where the costs may
go higher than what they were.
How will we be able to guard against the negative effect of
adverse selection in consumer-driven plan options?
Mr. Blair. What you are going to have to do is see if
trends develop over the first few years. This is a new plan
being offered by APWU, and we expect to see enrollments of
anywhere from 2,000 to 10,000, and that is in a universe of 4
million enrollees. So keep that in mind. We will study that
closely because if you start see trends involving adverse risk
selection or adverse selection, we can monitor that and help
adjust that through our annual call letter proceedings.
No one wants to see adverse selection develop in this, but
we are also seeing industry trends in which new plans like the
APWU and plans similar to that are being offered to private-
sector employees. This may appeal to some. It also appeals to
people who because of--who may be shopping because of price,
and it does provide a comprehensive benefit at less cost to the
enrollee. So this is exactly the kind of innovation we are
looking for.
We certainly would not want to stifle it from the
beginning; rather, we would want to encourage it. And we want
to encourage such kinds of innovation.
That said, part of the role of OPM is to monitor and
oversee the program, and we will be very vigilant that the
program operates and that it doesn't lead to overall program
cost increases for either the Government or enrollees.
Mr. Davis of Illinois. Do you think they will look for a
decrease in cost as they develop this plan, if that's what they
were trying to do?
Mr. Blair. I think they were trying to develop an
affordable plan in looking at what the industry trends were,
and in looking at that, they saw that this was the kind of plan
that had not yet been offered in the FEHBP.
One of the hallmarks of the FEHBP is choice. We want to
provide as many choices as possible, and if the industry is
developing new and innovative products like this, we certainly
should offer it to our enrollees.
Mr. Davis of Illinois. Thank you very much.
Mr. Weldon. I want to thank Mr. Blair, and Mr. Flynn for
accompanying him. You didn't have to answer any questions which
I guess is good news. We appreciate all of your testimony and
we look forward to working with you in the years ahead on these
very important issues, and you are dismissed.
Before we bring up the third panel, I have to add some
chairs to the table, so we will have a very brief recess here
and then we will call those witnesses up.
I apologize to our witnesses for the crowded conditions at
the table.
I want to extend a welcome to or third panel. Each of these
witnesses has a great deal of experience with the FEHBP and has
a great interest in making sure that the program is successful.
Mr. Walt Francis is an economist and the author of the
annual Checkbooks Guide to Health Plans for Federal Employees.
He is a widely acknowledged expert on FEHBP and has testified
before this subcommittee in the past.
Mr. Carroll Midgett is the chief operating manager of the
American Postal Workers Union. The APWU's consumer-driven
option is one of the most important developments in the FEHBP,
and I look forward to hearing more about it.
Ms. Colleen Kelley serves as president of the National
Treasury Employees Union. Founded over 55 years ago, NTEU
represents some 155,000 workers in 24 government agencies,
making it the largest independent nonpostal Federal employees
union.
Mr. Charles Fallis serves as president of the National
Association of Retired Federal Employees. We welcome you to
your first testimony before this subcommittee. Your
Congressman, Mr. Davis, did a very nice job, saying kind words
about you, and I am looking forward to your testimony as well.
Mr. Bobby Harnage is the president of the American
Federation of Government Employees. AFGE is the largest Federal
employee union, representing 600,000 Federal and D.C.
government workers nationwide and overseas.
Mr. Greg Scandlen is a consultant on health policy and is
currently working with the Galen institute of Alexandria, VA.
He has written widely on health care issues and is a recognized
expert.
As you all know, it is customary for the committee to ask
the witnesses to take the oath. Would you all please rise and
raise your right hands. I understand we have an expert with
APWU, and we will swear you in as well.
[Witnesses sworn.]
Mr. Weldon. Let the court reporter annotate that all
witnesses responded in the affirmative.
It is usually customary to proceed beginning at the
chairman's left, so we will begin with Mr. Francis, if you
would like to give your testimony. I guess you will have to
hand the mic around so the court reporter can clearly hear what
you are saying. I think you can probably reach that OK.
You may proceed with your testimony. The committee has
received your written comments and would ask that you each
summarize your verbal testimony in 5 minutes.
You are recognized for 5 minutes, Mr. Francis.
STATEMENTS OF WALTON FRANCIS, ECONOMIST AND AUTHOR; CARROLL E.
MIDGETT, CHIEF EXECUTIVE MANAGER, AMERICAN POSTAL WORKER'S
UNION; MICHAEL SHOWALTER, VICE PRESIDENT, DEFINITY CARE;
COLLEEN M. KELLEY, PRESIDENT, NATIONAL TREASURY UNION; CHARLES
L. FALLIS, PRESIDENT, NATIONAL ASSOCIATION OF RETIRED FEDERAL
EMPLOYEES; BOBBY L. HARNAGE, SR., PRESIDENT, AMERICAN
FEDERATION OF GOVERNMENT EMPLOYEES; AND GREG SCANDLEN,
CONSULTANT
Mr. Francis. Thank you very much, Mr. Chairman, members of
the subcommittee.
I want to rain a little bit on the parade today. I think
the FEHBP is a program in deep trouble. It's got a great
market-driven model, but there are too many leaks, too many
places where consumer choices aren't playing the role they
should, and things are getting worse. I am going to use two
major examples to make this point. One of them has to do with
retirees on Medicare.
There are about a million and a half of those people. Their
situation is roughly as follows: As a practical matter, they
are forced to sign up with Medicare Part B upon turning age 65.
Next year, that is about a $1,400 premium. If that couple
enrolls in Blue Cross Standard Option, which has about a $2,300
premium next year, they are going to pay--in fact, I gave you
the wrong number; it is a total of about $4,000 in premiums
they will pay next year. That is incredibly expensive, and
nobody should have to pay that much for health insurance, but
that is what they do, and the overwhelming majority of them
sign up for that plan.
What do they get in return? They get unlimited utilization
of hospitals, unlimited utilization of doctors, unlimited
medical tests all for free. What does that mean in practice? It
means they overuse medical care. I have a friend who got four
MRI scans last year. He paid zero for those four MRI scans. I
don't think he would have had four if he'd had to pay a couple
hundred bucks, but what the heck, it was free.
So we have--there is no employee choice here. There is no
choice among plans that's worth talking about in this context.
There is certainly no consumer driven--you know, do I really
need this health care benefit? Is there a cheaper alternative,
etc? Just have an inflation.
It is a vast expense, and it is an expense that falls not
just on those retirees, it falls on all the employees in the
program because they have the same risk pool; it falls on the
Medicare program and on the taxpayer.
And why do we have this problem? Because the Medicare
statute--and you've got a committee, a sister committee, that's
at fault here--the Medicare statute essentially penalizes
anyone who postpones buying Part B no matter what their
circumstance. You have to make an irrevocable decision as a
financial matter at age 65. You've got a 20- or 25-year life
span ahead of you; a prudent person will purchase it, and 90-
plus percent of them do.
There is no reason at all there has to be this 10 percent
of your pay for failing to join Medicare Part B if you are
covered by a comprehensive employer-sponsored plan. And it
would take the stroke of a pen to change one sentence of the
Medicare statute to let people elect to stay, for example, in
the Blue Cross plan that they were in before they turned 65. It
was good enough for 3 million employees. It was good enough for
them in the first 10 years of their retirement. It is only when
they turn 65 that they are forced to give up the regular Blue
Cross plan, and it is all still in the Standard Option, mind
you, but now a different set of benefits kick in. Yeah, they
save that $20 a doctor visit and all that, but they are having
to pay $1,400 a year for the privilege. And it is in no one's
interest to force that on them.
Relatedly, the Medicare statute forbids any health plan
from paying any part of the Medicare Part B premium. The
Federal Government, or I should say, the OPM, is the only
retiree health plan sponsor in America that has this
restriction placed on it. There is just no sense to that.
There ought to be options in this program where people can
elect not to take Medicare Part B or to take it as a subsidy
and be willing to pay something out of pocket to preserve that
choice mechanism that several have spoken so eloquently about.
My second example is the savings from prudent plan
selection. Blue Cross Standard Option is the predominant plan
in this program today. In the D.C. metro area there are six
plans that offer significant savings in premium costs over Blue
Cross Standard Option. They include GEHA Standard, Mail
Handlers Standard--I am forgetting one or two--and several
HMO's.
I calculate that if--and I am taking the six-plan average--
if an employee elects to join one of those plans instead of
Blue Cross Standard, there is about a $1,900 premium saving. On
a before-tax basis, $1,000 of that goes to the government and
$900 for the employee, which is one way of saying that the
government keeps most of the reward for my frugal plan choice.
What's worse, with my premium conversion in place, the
reality of it is that the government saves $1,300 if I move to
this less expensive plan, and I save only $600. So building in,
in recent years, is a systematic reduction in the incentives
created for prudent plan selection. These are easy things to
fix.
In the case of the employees, there was some talk earlier
today of premium reform and increasing the employer's share, an
80 percent payment perhaps, or even paying 100 percent. The
right model is a model in which the Federal Government pays 100
percent of the premium up to a given level which might be the
75th percentile of the all plan average, OK--that gets you the
same average 75 percent contribution we have now--but it does
two important things.
One is it gives employees 100 percent of the savings from
choosing a less expensive plan.
No. 2--and I am delighted to see a number of union members
in the audience today, because there are 5 percent of the
Federal work force who choose not to have any health insurance
coverage at all because it is too expensive. I think this is--I
won't say the adjective in public. If we were paying 100
percent of the premium for a frugal plan, for a low-cost plan,
then those people, many of whom I know and I've counseled,
would feel they could afford to buy health insurance, and we
would eliminate that terrible gap and that risk exposure.
Let me just conclude if I may--and by the way, that can be
done in a budget-neutral way or with some sweetening of the
pot. It doesn't really matter; it certainly doesn't have to
hurt anyone.
There are many other reforms needed. We need more plans to
offer. There is adverse selection in this plan. It is
significant. The reason Blue Cross High Option went out of the
program was adverse selection. I think it is a systematic
problem, and it can be reduced.
Final point, many conservatives, Heritage Foundation and
others, have extolled the virtues of this program as a model
for the Nation; a few liberals have. Bill Bradley, 2 years ago,
offered a solution based on a FEHBP-type model. I was pleased
as punch last Sunday to hear Al Gore on national television
saying he was going to develop a health care plan based on the
FEHBP model.
I think there is a wide agreement that there is a valuable
model here across the political spectrum. What is incumbent on
this Congress and on this committee and on the Ways and Means
Committee in particular is to take those reform steps that will
improve the function in this program for all concerned. We all
gain when employees make frugal choices. It reduces the premium
for everyone,
and to the taxpayer, and there is no reason not to make those
improvements.
Thank you.
Mr. Weldon. Thank you, Mr. Francis.
[The prepared statement of Mr. Francis follows:]
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Mr. Weldon. Our next witness is recognized. Did I pronounce
your name correctly? Is it Midgett?
Mr. Midgett. Mr. Chairman, members of the subcommittee and
other individuals and organizations interested in the health
benefits of postal and Federal employees and retirees, I am
testifying before you today on behalf of Mr. William Burrus,
president of the American Postal Workers Union, its 260,000
members, and enrollees of the APWU health plan. We are truly
honored by this invitation to testify on the subject of recent
developments in the Federal Employees Health Benefits system.
The APWU health plan covers 120,000 people and has been
part of the FEHBP program since its inception over 40 years
ago. We are extremely proud of our record of providing
protection and service to our members and their families
throughout these many years. In your letter of invitation, the
subcommittee has specifically asked us to address the decision
to offer a new consumer-driven option for 2003 and the
evolution of that product's development, so that will be the
focus of my testimony today.
Although the APWU health plan is still today one of the
largest health plans participating in the FEHBP program, the
membership under its Single High Option has been declining
steadily, though not dramatically, over recent years. In order
to remain competitive over time and continue to be a benefit to
the union that sponsors it, the plan determined that it needed
to explore a new offering in addition to its existing High
Option. Observing membership trends among other FEHBP fee-for-
service plans convinced us that only marginal results can be
achieved by introducing a Standard Plan Option with a similar
benefit designed to our High Option, but with higher
deductibles and catastrophic limits in exchange for a lower
premium.
We began looking for alternative benefit designs to
evaluate health insurance products that might be attractive and
price competitive for members of the APWU who are not being
drawn to our High Option for whatever reasons. Over the past
year we began following a new concept in the health care
industry called consumer-driven health care. It seemed to be
enjoying increasing popularity in the private sector.
We felt that this product had features that would be
attractive to members of the American Postal Workers Union and
to others as well. It was certainly innovative and the
departure from any benefit design offered through the FEHBP
program. Among the features we found attractive were the
concept of the personal care account, a first-dollar, 100
percent benefit almost entirely under the consumer's control,
unused benefits which could be rolled over into subsequent
years.
We also liked the underlying concept of placing the
consumer in control of their health care decisions while
providing incentives for wise decisionmaking, and furnishing
the consumer with the tools and resources necessary to enable
them to make effective decisions.
Simply, this design puts the onus on the individual to shop
wisely for health care services, rather than the insurance
company, to try to manage their care for them. The result is a
new level of consumer freedom that rewards the consumer for
making wise, cost-conscious decisions.
Clearly, the APWU health plan could not develop claims
processing systems and a full range of Internet-based consumer
resources to self-administer this type of product in so short a
time and, therefore, had to seek a firm capable of
administering the product for us. With the assistance of our
actuarial consultants, we issued a request for proposal to
firms already experienced in offering consumer-driven health
care. After thorough analysis of bids, we selected Definity
Health of Minneapolis, Minnesota, as our partner, based on a
combination of factors including administrative costs, product
flexibility, and education assistance.
A collaborative effort between the APWU health plan, its
actuarial consultants, Definity Health plan and, later, staff
at the U.S. Office of Personnel Management refined and
customized the offering of APWU's proposal and introduction
into the FEHBP program.
In the APWU health plan's consumer-driven option for 2003
there are four components. First, to ensure that everyone has
access to necessary preventive care, there is an in-network
preventive care benefit which covers specified routine
examinations, immunizations, and screenings at 100 percent and
does not count against the second component, the personal care
account, or PCA.
The PCA really sets the consumer-driven option apart from
other conventional health plan designs. Under our plan, the PCA
is used to pay for the first $1,000 for an individual
enrollment, or $2,000 for a family enrollment, in full for
covered services including dental and vision care up to
specified limits. Any unused PCA benefits may be rolled over
into the next year.
If the PCA is exhausted, consumers pay a member
responsibility of $600 for an individual or $1,200 for a family
enrollment. Once the member responsibility is met, the
traditional health coverage begins. This traditional health
coverage is a PPO plan with cost-sharing and catastrophic
protection. Extensive Internet-based tools and resources are
offered to consumers to help them make wise cost and quality
decisions about their health care. The same tools and resources
are also available via the telephone as well.
The APWU health plan's consumer-driven option offers
consumers more flexibility and choices in managing their health
care and also helps contain health care costs by involving the
consumer in the health care equation through a comparative cost
awareness.
In soliciting health plan proposals for 2003, the Director
of OPM specifically has plans to come to the table with
innovative ideas that will keep health care costs affordable
while offering a benefit program that will be attractive to
current employees and retirees, as well as prospective Federal
employees, which is consistent with the President's vision of
health care, patient-centered health care, choice, and quality.
The APWU health plan believes that its decision to offer
this new consumer-driven option is absolutely appropriate and
timely in addressing these objectives and in providing an
innovative, new, cost-effective choice for our existing and
prospective members.
I have brought with me today Michael Showalter, the Vice
President of Product Development from Definity Health care. At
this time, we would be happy to respond to any questions that
committee members might have. And thank you for your time and
interest.
Mr. Weldon. Thank you very much.
[The prepared statement of Mr. Midgett follows:]
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Mr. Weldon. We will now hear testimony from Ms. Kelley. You
are recognized for 5 minutes.
Ms. Kelley. Thank you, Chairman Weldon, Ranking Member
Davis. NTEU very much appreciates the invitation to appear
before you today to discuss these important issues surrounding
the FEHBP plan.
The average 11 percent premium increase for 2003 marks the
fifth year in a row for steep increases in the plan. To the
extent that Federal employees are finding the FEHBP
increasingly not affordable, and prospective employees consider
this, it is an issue that we all must deal with and we cannot
afford to ignore.
While FEHBP plans are increasing their premiums, they are
often also increasing their copayments and deductibles,
limiting services, dropping participating physicians and
increasing prescription drug copays. In addition, HMOs are
dropping out and limiting their offerings in certain parts of
the country.
While health insurance premiums have risen dramatically in
the private sector, private-sector employees continue to pay,
on an average, considerably less than Federal employees for
their health insurance in terms of both percentage of premiums
that they pay, as well as their monthly cost.
The Kaiser 2002 Annual Survey of Employer Health Benefits
reports that the average private-sector employee pays $38 per
month for single coverage and $174 a month for family coverage.
In 2003, a Federal employee choosing Blue Cross/Blue Shield
Standard Option, Self Only, will pay $98.93 per month, instead
of the $38 paid in the private sector; and the Federal employee
choosing Blue Cross Standard, Family coverage, will pay $227.98
a month.
This sharp contrast continues when we look at the
percentage of the premiums that employees pay. As has already
been discussed, Federal employees pay, on the average, 28
percent of their health insurance premiums. And the Kaiser
study points out that, on average, employees in the private
sector pay only 16 percent of the premium for Self Only
coverage and 27 percent for Family coverage.
NTEU supports H.R. 1307, introduced by Congressman Steny
Hoyer and cosponsored by 94 House Members in the 107th
Congress, seeking to increase the government's coverage to an
average of 80 percent. NTEU hopes that this subcommittee will
consider the bill when it is reintroduced next year and place
the Federal Government on a somewhat more level playing field
with private-sector employees, both for current employees and
for potential employees of the Federal Government.
NTEU worked very closely with the last administration to
put the premium conversion in place to permit employees to pay
their FEHBP premiums with before-tax wages. The average Federal
employee saves $450 in take-home pay. This was a very positive
development for current and for potential employees. NTEU is
also pleased that the current administration will make flexible
spending accounts available to the Federal work force in late
2003, allowing employees to set aside a specific amount of
money to pay health care and independent care expenses on a
pretax basis. The savings can be considerable for employees.
Unfortunately, retirees are not currently permitted to
participate in either program, and NTEU supports extending
these key health care cost-reducing benefits to retired Federal
employees.
On the issue of MSAs, as NTEU has testified in the past, we
have serious concerns about these or similar insurance products
entering into the FEHBP. These products have the potential to
add considerable cost to the Federal health program. They tend
to attract younger, healthier enrollees, who have minimal
health care, with cash. Those with higher utilization levels
tend to be left in the traditional health offerings, and as a
result, the premiums for those traditional health plans rise.
While I recognize that the new APWU plan is not an MSA, its
introduction into the FEHBP and its potential impact on future
rates is cause for concern. Like MSAs, this consumer-driven
plan is expected to be most attractive to younger and healthier
FEHBP enrollees. The impact of this plan on future rates is
obviously unknown at this time, but NTEU wants to make the
subcommittee aware of our concerns, and we will be watching the
usage and the growth in this plan carefully.
Finally, I want to point out that one of the largest
factors in FEHBP premium increases has been prescription drug
costs. The patchwork of prescription drug purchase arrangements
in the FEHBP contributes to these increases. NTEU believes that
OPM must negotiate discount prescription drug rates for the
FEHBP that are similar to those available under the Federal
supply schedule and that are used by the Veterans
Administration hospitals.
As you know, in 1999, one small FEHBP plan attempted to
purchase its drugs from the Federal supply schedule.
Unfortunately, the plan which is SAMBA, the Special Agents
Mutual Benefit Association, was halted when three major
pharmaceutical companies refused to sell drugs to SAMBA if they
were permitted to purchase drugs from the FSS. The SAMBA pilot
had been estimated to save $2.4 million a year, savings that
would have flowed to Federal employees, to retirees, and to
taxpayers.
The idea behind the SAMBA pilot continues to merit
exploration. At a minimum, NTEU believes that OPM should be
encouraged to study the merits in negotiating discount
prescription drug rates for the FEHBP.
Again, NTEU appreciates this opportunity to appear before
you, and we look forward to working with you and the 108th
Congress on this issue.
Mr. Weldon. Thank you very much.
[The prepared statement of Ms. Kelley follows:]
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Mr. Weldon. Mr. Fallis, you are recognized for 5 minutes.
Mr. Fallis. Chairman Weldon, Ranking Member Davis, I
appreciate the opportunity to come before you today and speak
on behalf of the 400,000 members of NARFE.
We in NARFE were disturbed by the Office of Personnel
Management's announcement that the FEHBP premiums would
increase by an average of 11 percent next year. However, we
understand that costly rate increases are not unique to our
plan and that other systems are experiencing even greater
spikes. The reality is that most of the retirees average
monthly COLA of $26 in 2003 will be consumed by these premium
increases which will take effect next year, and that will leave
many of our members and many of our retirees in dire straits.
To lessen the burden of the premium increases, section 125
of the Tax Code allows employers to permit their employees to
pay for health insurance with wages excluded from taxes. This
premium conversion benefit was granted to executive branch
employees in October 2000 and was extended also to legislative
branch employees in January 2001. Unfortunately, Federal
annuitants were excluded from the program since the Tax Code
was less clear on making premium conversion benefits available
to retirees. As a matter of equity, however, Federal annuitants
must be accorded this same relief.
NARFE welcomed the premium conversion legislation
introduced by Representative Tom Davis and Senator John Warner
in the 107th Congress. This legislation, if passed, would have
meant about a $405 savings per year for the retiree. We urge
you, Mr. Chairman, and you, Mr. Davis and the members of this
subcommittee, to renew your support for premium conversion
legislation and seek its speedy consideration and approval in
the 108th Congress.
NARFE has made premium conversion a top priority. Because
of the burden borne by the Federal annuitants and employees,
NARFE supports and will continue to support legislation
introduced by Congressman Hoyer that would increase the
government contribution from 72 to 80 percent of the weighted
average of all planned premiums.
NARFE is disturbed by the decisions of the American Postal
Workers Union and the OPM to offer a so-called customer- or a
consumer-driven option for 2003. Medical savings accounts,
which NARFE strongly opposes, are plans that combine a high
deductible catastrophic insurance policy with a tax-exempt
savings account dedicated for health expenses. Although the
personal care account component of the APWU plan is not tax
exempt and provides credits toward health care instead of cash,
there is little or nothing to distinguish this option from an
MSA.
These expensive financing schemes can be attractive to the
healthier enrollees since the plans reward them with either
increasing cash balances or extra coverage carried forward in
subsequent years if they don't go to a doctor or if they don't
go to a hospital. As a result, healthy individuals are siphoned
into the new option and premiums, and the comprehensive plans
they left will inevitably be increased. Consequently, MSAs and
related plans could circumvent the fundamental principles of
group health insurance by dividing the healthy and the sick
into separate coverage options.
We are hopeful that future announcements do not include
using new health reimbursement accounts with high deductible
health insurance as a proxy for offering MSAs. Likewise, while
we support making flexible savings accounts available to
Federal annuitants, we are concerned that they could also be
used as an MSA substitute if legislation is enacted to allow
FSA balances to be rolled over.
It is simply a mistake to transform a successful group
health system where risk-sharing keeps health insurance
affordable and predictable throughout life to an every-man-for-
himself scheme where premiums and out-of-pocket expenses are
reasonable only for healthy participants. For 42 years the
Federal Employees Health Benefits program has minimized costs
and provided a wide choice of comprehensive health insurance
plans to nearly 9 million Federal employees, retirees and their
families.
NARFE stands ready to work with all parties to find ways
and means of containing out-of-control health care costs, but
without sacrificing quality, access and coverage and without
eliminating risk-sharing in this largest group plan
environment.
Thank you, Mr. Chairman.
Mr. Weldon. Thank you very much, Mr. Fallis for your
testimony.
[The prepared statement of Mr. Fallis follows:]
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Mr. Weldon. We will now hear from Mr. Bobby Harnage. You
are recognized for 5 minutes, sir.
Mr. Harnage. Thank you, Mr. Chairman and Congressman Davis.
On behalf of the more than 600,000 Federal and D.C. government
employees our union represents, I thank you for the opportunity
to testify today on the problems plaguing the Federal Employee
Health Benefit Program.
Because of the ability of the insurance companies to use
their financial and political power to influence the decisions
of the Office of Personnel Management, both taxpayers and
Federal employees, including retirees, pay far too much for the
benefits they receive under the program. In addition, the
formula for determining Federal employees financial burden for
the program is too low. It undermines the competitiveness of
the entire Federal compensation package and contributes to the
government's ongoing problems in recruitment and retaining the
next generation of Federal employees.
The program, which covers almost 9 million active and
retired Federal employees and their dependents, is the Nation's
largest employer-sponsored health insurance plan. Although
politicians in recent years have touted FEHBP as a model health
care plan, its participants consider it anything but a model,
primarily because of rapidly increasing premium costs.
In 2003, the average premiums will rise by 11.2 percent.
This increase follows the pattern of the last 5 years, so that
over the past 6 years the average premium increased by 61
percent. These sorts of premiums have far outpaced Federal pay
increases, the cost of the living measured by the CPI, and
importantly, the rate of increase in health care spending
nationally.
Those who don't participate are also adversely affected by
these premium hikes. There are 250,000 Federal employees who
are eligible to participate in the program, but remain
uninsured; and the reason commonly cited by them is the cost.
The terms offered to Federal employees under the program are
substantially worse than those offered to employees of other
large unionized employers both in the public and private
sector.
While the Federal Government pays just 72 percent of the
weighted average premium, but not more than 75 percent, large
employers in the private sector and several large States pay at
least 80 percent and often 100 percent of the premiums
according to the recent data published by the Bureau of Labor
Statistics and the Kaiser Family Foundation.
Employees of the U.S. Postal Service bargain collectively
over their employer's share of the cost. The Postal Service
pays 85 percent of the premium, while postal workers pay only
15 percent. The FDIC, a Federal agency that regulates the
banking industry, also negotiates with their employees over
health insurance and pays 85 percent on the premium as well. In
both cases, the employer does so not because of the
overwhelming power of the union but because it is a ``best
practices'' business decision to do so.
The time has come for the Federal Government to improve its
funding of the FEHBP and provide all Federal employees with a
better premium split.
In the 107th Congress, Representative Steny Hoyer and
Senator Barbara Mikulski have introduced legislation which
would have changed the financing formula so that agencies pay
approximately 80 percent on the premium. This legislation would
have improved the affordability of the program immensely.
Moving toward an average of 85 percent would have made the
program more affordable for Federal workers and their families.
It also would have been a smart response to the Federal
Government's much discussed human capital crisis.
Closing the gap between the Federal Government and other
employers in both the private-sector and public-sector area of
insurance would have gone a long way toward improving the
prospects of recruiting and retaining the next generation of
Federal employees.
AFGE strongly opposes OPM's decision in September 2002 to
grant carriers a permanent waiver from the cost accounting
standards. We support the position taken by the full House in
July 2002, when it refused to extend the CAS waivers for the
carriers. Considering the widespread and serious accounting
scandals that have emerged in the past year, along with the
extraordinary premium increases over the past several years, it
is imperative that standards be placed to make sure that the
government insurance carriers are prevented from passing on
illegitimate overhead costs to enrollees and taxpayers, which
has happened repeatedly in the past. The use of CAS would
simply ensure uniformity and consistency in the measurement,
assignment and allocation of the cost of the Federal
Government's contract with the carriers.
Indeed, the corporate accounting scandals that have so
shaken the American peoples' confidence in the Nation's
financial sector are the direct result of allowing firms to
make up their accounting rules as they go along. The CAS are
already used successfully by the agencies responsible for the
administration of TRICARE and Medicare. In fact, many of the
same carriers who participate in those programs comply with CAS
are also FEHBP contractors.
There is only one particular carrier that is opposing the
use of CAS, Blue Cross/Blue Shield. Other carriers, Federal
employee unions and the OMB support using CAS to ensure that
all carriers submit honest bills. Only Blue Cross stands in the
way.
Blue Cross trotted out arguments in defense of its
position: FEHBP is not a large part of its business, but that
is precisely why the CAS are so necessary. Carriers bill the
Federal Government for the costs they incur. However, absent
the application of CAS, administrations have no idea what
methods the carriers use to calculate those costs and whether
the carriers' bills are reliable. The CAS prevents carriers
from passing on to enrollees and taxpayers costs incurred by
the carriers from their non-FEHBP contractors.
Blue Cross/Blue Shield spokesmen also insist that it is too
expensive for the carrier to use CAS, but the cost of applying
CAS is an allowable cost that will be charged to the program.
In other words, ending the sort of accounting chicanery
practiced so ruinously by Enron and other firms would not cost
Blue Cross/Blue Shield a dime. And as has been the case with
defense contracting, university research contracting, Medicare,
TRICARE, and any cost-based reimbursement contract, the
application of the CAS standards would be a modest investment
that would yield significant dividends for taxpayers and
enrollees.
Mr. Chairman, I look forward to working with you and this
committee and other lawmakers within the Congress to help
reduce the cost to the taxpayers and the participants to this
program. I am sure it can be done if we make up our minds to do
so.
This concludes my statement. I thank you for the
opportunity to appear before the committee. I will be happy to
answer any questions the members of the committee may have.
Mr. Weldon. Thank you very much for your testimony.
[The prepared statement of Mr. Harnage follows:]
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Mr. Weldon. We will now conclude with Mr. Scandlen.
You are recognized for 5 minutes.
Mr. Scandlen. Thank you, Mr. Chairman. I am fighting a
cold, so please indulge me.
I appreciate the opportunity to come here. I am not
actually an expert in FEHBP. All of my work has been in the
private sector with business organizations, insurance companies
and the new innovations that are happening out in the world. I
know that the private sector certainly learns a lot of lessons
from FEHBP, and they watch it very closely. And my friends at
the Heritage Foundation, for instance, are touting FEHBP as a
model that the private sector should follow.
At the same time, I think it is worthwhile for the FEHBP to
be looking at what's happening in the private sector and
possibly learn from that as well. Education tends to be a two-
way street.
The most interesting thing that's happening out in the
world these days is a decisive move my employers toward
consumer-driven health care. In part this is due to the
disappointing track record of managed care and the backlash
that employees have had toward managed care and the
restrictions that have been placed on that. But it is also
interesting that it is sparked by the medical savings account
law that Congress passed in 1996. That law had many, many flaws
and weaknesses, and the products coming out of that law have
not been a huge success. However, one of the consequences of it
is to force people, H.R. executives, insurance companies,
benefit consultants, all sorts of people, to rethink the way
consumers relate to health benefits. And for the first time
ever, I think people are beginning to wonder whether consumers
are able to control more of their own resources, make more of
their own decisions.
Certainly we see that consumers did not care for having
insurance company executives make major medical decisions for
them. That is the underlying cause of the managed care
backlash. If we are not doing that, what are we going to do?
And, increasingly, I think people are coming to the conclusion
that many health care decisions could be made by the consumer
him- or herself if he has control of the resources, which means
money.
The IRS issued a decision in June creating what the service
calls a ``health reimbursement arrangement.'' It's profoundly
important. I argue it is every bit as important as the
exclusion that the IRS issued 50 years ago, allowing employer-
sponsored health insurance programs to be free of taxes for the
employee. The HRA decision is similarly important, only it
applies to cash accounts and puts cash accounts on an equal
footing with the insurance products.
We do not yet know all the consequences of this, and there
is a whole lot of thinking going on even as we speak on exactly
what it means and exactly what the optimal product designs are
going to be. One example is certainly the program that the
postal workers have offered through FEHBP, and that is very
interesting and a lot of companies are following that model.
It's not the be-all and end-all of what could be done with
this. However, some companies are looking at carving out
prescription drug benefits for an HRA approach, so you have a
deductible that applies to prescription drugs and cash accounts
so people can pay directly up to some level. Others are
increasing copayments or coinsurance rather than having an
across the board deductible.
We are entering an era of just vast innovation and we don't
yet know what the best balance is going to be between a cash
account and an insurance product.
There are a lot of other things that the FEHBP could learn
from the private sector also; how to preserve an indemnity
option is certainly one of them. Very few insurance companies
are actually licensed and active in 50 States. Some are active
in all but two or three States; others prefer a regional
approach; others may be a single-State approach. The
requirement that a private indemnity carrier be available in
all 50 States simply kills your indemnity option. There are
very few companies that can comply with that.
And the same requirement obviously does not apply to HMOs.
HMOs can be offered only in those areas where they're active. I
would suggest that if you want to maintain a private indemnity
option, that the same approach should be applied to HMOs.
There are a lot of other things. I think medical savings
accounts are not just for the healthy and wealthy, and all the
empirical evidence and all the research says just the opposite
actually, that the wealthiest people prefer HMO coverage and
the healthiest people prefer no coverage at all. Medical
savings accounts are good for everybody, and if that is the
case, I would love to continue meeting with you in the future.
Thank you.
Mr. Weldon. Well, thank you, Mr. Scandlen.
[The prepared statement of Mr. Scandlen follows:]
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Mr. Weldon. And I thank all of our witnesses. We certainly
had a fair degree of diverse opinion, and hopefully we can
explore some of these opinions more in the question-and-answer
period.
Let me just recognize myself first for questions. And
beginning with you, Mr. Francis, understanding that I have some
experience in the arena that you are talking about where people
would get a very good Medicare supplemental and then
essentially throw all cost cautions to the wind--and indeed, I
saw it on almost a daily basis when I practiced medicine--the
issue that you brought up I thought was a very good one.
Understanding that we have always, every Congress, a very
full plate and it is a very difficult process to get any piece
of legislation through, which was--if you read the Federalist
Papers, was the deliberate intent of the Founding Fathers--what
would you say if we had to reform one thing within the FEHBP,
or one or two things, what would you say are the highest
priorities that you would suggest for us?
Mr. Francis. I think one within your jurisdiction and one
in the other committee, but I would submit to you, sir, I do
not think there is any reason to think that the Ways and Means
Committee believes that some important principle is being
violated if the penalty on Medicare enrollment were not
automatic for people in a situation like Federal retirees.
I also want to be clear, I am not saying people shouldn't
be entitled to spend that $4,000 for Blue Cross and Medicare
but let's give them a few other options so they are not forced
to spend that exorbitant premium amount. I will call that my
No. 2 priority.
The No. 1 is in your control. And I want to really just
emphasize--let me use an analogy: If we had a program called
car stamps, sort of like food stamps, the way we run the FEHBP,
basically we say we will pay 75 percent of the cost of the car
up to some very high number. If we offered a program like that
for buying cars, maybe people wouldn't be buying Masaratis and
Ferraris, but they would be buying very expensive SUVs and
Cadillacs and Mercedes, because, after all, the government is
paying three-fourths of the cost.
If, on the other hand, we had a program that said we will
pay 100 percent of your car purchase up to the cost of a Honda
Civic, I think we would see a whole lot more Honda Civics and
nothing thereafter--a whole lot more Honda Civics bought.
OK, so the issue here is to provide much better first-
dollar premium coverage benefiting low-wage Federal workers and
retirees on a very strained budget, but at the same time
employees and retirees have a greater cost exposure for their
decision, if you will.
In other words, we can have our cake and eat it too, since
you do have legislation introduced along the line of premium-
sharing by the Federal Government, which could be very
expensive.
I think the OPM estimate of over a billion is right for
that particular bill. But, you know, you've got a session of
Congress, you've got Members on both sides who are interested,
and I think you have people around this table of every
persuasion interested in seeing some improvements made that
would both improve cost consciousness while improving the
program for low-wage and low-earnings employees.
Mr. Weldon. Does anybody want to respond to what he just
said, particularly from the unions? If not, then I will--Mrs.
Kelly.
Mrs. Kelly. Overall the concept of providing, whether you
call it a cafeteria plan, as you have, Mr. Chairman, or some
base plan, anything that's ever been proposed in this arena in
the past or has been discussed as a proposal talks about a flat
amount of money, and that any increases in that would come
through simple inflation. And one of the overriding concerns
for NTEU is that in any discussions about that which we're
willing to discuss anything to make the plan better, that our
concern is that it would need to be tied to medical inflation,
not to simple inflation, and if Congress were not willing to
provide the resources to make that happen, then we don't see it
as a viable plan after anything but a first-year try. So that
is an overriding issue for us in our discussion about this.
Mr. Weldon. That's not an unreasonable position at all. One
of the concerns, and I don't take this as a very serious
concern, but nonetheless it's one of the things that comes to
my mind, the issue of a number of Federal employees, it's been
cited at 5 percent, who elect no insurance because of cost
reasons I find very troubling, and certainly to go up to 100
percent of premium for a weighted average of whatever it would
be, 75 percent, has anybody raised any concerns that if we did
legislate that as an allowable option, that it would cause a
stampede of beneficiaries to go to the lower benefit package?
And maybe Mr. Scandlen, who's familiar with the private sector,
can comment on this.
I don't personally think it would. I think consumers are
much more savvy, and they understand the health benefits, but
has that complaint been raised at all? Do any of you have that
type of concern?
Mr. Scandlen. I think the private sector is going through
very much a similar process. Many employers have in the past
done a percentage of premium, and they are beginning to move
away from that to a fixed contribution, as Walt suggested. We
don't have empirical evidence yet about what the consequences
are; however, I think there's also--employers are also
increasing choices, and employers have been lagging behind the
Federal--the Federal program in terms of the variety of
choices. So I think one of the things that happens is increased
choice at the same time they fix their contribution level, and
I expect that employees are going to be a lot happier in that
situation than they have been.
Mr. Weldon. I see my time has expired. I'm happy to
recognize the gentleman from Illinois.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
Mr. Francis, I was intrigued with your opening comments. Is
it your position that copayments or copay might have more
impact or influence on usage and ultimate costs than premiums?
Mr. Francis. Yes, sir, I do believe that's the case.
There's an immense amount of research out there on the
influence of let's call it cost-sharing--it could be
coinsurance, it could be deductibles, it could be copayments--
on--on reducing health care costs. In fact, I used in my
testimony a recent study by the Rand Corp. on prescription drug
cost-sharing. They studied some methods used in the private
sector that are very similar to those used in the FEHBP plans.
That shouldn't be surprising because these plans evolve with
the private sector, and it turns out that these several tier
arrangements for prescription drugs have dramatic effects on
how much people spend on prescription drugs, and they're not
perverse effects. I mean, the--the issue is you want people to
think twice whether they buy, for example, that $100-a-month
Cox inhibitor for their arthritis or that $10-a-month one, and,
you know, if they have to have the $100 one because of side
effects, so be it, but--but they will be more frugal somewhere
else.
Yeah. One could probably--I won't go through all the
examples. Yes, huge effect from copayments from coinsurance,
and that's why I'm so concerned about this 100 percent
wraparound for people with Medicare because we're--we're not
only making it more expensive for the program because they'll
tend to overutilize, but we're also denying those people
themselves the choice of having a greater mix of plans to let
them sort of fine-tune their willingness to pay with their
premium cost.
Mr. Davis of Illinois. Mr. Fallis, you were here and you've
heard Mr. Francis' comments. How do you respond to those and
the initial comments that he made that the FEHBP was in deep
trouble? How do you respond to that from the vantage point of
your membership?
Mr. Fallis. Well, I listened to that, and that could very
well be true, but my real concern is our members and our
elderly retirees who have paid into this system since it began,
and I'm typical of that. I began paying FEHBP premiums in 1960
when this program was--was instituted, and for 42 years I've
paid premiums, and when I began, I was 33 years old, and I was
young and healthy and robust, but I still paid that premium
because I knew that someday I would be elderly and less
healthy.
And I am opposed to any plan that we put into effect with
FEHBP that will change the rules in the middle of the game
after 42 years and leave elderly retirees hanging twisting in
the wind. I know that if--if we use all kinds of changes here
to siphon off the young and the healthy, and I've heard all the
comments on this, but when you're left, when they leave one by
one, we finally are left with a--with a risk pool of elderly,
ill people, many, many hundreds, if not thousands and tens of
thousands in my organization, who are going to be harmed by
this. That's what we're concerned about; the premiums then, and
what's left of this risk pool that we're in will double,
triple, quadruple, or services will plummet to the point where
the insurance policy will be practically worthless or, and I've
heard nothing about this, the Congress will step up and
recognize that these people should be held harmless, and they
will make a decision to help them out with the premiums.
Mr. Davis of Illinois. So you're concerned that there would
be enough balance so that there's not an adverse impact on your
constituents; while overall something might be good for the
whole system, but is adversely impacting those individuals that
you have the most responsibility for?
Mr. Fallis. That's exactly right. And there's something
else going on here that hasn't been mentioned today. You know,
we've talked about premium increases over the last 4 or 5 years
being draconian, and I'm going to tell you those premium
increases have hurt our people, but that's been the least of
it. Since 1996, we've continually had the elderly on Medicare
who year after year have seen--see their drug costs increase,
the copays. They paid nothing until 1996, and then the system
was changed.
You see, this is another foot in the door, getting the foot
in the door and then--and then make changes. We now pay up to
$35 for a 90-day supply of drugs, and this can be hundreds and
thousands of dollars to some of our people and--and it's
devastating, and so the premium increases are bad. You know,
they're terrific, terrible, but that's in many cases the least
of it.
Mr. Davis of Illinois. Thank you, Mr. Chairman.
Mrs. Kelly. Mr. Chairman, if I could just add----
Mr. Weldon. Sure.
Mrs. Kelly [continuing]. For just a short comment, I would
echo Mr. Fallis's comments from this respect for NTEU. NTEU
does not support there being two pools and the separation of
current young, healthy, however you want to define, with
retirees. I represent retired Federal workers as a part of
NTEU, but probably more importantly my constituents today will
be Mr. Fallis' constituents tomorrow because every Federal
employee hopes to be a Federal retiree some day.
So I think--I think there are an awful lot of us that are--
you know, that come at this from the same direction even though
we might have different ideas or questions about how to get to
a solution. But NTEU does not support creating separate pools
in any way, shape, or form, however it's defined.
Mr. Harnage. If I might add to that, too, I--I support what
he says 100 percent, but I feel like we're--we're trying to
look at a defined contribution, whether a defined benefit, and
we're looking at them especially with retirees as if it's a
welfare program. Let's keep in mind these are earned benefits.
This gentleman is talking about 42 years of service with the
Federal Government and having difficulty in providing him and
his family with continued health care in those years that he
most needs it. This is not a welfare program. This is an earned
program, and it should be a defined benefit, not a defined
contribution.
Mr. Weldon. Let me just assure you, Mr. Fallis, at least as
long as I'm around, I would never allow our retired Federal
employees to twist in the wind when it comes to their health
benefits.
I'm very pleased to recognize we've been joined by the
gentlelady from the District of Columbia. You're recognized for
questions.
Ms. Norton. Thank you very much, Mr. Chairman. I appreciate
that--that you're holding this hearing. You have even come in
to have it.
I do want to say my regrets that I could not hear all the
testimony. Believe it or not, this is not the only hearing
being held today. I don't know what you call it, Mr. Chairman,
a session after the lame duck session, but apparently that's
what we're having now. But if ever an issue was worth it,
certainly the FEHBP issue is worth it.
I won't ask questions relating to the testimony. One reason
I wanted to come to this hearing is that I wanted to make sure
that the notion that we tout all over the place, that the FEHBP
system is a model for the country, continues to be true if it
ever was true.
The testimony of Mr. Blair puzzles me somewhat because
according to his testimony, we should be grateful for small
favors; that is to say, there is a lower increase this year
than there was last year. And I'm particularly interested in
whether the FEHBP can go through another period as it did some
years ago when it really had a reduction in the cost to
employees. And I can't understand the difference--I no longer
understand the difference between FEHBP and everybody else. So
I no longer say, hey, aren't we lucky.
I want you to convince me that we are lucky. I know, and
thanks to Mr. Blair's testimony, he says CALPERS is the second
largest purchaser in the country. Am I to assume that the
Federal Government is the first, largest employer purchaser in
the country? They announced a rate up to 25 percent, up to 25
percent. See, I don't know what that means. I don't know what
it means that the average person in that--got the same as
FEHBP, but it got up to 25 percent. I mean, I don't know what
that meant. I was beginning to think that the most important
thing that FEHBP gave us was not economies of scale, which is
what I always thought, but some convenience. I mean, somebody
just put a bunch of things before us, and it's more convenient
than going out into the marketplace.
I want you to make me understand why FEHBP is still the--
what FEHBP provides that would not be the case if we were a
part of some other system. Is it convenience? Do the economies
of scale matter? I mean, if you are really twice--if really the
second largest purchaser is more than twice as much, then maybe
there is something to economies of scale.
How large is the second largest? That also doesn't tell me
anything. I mean, I don't know whether to credit that or not.
It's up to 25 percent. It's the second largest. It can be 1/10
as large as the Federal Government. So I really need some more
information as I try to evaluate how good or not good FEHBP is.
So if any of you can help me out, I'd appreciate it.
Mr. Weldon. Go ahead, Mr. Francis.
Mr. Francis. I'll be glad to.
CALPERS is the California State employees system. It's
pretty big. It's got--I forget--several, 3 million, something
like that. I mean, we have 9 million. It's--that's not small
potatoes. I think a large part of their problems unique to
California, the--the managed care, crashing has been
particularly severe there, and so some of it is just
idiosyncratic to their circumstance. Also, they've been very
successful holding down premiums over a lot of years, and so
there's some catchup going on.
Having said that, I'd--I'd take a stand--by the way, the 25
percent increase is close to the average. They're seeing
overall some plans much more than 25 percent.
Ms. Norton. But that's peculiar to California.
Mr. Francis. Well, it is and it isn't. The Mercer report
just released, I don't know if OPM is quoting that one or not,
but in the year 2002 the average employer health insurance--
sponsored health insurance premium went up about 15 percent. So
this program is outperforming, I think, still the private
sector.
Just a partial answer to your other question, what drives
this program, what makes it work is not per se the scale of it,
it's the competition among plans to attract consumers. It's
really a combination of keeping premiums down, keeping
coinsurance down, and those two contradict, I mean, so there's
tension there all the time, offering benefits people want and
offering good service, and each plan and its customers go
through this dance, if you will, in the open season, and people
make decisions on the margin. The concern I am--and it's all to
the good, OK, because you can find the better--if you want
acupuncture, you can find a plan with acupuncture and so on.
There's all kinds of good things from this model.
The problem I testified on is that I think we have so
attenuated the cost-consciousness parts of it, OK, and you
can't--you know, the savings to the employee from choosing a
more frugal plan now are so small that a lot of the incentive
has gone away, and that's one reason I think we've seen these
10, 12, 15-percent-a-year premiums in the last 5 years. They
didn't have to be that high. Even if we were outperforming the
private sector, we could have more outperformed it. So that's--
that's my thought in answer to your question.
Ms. Norton. Why are they so close? The competition are
producing the same price structure?
Mr. Francis. There's a whole bunch of things going on. For
example, one thing that people haven't mentioned, the aging of
the Federal work force and the increase in the number of
annuitants are huge factors. Older people cost more, a lot
more, than younger people, but the issue here really is they
can't over the long haul--the FEHBP is based and uses private-
sector physicians and hospitals. It can't hugely outperform
what's going on in the market out there, but what it can do is
be a prudent purchaser, and I think it has been and continues
to be a prudent purchaser.
I think Kay James is a great OPM Director, and I think her
team, the people, are very able. What I think they don't have
are quite enough tools. They need to get them from the
Congress, including, for example, the design of the Federal
contribution, which should be totally budget-neutral. You know,
it doesn't have to hurt anybody. It certainly doesn't have to
hurt retirees. You don't want to tie it to overall inflation as
opposed to medical inflation or the all-plan average. But those
added with a little better design features than this program, I
think we could see cost increases reduced significantly, you
know, back to down to the single-digit levels.
Mr. Scandlen. If I could add another important point, one
of the things that FEHBP does better than anything else on this
is--is transparency and information. Federal workers have a
source of good information about what their choices are, and no
one else does that as well. It's partly because of OPM, partly
because of Walt Francis and a lot of other--I'm sure the labor
unions have a lot to do with it. So--so not only do you have
choice, but you have real competition because people can
compare their choices effectively, and that's a very powerful
tool.
Mr. Harnage. I might add, too--how are you doing? You're
right, we have to look at statistics very carefully. With the
California plan going up 25 percent, we don't know whether that
was a change in enrollees, a change in participant status, but
we do know that over a longer period of time, it outperformed
FEHBP. So sort of like your TSP, you can look at the C fund now
and not be encouraged to put any money in it, but if you look
at it over an 8-year period, it's outperformed all the other
funds.
So we have to be very careful when we're looking at
statistics and look at more than just the dollars. I'm
convinced that we can do better. I'm convinced that we can
lower the cost to the taxpayers without taking away benefits
from--from the Federal employees. We've just got to do a better
job of administering it.
Ms. Norton. Thank you very much, Mr. Chairman.
Mr. Weldon. You're welcome.
I think Mr. Davis had one more question he wanted to ask
one of the witnesses.
Mr. Davis of Illinois. Yes. Thank you, Mr. Chairman.
Mr. Midgett, how do you respond to the less than
enthusiastic response to the APWU's plan?
Mr. Midgett. Yes, sir, Mr. Davis. For the record, the
American Postal Workers Union is opposed to medical savings
accounts. We do not believe that the consumer-driven option
that we've proposed for benefit year 2003 is a medical savings
account. Our option provides 100 percent coverage in network
for preventative care. You get the personal care account that
you can use for the health care. You have a member
responsibility, and you have a traditional PPO product that has
catastrophic coverage. To compare our product with the medical
savings account, they just--you can't. They're not like one
another. I don't know. Mr. Showalter may want to provide
additional information.
Mr. Showalter. Thank you.
I think I hear a lot of concerns, and I certainly would
never want to leave retirees twisting in the wind also, and I
think my mom and dad may disown me if I did such a thing. My
mother recently was in an accident in Texas where she spends
the winter--I'm from Minneapolis--and under her current medical
care plan, she couldn't get treated there. She got treated for
an emergency and now has a scarred face, dental work that she
cannot get care for in Texas, that she would have to come back
up to Minneapolis. Unfortunately my dad has MS, so she can't
really come back to Minneapolis to get the medical care she
needs because she needs to take care of him. That's the current
kind of situation we live under.
So what we really wanted to do was allow people to get in
charge of their own medical decisions, not have a managed care
company telling people where to get care, how to get care; so
we've removed those barriers. In response, there is concerns,
and I hear your concerns.
We at Definity Health have been fortunate to have had
products in the marketplace for 2\1/2\ years that show the
concerns aren't coming true, and I really would, you know,
congratulate Representative Hoyer on saying there are concerns,
but let's take a look at it and see if there can be another
solution that really puts patients and doctors back in charge
of health care.
And the reason I say that is simply this: Of the plans
we're offering to, the average age of the people enrolled in
our plans is 41 years old; the average age of the people that
they were offered to was about 39 years old. So what happened
is people actually--older people that it was offered to
actually selected our plan. The average family size in our
plans is about 2.6, which means more families chose our plans
than single plans, and you might say, hmm, why is this
phenomena? And when you think about managed care's value
proposition, and we all try to think about new options in a
framework of what we're currently underseeing like managed
care, in that framework their value proposition was lower cost
for less choice--we're going to restrict the provider payment
networks and give you less choice, and we're going to increase
how much we manage your care. That value proposition is only
exciting to people who don't need care. If you don't need care,
you don't care how much oversight you have and that you can
only go to one hospital.
Our value proposition is go to the providers you want, get
the care you need, and be in charge of your own care. The
people that value proposition resonates with are the people who
experience care in the health care system. Those people are the
ones that attenuate to this plan and say, yes, something needs
to change. Frankly, no one healthy has enrolled in great
numbers in our plan because they don't care. On average they
spend less than 7 minutes a year thinking about benefits in
total, and health care might be 4 minutes of that. So they
don't care. They have not experienced health care. They don't
think there's a problem, and if they do, they think it's
somebody else's problem.
So I was trying to respond with--I really hear your
concern, but I'm trying to respond with the facts as we've
experienced them in the private sector.
Mr. Davis of Illinois. Mr. Chairman, I certainly want to
thank you for holding this hearing. I want to thank all of the
witnesses for coming to testify. The more I hear when we
discuss the whole range of possibilities and we look at this
business of trying to provide health care, I'm more convinced
every time I go through one of these that there's only one way
to do it, and that's with a national health plan. So I want to
thank you very much. I certainly want to thank all of the
witnesses for coming to testify.
Mr. Weldon. You're welcome. I, too, want to thank all our
witnesses. I think this has been a most informative hearing. I
would ask Members who wish to submit written questions for the
record to give them to the subcommittee staff by Friday.
I will leave the record open until December 28th for
witnesses to submit their written responses.
The hearing is now adjourned. Again, thank you very much.
[Whereupon, at 2:25 p.m., the subcommittee was adjourned.]
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