[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
 2009 BLUE CROSS BLUE SHIELD HEALTH BENEFIT: WHAT IT MEANS FOR FEDERAL 
                               EMPLOYEES 

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

                                HEARING

                               before the

                   SUBCOMMITTEE ON FEDERAL WORKFORCE,
                    POSTAL SERVICE, AND THE DISTRICT
                              OF COLUMBIA

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                            DECEMBER 3, 2008

                               __________

                           Serial No. 110-194

                               __________

Printed for the use of the Committee on Oversight and Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform

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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York             TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania      DAN BURTON, Indiana
CAROLYN B. MALONEY, New York         CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri              CHRIS CANNON, Utah
DIANE E. WATSON, California          JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts      MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York              DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky            KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa                LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of   PATRICK T. McHENRY, North Carolina
    Columbia                         VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota            BRIAN P. BILBRAY, California
JIM COOPER, Tennessee                BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland           JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
JACKIE SPEIER, California

                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
               Lawrence Halloran, Minority Staff Director

Subcommittee on Federal Workforce, Postal Service, and the District of 
                                Columbia

                        DANNY K. DAVIS, Illinois
ELEANOR HOLMES NORTON, District of   KENNY MARCHANT, Texas
    Columbia                         JOHN M. McHUGH, New York
JOHN P. SARBANES, Maryland           JOHN L. MICA, Florida
ELIJAH E. CUMMINGS, Maryland         DARRELL E. ISSA, California
DENNIS J. KUCINICH, Ohio, Chairman   JIM JORDAN, Ohio
WM. LACY CLAY, Missouri
STEPHEN F. LYNCH, Massachusetts
                      Tania Shand, Staff Director














                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on December 3, 2008.................................     1
Statement of:
    Francis, Walton, author, CHECKBOOK'S Guide to Health Plans 
      for Federal Employees; and Peter E. Petrucci, M.D., 
      president, medical staff, Sibley Memorial Hospital.........     7
        Francis, Walton..........................................     7
        Petrucci, Peter E., M.D..................................    30
    Kichak, Nancy H., Associate Director, Strategic Human 
      Resources Policy Division, Office of Personnel Management; 
      and Stephen W. Gammarino, senior vice president, national 
      programs, Blue Cross and Blue Shield Association...........    56
        Gammarino, Stephen W.....................................    64
        Kichak, Nancy H..........................................    56
Letters, statements, etc., submitted for the record by:
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............    87
    Davis, Hon. Danny K., a Representative in Congress from the 
      State of Illinois, prepared statement of...................     4
    Francis, Walton, author, CHECKBOOK'S Guide to Health Plans 
      for Federal Employees, prepared statement of...............    11
    Gammarino, Stephen W., senior vice president, national 
      programs, Blue Cross and Blue Shield Association, prepared 
      statement of...............................................    66
    Kichak, Nancy H., Associate Director, Strategic Human 
      Resources Policy Division, Office of Personnel Management, 
      prepared statement of......................................    58
    Petrucci, Peter E., M.D., president, medical staff, Sibley 
      Memorial Hospital, prepared statement of...................    32


 2009 BLUE CROSS BLUE SHIELD HEALTH BENEFIT: WHAT IT MEANS FOR FEDERAL 
                               EMPLOYEES

                              ----------                              


                      WEDNESDAY, DECEMBER 3, 2008

                  House of Representatives,
Subcommittee on Federal Workforce, Postal Service, 
                      and the District of Columbia,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 2154, Rayburn House Office Building, Hon. Danny K. Davis 
(chairman of the subcommittee) presiding.
    Present: Representatives Davis, Norton, Cummings, and 
Sarbanes.
    Staff present: Tania Shand, staff director; William Miles, 
professional staff member; Marcus A. Williams, clerk/press 
secretary; Jill Schmalz, minority counsel; Alex Cooper and Adam 
Fromm, minority professional staff members; Howard Denis, 
minority senior professional staff member; and Patrick Lyden, 
minority parliamentarian and Member services coordinator.
    Mr. Davis. Never believing in punishing those who are where 
they should be at the time they had said they would be, we are 
going to go ahead and call the hearing to order.
    It is my understanding that we do have, that Delegate 
Eleanor Holmes Norton is on the way momentarily and will be 
here. So, the subcommittee will now come to order. 
Unfortunately, Ranking Member Marchant will not be here.
    Members of the subcommittee, hearing witnesses and all 
those in attendance, welcome to the Subcommittee on the Federal 
Workforce, Postal Service, and the District of Columbia's 
hearing to examine the changes in Blue Cross and Blue Shield's 
benefits and premiums for 2009 Federal Employees Health 
Benefits Program.
    The Chair, ranking member, and subcommittee members will 
each have 5 minutes to make opening statements, and all Members 
will have 3 days to submit statements for the record. Hearing 
no objection, so is the order.
    I will then go ahead with an opening statement. Other 
Members will have the opportunity to do so when and should they 
come.
    The Federal Employees Health Benefits Program is arguably 
the gold standard for employee sponsored health insurance 
programs. It provides health insurance coverage to 
approximately 8 million people, including Members of Congress, 
and is the largest employer-sponsored health insurance program 
in the United States.
    The Office of Personnel Management [OPM], negotiates plan 
benefits with the health plans and is responsible for ensuring 
that the Federal Government and its employees get good value 
for their health care dollars. Yet, the program still struggles 
with high premium cost and plan quality. Last week my 
subcommittee office received numerous calls from congressional 
staff members, Members' offices and plan participants about 
changes to the 2009 Blue Cross Blue Shield standard option 
benefit plan. Spurred by reports in the Washington Post Federal 
Diary column, Roll Call, and most recently U.S. News & World 
Report, all the callers expressed outrage about the changes.
    One Blue Cross Blue Shield subscriber wrote in an e-mail to 
my staff, ``I thought that OPM was supposed to represent the 
interests of Federal employees and retirees in negotiating 
coverage. The 13 percent increase in premiums coupled with the 
dramatic reduction in coverage for out-of-network surgical 
expenses makes me wonder, who indeed is at the helm? The 2009 
proposed coverage would also expose subscribers to financial 
duress.''
    In addition to the 13 percent increase in premiums for the 
Blue Cross Blue Shield standard option, 2009 beneficiaries will 
be responsible for paying up to $7,500 for surgery performed by 
non-participating physicians, except in the case of medical 
emergencies or accidents. And for mail order brand name drugs, 
the co-payment will be raised to $65 per prescription for the 
first 30 prescriptions filled or refilled and $50 thereafter. 
This is of concern to many individuals because the current fee 
to fill a prescription is $35.
    The question is asked, who indeed is at the helm? Are these 
changes emblematic of larger concerns and challenges? While 
plan participants can use in-network physicians or simply opt 
out of Blue Cross Blue Shield and into one of any number of 
other plans, we must question the structural framework of the 
program, plan negotiations, and what led Blue Cross Blue Shield 
to implement such drastic changes?
    This issue deeply concerns me. Blue Cross Blue Shield is 
one of our Nation's oldest and most prominent nonprofit health 
insurance companies. When patients turn to name brand health 
insurers like Blue Cross Blue Shield, they do so for their 
physical, mental, and social well being. And while I understand 
that Blue Cross is reexamining its 2009 benefit option, and I 
am pleased that it is doing so, Americans, FEHBP participants 
included, can no longer assume that their current health 
insurer will perform in a reasonable fashion, especially as it 
relates to their ability to experience coverage at an 
affordable cost.
    There is a lesson here for those seeking to reform 
America's health care systems. Expansions in coverage must mean 
more than simply paying for health insurance policies. At a 
minimum, this case shows us that we also need to consider 
appropriate regulations and oversight to ensure that Americans 
will actually get the care they need at affordable rates.
    I look forward to the testimony of today's witnesses. It is 
my belief that today's hearing will not only assist plan 
participants in choosing a health plan before open season 
closes on Monday, but it will also assist the subcommittee in 
setting its hearing agenda for FEHBP during the next session. I 
thank you very much.
    And I am delighted that Delegate Norton is here.
    I ask if you have some opening comments.
    [The prepared statement of Hon. Danny K. Davis follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Ms. Norton. Thank you, Mr. Chairman.
    Just a word or two. I want to thank you for responding to 
the concerns, particularly among Federal employees, who have 
tended to favor Blue Cross Blue Shield, so that we can get an 
explanation for what appear to be failures on the part of the 
two parties that employees depend upon, OPM and Blue Cross. The 
failure of transparency and clear explanation from the Blues 
seems to be clear. It is kind of search and ye shall find a 
very substantial cost change for enrollees.
    And the failure on the part of OPM may be the honest broker 
failure. We depend upon OPM to keep the plan, which is much 
marketed as one of the best in the country because of its 
choice, transparent and understandable, and frankly, to be an 
honest broker with the plans. You know, Blue Cross Blue Shield 
may be about to squander the huge advantage it has had. It is a 
nonprofit health care plan. And one of its chief advantages is 
that it has seemed to offer people the ultimate choice, fee-
for-service, while being a preferred provider. But this very 
unfortunate revelation casts--will make subscribers look very 
closely at Blue Shield and whether or not the almost automatic 
renewal has been worth it.
    Obviously, this is a more expensive plan, but the very 
educated Federal worker has trusted Blue Shield--Blue Cross 
Blue Shield, and has been willing to pay for what seemed to be 
to many of them worth it. The cost of the standard option, 
however, has been increasing faster for Blue Cross Blue Shield 
and is now considerably more expensive than for others.
    Particularly in these hard times, Blue Cross Blue Shield 
really stands to lose market share, and perhaps should. They 
shouldn't be making mistakes now. And they shouldn't be making 
mistakes in a plan that employees have favored, and now I think 
will make employees far more skeptical. Whatever the 
explanation, you don't bury this kind of potential cost 
increase in the fine print. You don't do it when you are 
dealing with Federal employees, because they do read. They 
finally get it. They perhaps got it too late, and I hope that 
there will be an opportunity for people to consider beyond 
December 8th whether or not they ought to stay in this plan, 
particularly since most people didn't get it, I bet. And to the 
extent that they get it at all, it is because the chairman has 
come all the way from Chicago to hold a hearing so that OPM and 
Blue Cross Blue Shield can explain themselves.
    As for OPM, we are very disappointed. OPM seems not to be 
able to itself keep up with the complexity that attends health 
care plans today. I think everybody who is in a plan better 
take a much closer look at these plans. And the notion that the 
fine print may be burying costs is extremely troubling because 
transparency has been the hallmark of the FEHBP.
    We hope that in the course of this hearing we will 
understand what was at the bottom of this, because we are left, 
you see, to speculate as to why this simply wasn't made 
clearer, particularly since it involves itself some complexity 
in order to be understood by one who is enrolled. And we need 
to know whether or not this kind of change is emblematic of 
what we can expect and what OPM intends to do about it. Again, 
I thank you very much, Mr. Chairman, for believing that this 
was important enough to come and hold this hearing this 
morning.
    Mr. Davis. Thank you very much, Delegate Norton.
    We will now go to our witnesses. I will introduce the first 
panel, and then we will swear them in and proceed.
    Our first panel of witnesses: Mr. Walton Francis is a self-
employed economist, policy analyst, and expert in the analysis 
and evaluation of public programs. He pioneered the systemic 
comparison of health insurance plans from a consumer 
perspective. And for 30 consecutive years, Mr. Francis has 
authored the annual CHECKBOOK's Guide To Health Plans For 
Federal Employees.
    We thank you for coming, Mr. Francis.
    And we will then also ask if Dr. Peter E. Petrucci will 
come to the table. Dr. Petrucci is board certified in general 
surgery and is a fellow in the American College of Surgeons. On 
several occasions, the Washingtonian Magazine has named Dr. 
Petrucci one of the top surgical specialists in the region. He 
also has been awarded distinction as one of the best doctors in 
America, having been selected by a consensus of physician 
colleagues as being among the top 4 percent of all physicians 
in his specialty.
    Gentlemen, I want to thank you very much for coming. And if 
you would rise and raise your right hands, it is the procedure 
of this committee that all witnesses be sworn in.
    [Witnesses sworn.]
    Mr. Davis. The record will show that the witnesses answered 
in the affirmative.
    Gentlemen, will you try and take 5 minutes? We don't always 
necessarily hold to that. But we try to have a 5-minute 
statement. The light sort of indicates the beginning, green go. 
Yellow means that you are down to 1 minute. And of course red 
is an indication that you stop. We try not to curtail 
witnesses' testimony, especially if they are wrapping up.
    But if you would begin, and we will begin with you, Mr. 
Francis. Thank you very much.

  STATEMENTS OF WALTON FRANCIS, AUTHOR, CHECKBOOK'S GUIDE TO 
  HEALTH PLANS FOR FEDERAL EMPLOYEES; AND PETER E. PETRUCCI, 
    M.D., PRESIDENT, MEDICAL STAFF, SIBLEY MEMORIAL HOSPITAL

                  STATEMENT OF WALTON FRANCIS

    Mr. Francis. Thank you, Mr. Chairman, Ms. Norton.
    I think this hearing and the prior reporting in the 
Washington Post are examples of the bests of the private and 
public oversight in America. And I congratulate you on having 
this hearing. I think it is extremely important.
    I am wearing two hats today, both as a consumer advocate 
and as a health care economist. And I am going to make some 
larger points about some of the problems of the FEHBP program 
that I think contributed not just to this particular benefit 
change that provoked this hearing, but as you already said, Mr. 
Chairman, there are a number of benefit changes and large 
premium increases in the Blue Cross plan. And the question is, 
why is that happening, and is it necessary? And are there 
forces at issue that could have prevented some of this?
    By the way, I am here speaking solely in my own personal 
capacity, not for CHECKBOOK magazine, and not for the Centers 
for Medicare and Medicaid Services, where I consult.
    Focusing first just on the Blue Cross benefit changes this 
year, the key point is, the cutback in out-of-network surgery 
is not the only negative change. There are a number of others; 
increase in prescription drug co-payment, for example. There 
are also a few benefit improvements. But the benefit reductions 
greatly outweigh those.
    Important to understand though, is, that had Blue Cross not 
cut back some of these benefits, its premium would have been 
greater, could have been several hundred dollars greater; could 
have been, instead of 13 percent, it might have been 20 
percent.
    The specific change that I think is most problematic this 
year is this ceiling on--it is not even clearly described in 
the Blue Cross brochure. Is it a deductible? Is it a co-
payment? Or is it just a maximum? It is never fully described 
or categorized, which itself creates problems I will come to in 
a minute. But this increase of paying up to $7,500 for surgery 
using non-preferred providers presents--it is a massive benefit 
reduction, though there is an offsetting saving for some people 
because it does reduce potential balance billing problems. And 
I think that may have been a major factor in the decision to do 
this.
    Second, it is a major reduction in catastrophic protection. 
The promised maximum you will have to pay out-of-pocket if you 
use nonpreferred providers of Blue Cross is $7,000. But 
actually, it is $7,000 plus $7,500. It is $14,500 with this 
change. And that is a big, big difference.
    It is inconsistent I think with the promise and the premise 
that Blue Cross does remain fundamentally a fee-for-service 
plan and ought to have a good fee-for-service benefit. It is 
described on the cover its brochure as a fee-for-service plan 
with a preferred provider network. But it ought to have good 
fee-for-service benefits.
    Finally, and most problematic, it is a gotcha trap. There 
has already been one clarification as to what happens in 
emergencies, because it wasn't clear earlier, if someone might 
involuntarily be exposed to the $7,500, not even realizing that 
was happening. I do a lot of consumer advice. Last night I 
answered e-mail, and it shocked me. A woman's 88-year-old 
mother is going to get surgery from a non-preferred provider, 
and she can't get a straight answer from Blue Cross as to 
whether or not--this mother has Medicare parts A and B--as to 
whether or not she will be exposed to this payment. I looked 
carefully last night at the Blue Cross brochure, which has a 
separate promise for people on Medicare, and it is unclear to 
me. But the better reading of it, it seems to be that, for the 
first time, there is not a hundred percent you-will-pay-nothing 
promise to people on Medicare parts A and B. I am not sure I am 
reading it correctly, but the point is this shouldn't be 
ambiguous. It shouldn't be debatable. Blue Cross 
representatives shouldn't be giving conflicting answers.
    Most importantly, there are other alternatives that could 
have been used no matter what problem was being addressed. For 
example precertification for certain kinds of surgery could 
have been used or prior approval. Let me stop there. That is 
sort of what happened here and my take on it.
    Now let's talk about why it happened. There are some very 
important flaws. I go into these in great detail in my 
testimony. I won't belabor them here. But the aging of the 
Federal work force has created tremendous cost pressures, 
particularly and disproportionately on plans like Blue Cross 
that have loyal members who joined at age 30 when they were 
cheap; and they are still there at age 50 when they cost twice 
as much on an actuarial basis; and they are still there at age 
70 when they cost twice as much again. So that is a tremendous 
pressure on Blue Cross.
    The premium design of the FEHBP program is flawed in a 
particular way. When I pick a cheaper plan, I only get 75--I 
only get 25 percent of the savings. The government gets 75 
percent. Medicare Advantage, it is the other way around. So my 
incentive to find a cheaper plan is greatly reduced. I don't 
get most of the savings. And the incentives of the plans to 
offer less expensive benefits is greatly reduced.
    Then we have premium conversion added to this. Premium 
conversion, however nice it might have been as a little added 
twist to fringe benefits, and it did after all merely put the 
Federal work force in the same status as the Fortune 500 work 
force in terms of tax preferences on health insurance premiums, 
but premium conversion eroded all the incentives for cost 
saving on both plans and enrollees in this program. And it is 
no coincidence that the performance of the FEHBP has worsened 
dramatically in controlling costs in the last 10 years since 
premium conversion went in place. I think the Obama 
administration is going to deal with that issue in a broader 
context, but it is there.
    There is a serious Medicare coordination problem. Neither 
program has addressed it appropriately. I think that the 
current legislative prohibition, statutory prohibition against 
plans paying the costs of the Medicare Part B premium should be 
lifted, and plans should be encouraged and maybe even required 
to pay part of that premium before they go into this you won't 
have to pay anything out-of-pocket mode, which is a huge cost 
driver. There's a lot of economic research that shows that 
situations where you pay nothing for medical care are 
situations where there is a great deal of waste and over-
utilization, which costs the taxpayer a ton of money, and other 
enrollees in the program a ton of money.
    There are solutions to all these things. I discuss them--I 
just want to talk a moment, though, and then I will end my 
testimony, about consumer information. There is a longstanding 
problem in the FEHBP consumer information relating to the 
statement and description of catastrophic protections. And it 
has gotten worse. It has gotten worse in part because plan 
complexity has grown. But the fact is, if you pick up a 
brochure today and it says this plan guarantees that you won't 
pay more than 5 or 6 or $8,000 out-of-pocket, that is not true. 
Buried in the small print you are going to find, oh, well, this 
didn't include the deductible, or this didn't include the 
$7,500 out-of-network surgery, or it didn't include your 
prescription drug co-payments. Whatever it doesn't include, and 
that varies from plan to plan, it makes it impossible for an 
ordinary human being to compare those stated catastrophic 
limits. And it means there's lots of loopholes in them. There 
is no reason this has to happen. There is no reason OPM can't 
require that the catastrophic limits include all the 
significant costs to which you might be exposed that can be 
measured ahead of time. That doesn't include, unfortunately, 
balanced billing, but it includes just about everything else. 
There is no reason why prescription drugs shouldn't be in those 
catastrophic limits. We don't need a separate catastrophic 
limit, which to OPM's credit they have insisted that all the 
plans give you some protection against specialty drugs, that 
can reach tens or even hundreds of thousands of dollars, that 
should be in the regular catastrophic limit.
    Then there is a question, do consumers even learn about 
this stuff? Every Medicare beneficiary in the country gets 
mailed to them ``Medicare And You,'' a 100-page booklet written 
in clear English, big typeface, that explains Medicare benefits 
and describes in some detail the Medicare Advantage plans for 
which they are eligible. OPM publishes a similar booklet. I am 
holding up the one for annuitants, ``Guide To Federal Benefits 
For Federal Retirees and Their Survivors.'' But this is not 
mailed. Nobody gets this. They can download it on the Internet, 
but it is not mailed to them. And of course, in the aging 
population, retired population, there is a very large fraction 
that don't use the Internet any way. Why isn't it mailed? 
Because OPM salary and expenses account won't--isn't big enough 
to pay for the postage costs. It is absurd. And there is no 
reason why retirees shouldn't get this information.
    Then, however, if you look at what is in it, OPM no longer 
publishes the catastrophic limit on these plans in its summary 
description of benefits. That is probably a good thing, because 
until they fix it, those limits are misleading. But they do, 
and I will say this for them, the $7,500 maximum, you know, the 
surgery cutback is shown in this document, which nobody gets. 
The summary page of the Blue Cross brochure itself, the last 
page summary of benefits, does not show the $7,500 reduction 
for out-of-network surgery.
    So let me stop there and simply say, there is--there are 
administrative actions that could be taken. There are 
legislative steps that could be taken within the jurisdiction 
of this committee, and there are legislative actions which may 
be primarily in the jurisdiction of Ways and Means, but they 
also could be taken relating to Medicare coordination. That 
concludes my testimony.
    [The prepared statement of Mr. Francis follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Davis. Thank you very much, Mr. Francis.
    And we will go to Dr. Petrucci.

              STATEMENT OF PETER E. PETRUCCI, M.D.

    Dr. Petrucci. Thank you, Mr. Chairman, distinguished 
members of the committee. Thank you for the opportunity to be 
here today. My name is Peter Petrucci.
    As you have heard, I am a board certified general surgeon 
and currently serve as the president of the medical staff at 
Sibley Hospital. I've practiced medicine in the District of 
Columbia since 1975, and am here today representing my patients 
and my colleagues. On January 1st, 4 million Federal employees, 
nearly half of the Federal work force, will face drastic 
changes to their health insurance policy. In addition to a 13 
percent increase in premiums, out-of-network benefits for 
Federal Blue Cross Blue Shield standard option plan holders 
will be severely curtailed, affecting anesthesia, emergency, 
and surgical services, and placing a significant financial 
burden on patients.
    These changes are particularly relevant for Federal 
employees already signed up with the Federal standard option 
plan as their health insurance provider, since they will 
automatically be renewed for 2009 unless they switch to another 
plan. With expiration of the open enrollment period on December 
8th, there is little time to explore these options, and an 
immediate extension of the open enrollment should be 
implemented.
    As a senior member of our medical community, I understand 
the need to control our large and growing health care costs. I 
also understand that establishing equitable and affordable care 
will be a complex process and will require compromise on the 
part of consumers, providers and insurers. But the new policy 
change by Blue Cross and Blue Shield adds an alarming wrinkle 
to cost containment by eliminating choice and putting the 
financial burden squarely on the patient. This is a denial of 
choice by deception.
    Most egregious of the 2009 plan's so-called benefits has to 
do with patients' choice of physician. Effective January 1st, 
any patient who has surgery or any other of the so-called 
surgical procedures by an out-of-network or nonparticipating 
provider is 100 percent responsible for the first $7,500 of 
charges. This is not a one-time deductible. The $7,500 patient 
responsibility clock is reset with each surgery or procedure. 
More surprising, and buried in the 135-page plan document, is 
the policy's definition of surgery. It includes the treatment 
of fractures and dislocations, including casting, biopsy 
procedures, removal of tumors and cysts, treatment of burns, 
obstetrical care, including childbirth, and diagnostic 
colonoscopy, and other endoscopic procedures. This new policy 
change in effect converts the Federal standard program and 
point-of-service care plans to an HMO plan by making out-of-
network costs prohibitive and limiting choice for the vast 
majority of patients.
    Another disturbing provision of the new policy is a $350 
deductible for emergency services when they are provided by a 
nonparticipating physician. Patients will be financially 
responsible for consultations rendered in an emergency even if 
the doctor was not chosen by the patient. Acutely ill patients 
do not usually have the luxury of selecting their provider. Yet 
that is precisely what will be expected and required. This $350 
fee is passed onto the patient for each consulting provider who 
does not participate in this plan.
    Most importantly and with rare exception, patients are 
being caught unaware of the significant benefit cuts. 
Regrettably, the Office of Personnel Management appears to have 
contributed to this confusion by having abdicated their 
responsibility to the 4 million Federal employees and their 
families covered under this plan. The 2009 Blue Cross Blue 
Shield standard plan eliminates choice and transfers financial 
responsibility directly onto the patient, even during an 
emergency and without legitimate and transparent disclosure.
    There are already a substantial number of patients who, 
finally informed about these changes, have become angry and 
frustrated. Only in the last few days, after mounting pressure 
from angry patients and concerned physicians, were minor 
clarifications posted on the Federal Blue Cross Blue Shield Web 
page.
    On behalf of our patients, I would like to make the 
following recommendations: Restore to patients the right to 
choose their doctor without making it financially prohibitive. 
This can be achieved by Blue Cross and Blue Shield rolling back 
the changes for out-of-network providers to the 2008 standard 
option plan.
    Immediately extend the open enrollment period to ensure the 
rights of Federal employees to explore and fairly exercise 
their right to choose a health plan that is best for them.
    Have OPM establish a transparent and comprehensive outreach 
information program that ensures clear explanation of various 
plan benefits and the difference between plan costs and 
services.
    Explore the process by which OPM, directly responsible for 
representing their employees, betrayed that charge by acting to 
negotiate and purchase as well as regulate the provision of 
health care benefits. These rules put OPM in a conflict of 
interest position. There should be a separate body, including 
consumers and physicians, which would oversee the products 
submitted to OPM and determine if they fairly represent the 
plan benefits and any changes, and ensure that all Federal 
employees are aware of proposed changes. Without such 
separation of purchasing and oversight powers, the 
opportunities for continued and future abuses remain.
    Instead of legitimately engaging the medical community to 
explore ways of lowering costs, Blue Cross and Blue Shield has 
taken a hammer to this problem. In so doing, they will hurt the 
very patients they are supposed to serve.
    Thank you for your time.
    [The prepared statement of Dr. Petrucci follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Davis. Thank you gentlemen very much.
    Let me also acknowledge the presence of Representative 
Elijah Cummings, who has joined us.
    Thank you very much, Representative Cummings.
    Let me ask, listening to both of your testimonies, how 
important, and perhaps I will begin with you, Mr. Francis, how 
important is it that patients or consumers have the choice of 
selecting physicians for treatment?
    Mr. Francis. That is a great question, Mr. Chairman. And 
the answer is, it is extremely important for some and not 
important for others. And we don't know ahead of time which 
people are in which category.
    For example, a very large fraction of the Federal work 
force, not of retirees but of the active workers, over a third, 
enroll in HMO's where the deal is you must use HMO 
participating physicians or we don't cover anything. That is a 
choice they make. They get certain benefits for that. They get 
typically a better benefit package, and they get lower 
premiums.
    But for other people, it is vital that they be able to 
choose their physician without any constraint. So the FEHBP 
needs to provide plans that offer both kinds of packages. And I 
think the problem here, and it really is, is that the Blue 
Cross out-of-network benefit, and it is not significantly worse 
or different than those in most of the other national plans, 
they typically pay only 75 percent of an allowance. And that 
allowance is less by far than many physicians or surgeons 
charge. But at least the deal is sort of clear, and you are 
going to have something covered, typically half or more of your 
cost. But $7,500 is a mighty hefty penalty to pay to go out of 
network.
    Mr. Davis. Dr. Petrucci.
    Dr. Petrucci. I can't really improve on that statement. The 
choice really depends on the patient. Many patients choose to 
pick a physician that they have had a longstanding experience 
with. Some physicians choose to decide to become 
nonparticipating after patients have been with them for many 
years. And so that choice becomes one that they cherish.
    Mr. Davis. There is a cost savings when individuals limit 
their choices in some way.
    Dr. Petrucci. There is a cost savings to the patient, yes. 
There is no difference for the insurance company, however.
    Mr. Davis. Well, given comparisons, given the changes that 
Blue Cross Blue Shield are making, are there other comparable 
plans that employees may want to consider?
    Dr. Petrucci. The Federal panel, and you know this better 
than I do, certainly has other insurance companies in the 
program that allow the choice that patients want so that they 
can go out of plan easily and have a significant portion of 
their expenses covered.
    Mr. Davis. Do they compare favorably, though, with----
    Dr. Petrucci. I think so.
    Mr. Francis. In the Consumers' CHECKBOOK advice that we 
publish, we find that there are a number of plans, quite a 
number, that offer benefits as good or better than the Blue 
Cross standard option benefit and premiums that are 
considerably lower. Now, you know, no plan is better in every 
category. And no plan is worse in every category, but there are 
lots of very good choices out there, including, by the way, 
Blue Cross Basic, whose main distinguishing characteristic is 
that you can't go out of the network and get any coverage. But 
people can make that choice and save a good deal on their 
premium.
    So, yes, there are alternatives, and we always recommend 
people consider alternatives. That is the beauty of open 
season, a chance to think through your choices and consider 
options. I just wish the information that were out there were 
more available, especially to the retirees all over the country 
who don't get sort of the hot house attention that this issue 
gets in Washington, DC.
    Mr. Davis. Well, Blue Cross has said that it will take 
another look or reexamine its 2009 benefit options. Do either 
of you have any idea of what that might mean? And if they were 
to reexamine, what other options or what changes might they 
want to look at?
    Mr. Francis. The suggestion, Mr. Chairman, I make in my 
testimony is that OPM and Blue Cross consider--whether or not 
they can do it now, I think probably they could, but I will 
leave that to them to address--that is right away could they 
change their 2009 situation--but certainly they could have put 
in a requirement for pre-approval of certain kinds of surgery, 
particularly where out-of-pocket expenses might be very high if 
people were balance billed. Or whatever problem they are after, 
they could require pre-approval. They did a--there is a pre-
approval requirement for morbid obesity surgery that I believe 
was just added this year, if my memory serves. So it is not as 
if there aren't other tools in the arsenal that could be used 
that aren't so draconian in their financial impact.
    Dr. Petrucci. Our concern is that there doesn't seem to be 
a clear benefit--I mean the patient understands when they come 
to us, that is nonparticipating providers, that they will have 
a cost outside of their plan. The issue is, this doesn't seem 
to save Blue Cross anything by just adding that deductible. 
They are basically saying, we are not going to pay anything for 
your--in other words, if they come to me now, they have an 
operation, I have a charge, Blue Cross will pay a percentage of 
that charge and the patient pays the rest. That costs Blue 
Shield nothing. And so the question is, why the change? What 
difference does it make to them to take away that benefit that 
is already there and not allow patient choice?
    Mr. Davis. I will just ask a last one. Why would a patient 
want to go out of network say to have surgery?
    Dr. Petrucci. Well, most patients are referred by their 
primary care doctor. And they also have patient family members, 
friends, who may have had operations by a certain physician, or 
they could be being taken care of by a certain physician. It 
has to do with a number of factors: Reputation, experience with 
a procedure. There are a lot of different reasons why a patient 
may choose to come to me rather than somebody else or somebody 
else rather than me. That is, again, patient choice. And that 
is really all we are saying is, they should be able to make 
that decision. They understand up front that they will have an 
additional cost, and we work with them on that process.
    Mr. Davis. And the network activity is not coordinated in 
such a way that in all likelihood a primary care physician or 
primary provider would not necessarily refer someone to another 
member of the network, I mean to a surgeon that is part of the 
network?
    Dr. Petrucci. It works both--it can work both ways. It can 
work either way or both ways.
    Mr. Davis. Well, gentlemen, thank you very much. My time is 
up.
    Delegate Norton.
    Ms. Norton. Thank you, Mr. Chairman.
    Well, Mr. Petrucci, you say it doesn't save them anything. 
Why do you think they did it? If this large increase for 
consumers doesn't----
    Dr. Petrucci. I am sorry, I didn't quite----
    Ms. Norton [continuing]. Doesn't save Blue Cross Blue 
Shield anything, why do you think they did what they did?
    Dr. Petrucci. You know, I don't know. We've been--that is a 
question we would love to ask them ourselves. It is not 
something that is very clear to us.
    Mr. Norton. You know, people can understand some of the 
increases.
    You spoke of some of them, Mr. Francis, increasing co-
payment and the like. You know, I don't know if it has ever 
been tested, but certainly there is a policy rationale that 
people think before they run to the doctor.
    The failure to even understand what is happening here is 
what bothers me most.
    Now, and I ought to be clear, Mr. Petrucci, I am--is it 
Petrucci or Petrucci.
    Dr. Petrucci. Petrucci.
    Ms. Norton. Petrucci. I believe that one of the problems 
with the American health care system is people can say, hey, 
you know, I want the same person who did your operation to do 
mine. So I am--the HMOs have managed to, in many ways, buildup 
some real prejudice against themselves, but one of the problems 
we have in this country, frankly, is that everybody wants 
Cadillac health care, and so we are leaving, you know, 50 
million people with nothing, and an increasing number of 
people, including Federal employees who say, even though you 
are willing to pay part of it, I am sorry, this is even before 
we got to these hard times, I am going to have to take my 
chances. And so part of the problem--so I don't--when people 
say--when we see developing countries, for example, where 
everybody gets health care, do understand that when that 
happens it is because the society has agreed that, for the 
benefit of the many, some of us agree, unless we are going to 
pay for it, that we will not indeed demand what frankly in some 
ways Blue Cross Blue Shield looks like it wants to provide, 
because it is a preferred provider, something of an HMO-type 
saving there for the consumer. And yet there is fee-for-
service. And here you have America writ large in health care: 
Hey, you can have it all.
    Then what we get is this humongous increase. And of course, 
Blue Cross Blue Shield says it is not an increase at all. And 
they are going to have to explain themselves about that.
    I want to ask you, Mr. Francis, because I am sympathetic 
with what you say, that Blue Cross Blue Shield--because you 
discuss very fairly, it seems to me, the pressures on Blue 
Cross Blue Shield, as of course is the case given the nature of 
the health care system in this country, the have-it-all system 
in this country. I understand that. And particularly for a 
provider that turns out to be preferred by many Federal 
employees throughout their work life, my question to you is 
does this huge advantage in volume or loyalty not make up in 
some way for the disadvantage which comes with the fact that 
the work force ages over time and therefore may cost you 
somewhat more?
    Mr. Francis. Yes, it does make up in a major way. For 
example, the plan, just being very narrowly business about it, 
it is to the advantage of the plans to have people who sort of 
don't exercise their right in open season to change plans, but 
stick with it, OK. That makes for predictability in expenses, 
predictability in enrollment.
    Looked at from the consumer point of view, if I am in a 
plan for a long period of time, it is sort of like wearing an 
old shoe. I get comfortable with it. I understand the paperwork 
and the bureaucracy, and I understand the benefits.
    And of course, that is one of the problems that leads to a 
situation where I know the benefits of my plan, I am not going 
to reread that 100-some page brochure every year. It is awful 
hard reading, let me tell you. I read them all. It is 
distressing. So people tend to get pretty lazy about it, with 
good reason, because they expect continuity, and they expect no 
surprises. That is my main concern here; it is the gotcha 
aspect of this change. Some people aren't going to realize what 
has happened to them until they go get that surgery.
    Dr. Petrucci mentioned that he works with his patients to 
warn them and so on. And I often advise people when you go out 
of network, try to negotiate--I tell them to try to negotiate 
the Medicare rate. And sometimes it works with people who have 
no health insurance at all that I counsel.
    But some people don't do that, and some doctors don't warn 
them. So there are surprises. And it is unfortunate. And I 
think what we ought to worry about most in oversight of these 
plans is that those kinds of gotcha surprises be minimized. It 
is not that Blue Cross and the other plans shouldn't take cost-
saving steps, it is just that the cost-saving steps should not 
be ones that lead to unfair and total surprises that are 
financially unfair.
    Ms. Norton. Dr. Petrucci, I was surprised; I am looking in 
your testimony now for the--here it is--for the list of so-
called surgeries in your testimony. I would like you to explain 
to me whether or not perhaps they are trying to keep--perhaps 
they should--surgeons from doing some of these procedures. For 
example, it says ``fractures and dislocations'' in your 
testimony. Is that normally a matter for the surgeon?
    Dr. Petrucci. Well, I think that is one of the problems we 
have is the term ``surgery'' is very loosely defined in this 
dialog. Technically speaking, there is no surgery involved in 
the setting of a fracture. Basically, the orthopedic surgeon 
sets the fracture, can sometimes do it in their office, put a 
cast on. And that is part of the care for that particular 
problem.
    Ms. Norton. So if a surgeon is present, then, of course, 
this would apply.
    Dr. Petrucci. Well, this applies to all surgeons. So an 
orthopedic surgeon falls into the category of surgeon, even 
though that particular procedure does not actually involve an 
operation. And that is one of the problems we have with this, 
is the list of things that are included really aren't 
technically surgery in many respects.
    Ms. Norton. So it is going to be up to Blue Cross--so as 
far as you are concerned, if a surgeon does the--does any part 
of the work, this $7,500 cost increase applies?
    Dr. Petrucci. Yes, any nonparticipating--patient goes to a 
nonparticipating physician surgeon and casts their fractured 
wrist, Blue Cross and Blue Shield will pay nothing, and the 
$7,500 deductible applies in that setting. Now, obviously, the 
charge won't be that high, but whatever it is, the patient will 
be responsible for.
    Ms. Norton. Mr. Chairman, I am through for the moment.
    Mr. Davis. Thank you very much.
    Mr. Cummings.
    Mr. Cummings. Good morning. You know, I am sitting here and 
I am listening to this, and I think the thing that bothers me 
more than anything else is when people think they have one 
thing with regard to coverage and then find out they have 
something else. Illness is nothing to play with. We are talking 
about people's ability to take care of their families, to take 
care of themselves, to go to work, to do the things they need 
to do on a daily basis, and to live a quality, a certain level 
of quality of life.
    And I am just trying to figure out how concerned you are as 
to whether people are informed. We got people, we got busy 
people today that get--they are like me, and they get 50 pieces 
of mail, all kinds of stuff. And you separate some of it. You 
try to go through the most important stuff, and you might miss 
something. But I am just trying to figure out how informed do 
you think these Federal employees are and retirees with regard 
to these changes? I mean, do you have any clue?
    Mr. Francis. Yes, sir, I have a clue. Except for the 
publicity that attends to this hearing and the publicity that 
the Washington Post has chosen to put in its Federal Diary page 
and a couple of radio shows that I have been on, and you know, 
some people read the Federal Diary, but most people don't. Some 
people hear my radio show, but certainly most people don't. 
There is word of mouth. But by and large, people do not know 
about the benefit changes in their plans. They don't pay 
attention.
    They rely, precisely, sir, as you said, we are all very 
busy. We get a ton of mail. We get a ton of documents. The 
thought of me as a sort of average Federal employee picking up 
this 134-page document and sort of reading through it, no one 
does that. Now, what they do in some cases, but only a minority 
of cases, is do what OPM advises them. And OPM is pretty good 
about most of this, right on the cover it says: Go to page 9 to 
see the changes in benefits. The trouble is, you go to page 9, 
and it is a long laundry list. And buried in that long laundry 
list is, to take this example, this $7,500 change along with a 
lot of others. And people tend not to do that.
    So I think what is incumbent on the program as a whole--I 
am not blaming anybody; in fact, I think in general the program 
does very well at what I am describing--is to try to prevent 
people from having unpleasant surprises because something 
doesn't work the way it used to work or something doesn't work 
the way an ordinary person would expect it to work. And I think 
by and large this program does very well at that. So I think we 
all need to be a little bit careful taking Blue Cross to the 
wood shed here, I guess. But it is not all bad.
    Mr. Cummings. All right.
    Let me ask you this. Let me just play the devil's advocate, 
because I think this is what OPM, maybe Blue Cross and Blue 
Shield, is saying: People have a choice. Cummings, why are you 
worried about folk when they have a choice? There are probably 
some things that are better out there, and so why are you so 
concerned? They will go--that is how, you know, the free market 
is. That is what competition is all about.
    And but just let me give you this little footnote on the 
question on what they would say. I think Blue Cross and Blue 
Shield knows that people see them as the gold standard. And 
there are people who will say to themselves, if I get sick, I 
don't want to have to worry about anything. I don't want to 
have--I don't want to have to ask any questions. I just want to 
be able to go to the hospital, don't want any problems. Just 
want to get treatment. So the question becomes, how do we make 
sure that folk, I mean, if they want Blue Cross and Blue 
Shield, that they are informed and do you think we need to 
extend the time for them, the enrollment period so that they 
can hopefully become informed? What kind of procedures would 
you like for Blue Cross or OPM or whoever to go through to make 
sure people are informed of these things? Because there may be 
people that look at this and say this is fine. This is great. 
My problem is that if they don't know and then they end up in a 
situation where they have their back against the wall and there 
is no way that they can get around it and they are stuck. And 
see, it wouldn't bother me if you were talking about stuck 
because you are stuck in traffic, but I am talking about stuck 
with regard to your health. And so, I mean, what do you all 
recommend? Because I want the OPM and Blue Cross and Blue 
Shield people to be ready for this question, too. I mean, what 
do you all recommend? Again, there are people that probably may 
be fine with this.
    Mr. Francis. Well, if I may answer, Dr. Petrucci already 
did, he can speak for himself, but he already suggested 
extending open season. I'm----
    Mr. Cummings. For how long?
    Mr. Francis. I am inclined to recommend against that. I 
don't think that is the right answer to this problem. You can 
extend open season another week or 2 weeks, and still 90 
percent of the people aren't going to know, you know, and they 
are still going to be potentially subject to the gotcha. I 
think reverse this around a little bit.
    First, in general the choice among plans is extremely 
important in this program. OPM, the key to running the program 
is that all the plans, all the choices be good ones. OK. Then 
we don't have to worry as much about competition. So OPM serves 
a regulator role, a cop role. And it serves it in general very 
well. I think this is just one of those blips. I think it is 
just one of those blips; I think it is one of those things that 
people, is sort of the forest and the trees. I don't think 
people quite realized what they were doing when they did it. 
That may be unfair, and I am sure OPM and Blue Cross can expand 
that better.
    My suggestion, frankly, if I were Blue Cross, what I would 
do, if OPM would let me, is I would simply make a benefit 
change, and I would restore the outpatient--the out-of-network 
surgery benefit to what it was in the year 2008. A real simple 
change. Almost no financial consequence to the plan, if any. 
And a gotcha is gone.
    And then over the next year, both parties could consider 
how in the future they want to handle whatever problem they are 
trying to deal with, whether it is balance billing, or network 
discipline problems, or just what was going on, because there 
are other and better alternative ways to deal with it.
    Mr. Cummings. Suppose they say no.
    Mr. Francis. You know, I don't know how to answer that. I 
don't think----
    Mr. Cummings. Which they probably will.
    Mr. Francis. The basic philosophy of this program is that 
the plans make their benefit choices. And as long as they are 
not sort of beyond the pale, the government is going to bless 
them. Government is not trying to set detailed benefit design--
make detailed benefit design decisions. So I don't know the 
answer, sir. My guess is that one way or another, they are 
going to find a way to ameliorate this problem. OPM has already 
issued a clarification that there is not an emergency room 
gotcha. OK. I hope they could do a little more than that. And 
the simplest way, in my view, is simply to restore things to 
the status quo ante in terms of this particular benefit.
    Dr. Petrucci. I think I would like to respond also, because 
I think you speak to a larger issue. And that is our experience 
in the office setting is that patients really don't know what 
their plans cover many, many times, even though they have 
signed onto this plan, they have had it for a long time. When 
they come to our office, it is very common for them really not 
to understand the nuances. And I think that is part of the 
problem. These plans have some very detailed nuances which are 
not easily spelled out, or they may be spelled out but they are 
not easy to understand, even for us and some of our staff. I 
think that needs to be clarified and improved.
    Mr. Cummings. Thank you, Mr. Chairman.
    Mr. Davis. Thank you very much, Mr. Cummings.
    Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    I am leaning over here to this mic, so hopefully you can 
hear me.
    I wanted to pick up on what Congressman Cummings was saying 
about, you know, this is supposed to be the gold standard. And 
in fact, it is the one often pointed to in the debates about 
how we are going to improve the health care system. Everyone 
says, well, you know, we want to have the same system for 
everybody that Federal employees have and so forth. So to me 
the fact that Blue Cross is resorting to, or having to resort 
to, and we will get their testimony on it, I guess, these kinds 
of changes may just be further evidence that the health care 
system and the coverage models that we have in place are 
continuing to break down. And I was curious to know if you know 
what percentage now of patients who are seeking surgical 
treatment are going outside of the network versus choosing the 
option of in-network surgery? Do you have any idea?
    Mr. Francis. I don't know the answer, sir. I am sure Blue 
Cross does. But it is a very small percentage, because I think 
the ordinary consumer advice I render to people is stay in the 
network. You join a plan, you use network physicians; it is 
kind of a no-brainer, if you possibly can. And but certainly 
use network physicians for anything very expensive. And I 
think, I don't know whether it is 98, 99 percent of the time, 
for the expensive stuff, people do that. For minor things, they 
may, you know, if you want to take your kid to a pediatrician 
who is not in the network, it is probably still just a hundred 
bucks, and people will do it. But the overall majority of the 
surgery in this program, I am sure, out of all the services of 
people who are enrolled in the Blue Cross plan or any of the 
other plans, they really all operate in the same way, they 
encourage you to use network physicians, and people do use 
network physicians. But it is this small percent who either--it 
might be ignorance. It might be a very important choice. OK, 
there are lots of important reasons people may choose to use a 
nonparticipating or non-network physician. But, as Dr. Petrucci 
said, you don't expect to have the particular medical procedure 
that is listed on page 87 of your brochure. Maybe you got hit 
by a truck. So people walk into their doctor's office, they are 
not going to know necessarily what faces them. That is 
unavoidable. What isn't unavoidable is that what faces them is 
not something disproportionate to the offense, so to speak. And 
that is the point here about this $7,500 cap.
    Mr. Sarbanes. So if, as you are speculating, the percentage 
is very small of people that would want to go outside for their 
surgery, then it translates, and I guess you have made this 
point already, that the savings aren't so great to the plan for 
implementing this new policy.
    Mr. Francis. I don't think there are any savings to Blue 
Cross that are--any direct savings that are consequential one 
way or the other.
    It may be of some benefit to them in--remember, it's very 
important, the preferred provider system, part of the deal is, 
you're going to accept a lower rate that, the plan's allowance 
is going to be lower than we otherwise charge, but you're going 
to get more business because you are going to get people 
enrolled in the plan.
    So all the plans have to make balancing decisions to 
attract enough physicians into the network to get some of the 
business going their way, and I think Blue Cross can answer 
this much better than I, but it's a small percent of people who 
go out of network for expensive procedures, but a small percent 
could be a lot of people in a plan like this which enrolls 
somewhere around 4 million of those 8 million lives in the 
FEHBP.
    Dr. Petrucci. Well, I think--I would like to respond to 
that as well because I think that what happens is that, in the 
new plan, Blue Cross Blue Shield pays nothing for that surgical 
procedure where currently they would be so that even if it's a 
small percentage, there is a significant savings in that 
setting. Now, I don't know whether that was intended or not, 
but that is certainly the outcome of that happening. So they 
pay nothing at all for that first $7,500 of service.
    Mr. Sarbanes. Well, we'll wait to hear from them, and I 
would just say that this line, this distinction between what 
happens to you when you go in or out of network, obviously, 
there need to be incentives to encourage people to stay in, but 
I don't think you want to create a situation where you're 
basically fencing people off from the kind of choice that they 
ought to be able to make. And when it's such a dramatic 
distinction, that can happen, and of course that is undermining 
this gold standard profile that the plan has had before now.
    Thank you Mr. Chairman.
    Mr. Davis. Well, let me just ask, how does one know whether 
or not they're using a physician or a provider that is out of 
network? I mean, let's say, if you are in surgery, and there 
might be three, four, five, six different people who will come 
into the surgery room, and they do different things?
    Dr. Petrucci. Let's talk about two different circumstances. 
The first is in an emergency. And that is the one that is 
easiest to answer because the individual doctors who are 
involved in that emergency situation, whether it be an 
orthopedic surgeon, a general surgeon, a urologist, a thoracic 
surgeon, may or may not be in the plan. And the patient ahead 
of time usually doesn't know that. I think that I can speak for 
most of my colleagues, maybe not all of them, but most of my 
colleagues recognize that the patient is in a bad position in 
that situation, and therefore the charges are kept more in line 
with what the standard allowances are to a certain extent. 
There may be charges higher than what the standard allowances 
are, but the balance billing for emergency care is much less 
than it would be for a patient who comes to my office to have 
an operation scheduled.
    Now in that setting, in most physicians offices, a patient 
will be told on the phone when they call that we do not accept 
your insurance but we will be happy to see you, we will file 
your insurance for you, we will do whatever you need to do for 
that, but we don't accept your insurance. That is the usual 
mechanism whereby they would find out that the physician is not 
participating.
    Mr. Davis. Are you a----
    Dr. Petrucci. I am a nonparticipating physician.
    Mr. Davis. And was there any particular reason or reasons 
that you may have----
    Dr. Petrucci. There were a number of reasons, and they go 
back a number of years. Part of it is that the current 
requirement for Blue Cross Blue Shield participation means 
that, based on the Care First oversight of that, is that you 
have to participate with all of their plans, including the 
HMO's, and we do not want to have to do that. Our choice is not 
to have to do that.
    And second, the single most important point was that 
administratively these plans are a nightmare for us because 
they're all different. They all have different requirements for 
the physician. Some require pre-certification for various tests 
and surgeries. Some don't. And it's impossible to keep track of 
that process as part of our regular office procedure. And as a 
busy group with five surgeons and a lot of patients coming for 
surgery, that was a nightmare for us.
    Mr. Davis. Let me just ask my last question. For the last 
40 years that I'm aware, much of the discussion around health 
care has been cost containment and everything has been driven 
in that direction, at least conversationally, and at least in 
discussions. Could it be that the costs are simply continuing 
to escalate to the extent that there is just no way around 
these increases?
    Mr. Francis. I think, Mr. Chairman, there are ways around 
these increases. They're painful. They're not going to happen 
over night. The Medicare trustees forecast dramatic insolvency 
for that program starting--actually, by some measures, it has 
already started. The Hospital Trust Fund is not collecting as 
much as much money as is going out. It's living off its 
balances right now.
    There are ways, there are lots of ways to change the 
practice of American medicine and the mechanisms by which we 
insure and reimburse for treatment that can over time reduce 
costs. I mentioned earlier the tax treatment. I think every 
health care economist agrees that the current tax treatment of 
health insurance is a terrible mistake, not just because it 
encourages ever more increasing spending, but because it's--the 
rich get the bigger benefit, OK. The higher your tax bracket, 
the better benefit you get out of the current tax treatment of 
health insurance. And if you are someone who pays no or very 
little income taxes, you get almost none of the tax preference 
benefit. And there is no question in my mind that the Obama 
administration is going to look at that issue and propose some 
significant changes. But the Medicare wrap-around situation, 
it's not just the FEHBP that has this golden wrap-around where 
you get 100 percent coverage of, hey, you want two CAT scans? 
Go for three. Why not? It doesn't cost you anything and so on. 
This is just a continuing problem. It's not a problem when you 
break an arm in an emergency. It's a problem when there's all 
kinds of very expensive elective treatments out there and if 
they're free, ``why not?''
    Clearly, there are ways to deal with that. One of the ways, 
the economists favorite way is, charge people a little bit, but 
there are other ways, paying for the least costly alternative, 
for example, all kinds of ways to manage care, some of them 
unpleasant, but some of them not so unpleasant. Managing care 
can actually be good for the patient.
    I think there's a lot of struggling, quality measures, 
another aspect of this, CMS where I consult is a leader in 
developing new and better measures of quality and increasingly 
trying to make reimbursement of both hospitals and physicians 
and other providers for that matter depend in part at least on 
the quality of their care. Quality of care includes not too 
much care or the wrong kind. I will stop my--I think there are 
methods, but they are not easy and they are not fast.
    Dr. Petrucci. I would like to believe there is a system, 
and I don't know enough about the system to try and say that I 
could solve this problem today. I wish I could. But I will just 
comment on one point that was made in terms of managed care. 
We've seen the managed care model. And it can be good, but it 
can be disastrous, because what it frequently does is it 
becomes an impediment for the patient to obtain care because 
there is a layer of bureaucracy between the patient and their 
care, which may be good, but it can often be bad. And so 
managed care by itself is clearly not an answer.
    And I just want to reemphasize another point that I missed 
previously, and that is that--you picked up on it--and that is 
the issue of surgery. Surgery is a lot of different things as 
defined by the Blue Cross Blue Shield hand book. Most of them 
aren't actually surgery. They are procedures of various types 
required for good care. Thank you.
    Mr. Davis. Delegate Norton.
    Ms. Norton. I had one further question, Mr. Francis, that I 
would like to ask you. There has been something of a debate 
raging for some years now about the fact that Blue Cross Blue 
Shield, which is very much unlike other companies inasmuch as 
it has tax advantages as a nonprofit, has notwithstanding the 
market today because I don't know the effect there, but has 
built, indeed required, very large surpluses of its members, 
huge surpluses. And since it's nonprofit, you have people 
looking to see, well, are you behaving like a nonprofit? Do you 
distribute any of that surplus?
    And their standard answer is one that would convince me if 
you could show me. Their standard answer is that, well, we give 
this back to the subscribers. Well, if you were to ask any 
member of the public, even those who are concerned about the 
tax-exempt status and not getting very much frankly from Blue 
Cross from that status, they would say, well, if that is what 
you are doing with it, that is what we meant you to do with it.
    Do you see any evidence that Blue Cross Blue Shield is 
using this huge surplus it has mounted and these requires--I'm 
not talking about reserves; I'm talking about sheer surplus--do 
you see any evidence that this surplus is plowed back to the 
benefit of consumers?
    Mr. Francis. I have to confess I don't know an answer; that 
is just simply beyond my knowledge.
    Ms. Norton. When you compare their value and their rates 
with other--with the commercial companies?
    Mr. Francis. I think I would say this with respect to--the 
issue you're raising I think has more to do with some of the 
Blue Cross plans have attempted to convert from nonprofit to 
for-profit status. That has been very controversial, and part 
of that controversy has been, what happens to those surpluses 
they have? That was a big issue in Maryland recently, for 
example.
    Ms. Norton. No, no. I'm not talking about that. I'm talking 
about, if you are a nonprofit and you do not distribute--and 
you mount a big surplus that is not distributed to where people 
can see it, then a question is raised, since you are exempt 
from certain kinds of taxes, whether in fact the public is 
benefiting from that.
    Now the public could be, either the subscribers--I'm not 
talking about the conversion issue. Yes, we would have another 
issue if they then have to talk about how they get distributed. 
I'm talking about right now, if you're sitting in competition 
with commercial providers who don't have a tax advantage, and 
because of that nonprofit status, typically the government 
expects that surplus will be used or at least some portion of 
it, no one knows how much, nobody is going to say that there is 
any percentage, but some portion, some significant proportion 
should be used for the public benefit. And I described--leave 
aside the conversion. I'm not talking about conversion. I'm 
talking about these people are not seeking now--they were at 
one point. They're not seeking now to become something else.
    I'm saying, if you're sitting as a tax-exempt provider or a 
provider with some tax advantages, and you look, as you 
apparently do, at all of these plans, my question to you is, in 
your judgment, do you see such cost differences or other value, 
such that you could say that perhaps the surplus is of value to 
the subscriber because we can see it in the value or in the 
cost to the consumer?
    Mr. Francis. Couple of quick comments, and then I will 
defer to Blue Cross and OPM. First, it's very important, this 
program has a pretty rigorous degree of oversight in terms of 
the finances, and it is the case that the Blue Cross premium 
reflects the cost experience to the people enrolled in the 
plan. And there may be an issue of, you know, on the very 
margin as to sort of where one sets those rates exactly and how 
reserves and other funds are treated, but basically, I think 
people are getting value in terms of the--they're getting the 
services they're paying for, OK, in this plan and in the 
others.
    Ms. Norton. I'm not talking about that. Compare 
commercially, if they have--if they are nonprofit and they 
claim that money should not be distributed the way other 
nonprofits do but should in fact go back into their plan, you 
could say, for example, that it does because there are more 
people who have--because they're older, for example, you could 
say that their subscribers are older, as you indeed said. All 
I'm doing is looking for some evidence that the surplus which 
has become controversial in fact is having the effect they say 
it has. Sure you're getting value, but if the fact that you 
have a surplus, you would expect the surplus to get you more 
than value. You would expect that since you have money to put 
back, that money would in fact distinguish you from others or 
at least that is what they claim, that is why they don't want 
to distribute it elsewhere, something I would accept if 
somebody can just show me some evidence of it and simply to 
say, when you compare them to commercial guys, they are indeed 
reflecting the experience--then that of course doesn't show it 
because that is what everybody does. I'm just trying to find 
where this what I would amount to excess capital that 
commercial providers don't have, I'm trying to find where it 
goes and whether the subscribers of Blue Cross Blue Shield feel 
it in any way.
    Mr. Francis. I simply can't speak to the financial aspects 
of that. I will say that the Blue Cross program has over the 
years served a number of very important call them public good 
functions in this program that go sort of beyond what a 
narrowly conceived insurance program would have to do. I will 
give you two examples of that, and this was Blue Cross and OPM 
together making these calls, but a number of the union plans 
went out of business over the years. Plans closed down for 
various reasons. They just couldn't hack it. Some of the people 
or options would close down. Some of the people enrolled in 
those plans were very old and weren't kind of with it mentally, 
and the question--if they made a mistake and let their 
membership, their enrollment in the FEHBP lapse, even for 1 
day, they would be out of the program forever. OPM went to 
great lengths working with Blue Cross to make sure that people 
were what is called auto-enrolled in Blue Cross standard as a 
default, so they wouldn't lose their eligibility for the 
program, and those were expensive people. So that is an 
example----
    Ms. Norton. Well, that is a good example.
    Mr. Francis. Of the kind of service this plan provides.
    I'll give you one other example, I'm not sure it is quite 
as good a one. It was the case for many years before we had 
mental health parity that the best mental health benefit in the 
program was in the Blue Cross plan, and that meant they were 
going to disproportionately attract the heavy users of 
psychiatric services, and of course, you know, those costs got 
reflected in the premiums, but the fact is people were taken 
care of who otherwise wouldn't have had a home. And I think, in 
general, Blue Cross is the plan of--we've been calling it the 
gold standard. I don't want to call it the plan of last resort, 
but it has been the plan that has provided the benefits and the 
coverage that people needed; if they had nowhere else to turn, 
they could always sign up for the Blue Cross plan. I think it 
has over the years been a great service to Federal employees 
and retirees in that respect.
    Ms. Norton. Thank you, Mr. Chairman.
    Mr. Davis. Thank you very much.
    Mr. Sarbanes, do either you or Mr. Cummings have any other 
comments? Mr. Cummings.
    Mr. Cummings. I have a question Mr. Chairman.
    Mr. Francis, you held up a book talking about the health 
plans. Do you have that book?
    Mr. Francis. I held up, Congressman, several books. I don't 
know if I held up my book.
    Mr. Cummings. This is something that describes the health 
plans.
    Mr. Francis. Yes, there is a Medicare book that describes 
the health plans in Medicare called ``Medicare and You,'' and 
there is an OPM book. We call them booklets. It's called, ``The 
Guide to Federal Benefits for Federal Retirees and Their 
Survivors.'' This is published by OPM. It's about 100 pages, 
plus or minus--yeah, it's exactly 100 pages.
    Mr. Cummings. Is that the one you said was difficult for 
you to understand and get through?
    Mr. Francis. No. The other one I held up was the Blue Cross 
Blue Shield brochure. This is the description of the Blue Cross 
benefits. It's 134 pages long, and it's very detailed and 
technical. OPM has set standards for these brochures. They try 
to get them written in pretty clear English. They have them 
organized the same way, so you can turn--for example, we've 
been talking about the surgery benefit. You can go to a certain 
page in every brochure and you will find the surgery section 
described. Another section is on the prescription drug benefit 
and so on. It's done pretty well.
    Compared to the way private health insurance plans 
generally describe their coverages, it's a masterpiece of 
clarity and explanation. That said, it's 134 pages of very 
detailed small print, and nobody in the world reads every page 
or can understand every nuance, as Dr. Petrucci gave several 
examples of that and----
    Mr. Cummings. But is there anything that OPM can do to try 
to help simplify some of this? On the one hand, you said it's a 
great book. Then you come back and say it's not so great. So, 
help me with this.
    In other words, can they make it more consumer friendly? I 
guess what bothers me is sometimes I think we don't have a 
realistic view of what people go through every day and how they 
live their lives. And to me, if I am, I tell my staff when we 
do an event, don't do it the way you like it done; do it the 
way the customer needs it done so we can be most effective and 
efficient, period. Other than that, I'm wasting my time. And 
time is short. So I'm trying to figure out, are there things 
that OPM can do to help employees to better understand and 
navigate this system so that they can come up with whatever is 
necessary, what they feel, deem appropriate and necessary for 
their family and for themselves? Do you have any--do you think 
it's fine just as it is?
    Mr. Francis. Congressman, I 100 percent agree with what you 
said. It's actually my main interest in this subject, is 
helping consumers to understand and benefit from their 
understanding in choosing health plans and in using those 
health plans.
    I think, by and large, OPM has done a very good job on 
this. I would give them a B-plus. They have a very good and 
well organized and clear and useful Web site.
    I think the brochures, as I mentioned, they're long and 
complicated. And I wish they were less long and less 
complicated, but under the circumstances, they do a pretty good 
job on those.
    They do have these summaries of benefits, such as the one I 
held up. That isn't as good as it should be for the reason 
that, No. 1, it could present a little more information like 
what is the catastrophic benefit and, No. 2, because they don't 
standardize the way benefits are described. I want to 
emphasize, I don't mean you have to standardize the benefit 
itself, but because, for example, the catastrophic promise of 
each plan isn't--there is an apples and oranges comparison 
because they aren't actually defined the same way and they can 
be, I think there is work to be done.
    And I think this example, this problem we were talking 
about today is a wonderful example of, if OPM had a rule in 
place that said any significant deductible copayment or other 
maximum, including this $7,500 whatever it is technically 
called, it's not very clear, must be included in our 
catastrophic promise. That is, you can't put it in a footnote 
that there is this $7,500; it has to be part of that number 
that everybody sees, so that number would have been in $14,000 
instead of $7,000, I think they wouldn't have done it.
    Mr. Cummings. I've got to cut you off, because I want to 
ask Dr. Petrucci a question, but I'm sure OPM is listening to 
you, and we want a friendly, a user-friendly document for our 
employees.
    Dr. Petrucci. We see it from the patient side as well. As I 
said earlier, patients will come to the office and think one 
thing about their plan, and it will be completely different.
    Mr. Cummings. Doctor, let me tell you what concerns me 
about what you just said. You were talking about the definition 
of surgery and how, I guess, it's Blue Cross and Blue Shield 
may or OPM--Blue Cross and Blue Shield I think it was defines 
surgery one way, and you see surgery another----
    Dr. Petrucci. Well----
    Mr. Cummings. Wait a minute. Hold on, hold on, let me ask 
the question.
    You're a surgeon, is that right?
    Dr. Petrucci. Yes.
    Mr. Cummings. Oh, OK, and is there anything that OPM can do 
to straighten that out? Because where you were just about to go 
I think before I rudely cut you off, is you know we need--I 
mean, if there are things that we can clarify, and I'm sure--
I'm not a doctor, and I know certain things get kind of murky 
and grayish maybe, but it seems to me surgeons ought to be able 
to figure out what surgery is. And I don't know who is making 
the decisions at Blue Cross and Blue Shield. I guess they're 
doctors. But my point is that sometimes it seems to me that 
there should be some kind of clear understanding, if that is 
possible and practical, of what surgery is, because it seems to 
me when I look at the information, if you have a dispute about 
what surgery is or is not, that is a problem.
    Dr. Petrucci. I agree completely. I think the list of 
procedures, the list of conditions that are included under the 
surgery mantra, if you will, includes a lot of things, 
including procedures which are typically not considered 
surgery, but for example, childbirth obstetrical care and child 
birth is included in that list. There is usually not surgery 
there unless the patient has Caesarean section obviously. It's 
a definitional process which doesn't make any sense. It's 
certainly not medically the way we would think of surgery.
    Mr. Cummings. What would you recommend with regard to 
clearing that up? I mean, if you had a magic wand and if 
government worked the way you would like for government to 
work, what would you like to see government do on that issue?
    Dr. Petrucci. Well, I think, obviously, the first thing 
here with that issue, I think Blue Cross has to be up front 
about what they're saying, and that issue, what they're 
basically saying is, there are a whole group of procedures here 
that we do not want patients to go out of the plan for, for 
whatever reason, and that includes all these various treatment 
types. They list them as surgery. They're not really surgery. 
So they need to be more up front about what this issue is.
    Mr. Cummings. Thank you, Mr. Chairman.
    Mr. Davis. Thank you very much.
    Gentlemen, thank you very much for your testimony. We 
really appreciate it.
    And we will go to our next panel.
    Our second panel will consist of, you have heard a lot 
about OPM, Ms. Nancy Kichak. She is the Associate Director for 
the Human Resources Policy Division for the Office of Personnel 
Management. In this position, she leads the design, 
development, and implementation of innovative, flexible merit-
based human resource policies.
    Thank you very much, Ms. Kichak, for being with us.
    Mr. Stephen W. Gammarino is senior vice president of 
national programs for the Blue Cross Blue Shield Association, 
the Blues as they're called. Mr. Gammarino oversees the Blues 
Federal employee program, which administers the largest 
privately underwritten health insurance contract in the world, 
with premium income exceeding $18 billion. The Blues have 
approximately 50 percent of the Federal market.
    Thank you all both for coming. And if you would stand and 
be sworn in.
    [Witnesses sworn.]
    Mr. Davis. The record will show that the witnesses answered 
in the affirmative.
    Ms. Kichak, it's good to see you again. And thank you very 
much for being here. We will begin with you.

 STATEMENTS OF NANCY H. KICHAK, ASSOCIATE DIRECTOR, STRATEGIC 
     HUMAN RESOURCES POLICY DIVISION, OFFICE OF PERSONNEL 
 MANAGEMENT; AND STEPHEN W. GAMMARINO, SENIOR VICE PRESIDENT, 
   NATIONAL PROGRAMS, BLUE CROSS AND BLUE SHIELD ASSOCIATION

                  STATEMENT OF NANCY H. KICHAK

    Ms. Kichak. Mr. Chairman and members of the subcommittee, 
thank you for inviting me here today to discuss the benefit and 
premium changes for the Blue Cross Blue Shield benefit plan. 
The FEHB program annually provides $34.9 billion in health care 
benefits to over 8 million Federal employees, retirees, and 
their dependents. In January 2009, enrollees nationwide will 
have 269 health plan choices from which they may select their 
coverage.
    At the end of this year's negotiations, Blue Cross and Blue 
Shield and OPM signed a contract that realigned benefits at no 
increase in cost to the program for nonemergency surgical 
procedures performed by nonparticipating physicians. The 
agreement was that enrollees would pay the full cost of the 
procedures up to $7,500, and then Blue Cross would pay the 
additional charges.
    This provision was included in the plan because OPM's 
review of disputed claims over the last several years revealed 
a hardship to Federal employees and retirees. Time and again, 
disputed claims were submitted to OPM by patients with 
skyrocketing out-of-pocket costs due to the current policy for 
elective surgeries, which requires enrollees to pay 25 percent 
of the plan allowance plus any difference between the allowance 
and the billed amount. Because there was no limit on the amount 
that could be collected from Federal employees and because non-
par doctors charged substantially in excess of allowable 
amounts for their out-of-network surgeon services, in some 
cases, the enrollees costs totaled tens of thousands of 
dollars.
    For example, we reviewed a case in which one Federal 
employee who had back surgery ended up being responsible for 
paying the doctor over $55,000 of his own money. Now this would 
be a gotcha, where you go to a non-par doctor and you have to 
pay the difference between the allowable and the billed amount.
    Once the 2009 policy becomes effective, the maximum out-of-
pocket will be defined for enrollees who obtain surgeries from 
nonparticipating doctors while reducing costs for Federal 
employees and annuitants using the most expensive services. The 
set copayment of $7,500 enables members to know, should they 
choose a nonparticipating provider, that they will be 
responsible for paying only up to that amount, Blue Cross Blue 
Shield pays any amount in excess of the fixed copayment.
    Alternatively, Federal employees can choose to stay in 
network, and by far most do, at which point this policy does 
not apply, or they can enroll in a plan other than Blue Cross 
and Blue Shield. The $7,500 copayment does not apply to 
surgeries resulting from accidental or emergency situations, 
and it is not subject to the annual deductible.
    Blue Cross's testimony suggests that these benefits should 
now be reconsidered. OPM stands behind the contract as agreed 
to. Continuous negotiations and benefit changes would create 
confusion in the program and make it virtually impossible to 
provide sufficient information for enrollees to make an 
informed open season decision. We remain committed to 
protecting the interests of the Federal employees whose 
disputed claims presented evidence of an overwhelming financial 
burden.
    Also, from a competitive standpoint, it would be unfair to 
reopen negotiations with a single plan without making that same 
opportunity available to competitors. Each year, OPM works with 
insurance companies to negotiate a package of benefits that 
provides comprehensive coverage at the lowest possible cost. We 
work diligently to strike a balance of protection against 
catastrophic events without shifting a high premium burden to 
enrollees and firmly believe the negotiated copays for out-of-
network surgeries achieve that balance by limiting costs for 
users of expensive surgeries without transferring more costs to 
enrollees who stay within network.
    Mr. Chairman, we are 6 days away from the end of the time 
period for which Federal employees can choose their health care 
plan for next year. If changes are made at this late date, all 
of the information posted on our Web site, sent to the 
agencies' human resources benefit officers, and to the 
employees and retirees themselves, who need this information in 
order to make an informed decision about their health care 
options, would need to be revised. We encourage enrollees to 
take the opportunity during open season to review their health 
insurance coverage needs and any change in their plan's 
premiums and benefits, and then decide if they should consider 
a change in plans or options. I appreciate this opportunity to 
testify before the subcommittee on this very important issue, 
and I will be glad to answer any questions.
    [The prepared statement of Ms. Kichak follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Davis. Thank you very much, Ms. Kichak.
    And we will go to Mr. Gammarino.

               STATEMENT OF STEPHEN W. GAMMARINO

    Mr. Gammarino. Good morning, Chairman Davis and members of 
the subcommittee.
    I'm Steve Gammarino, and I'm proud to represent the Blue 
Cross Blue Shield plans who make up the independent plans who 
both underwrite and administer Blue Cross Blue Shield 
governmentwide service benefit plan.
    I'm also proud to indicate that we serve more than 4.9 
million active and retired Federal employees and their 
dependents under this plan.
    Through our participation in the FEHBP, we've made 
available to active and retired Federal employees and their 
families the deep provider discounts and broad networks that 
our local plans have developed on the basis of their extensive 
commercial business. An estimated 95 percent of eligible 
providers participate in our nationwide Blue Cross Blue Shield 
network. That is over 400,000 physicians today.
    Mr. Chairman, today's hearing provides a welcome 
opportunity to address changes that we've negotiated for 2009 
and to specifically address the benefit for surgery provided to 
standard option members by nonparticipating surgeons and to 
explain the problem that it intended to address.
    Much concern has been generated about this change, even 
though it affects a relatively small population. It has become 
evident to me, however, that some of this concern is justified. 
And we do need to reexamine the benefit design for 2009.
    The service benefit plan offers Federal employees and 
retirees two options from which to choose, standard and basic 
option, which have become the two most popular choices in the 
FEHBP today. I will continue my remarks today and focus on the 
standard option plan, because the issue before us does not 
relate to basic option.
    Standard option covers professional services provided by 
three categories of professional: providers, preferred, 
participating and nonparticipating. Preferred and participating 
providers have agreed to accept an amount that we have 
negotiated with them as payment in full for their services. As 
a result, members cannot be billed for the difference between a 
negotiated amount or the allowances we call them and the 
providers' charge, a practice known as balance billing. Members 
can generally save the most money by using preferred providers, 
and we make them aware of this fact. When using either 
preferred or participating providers, service benefit plan 
members are responsible only for their deductible, co-insurance 
and copays.
    Today, our experience shows that 96 percent of all medical 
services are provided by in-network doctors, and 98 percent of 
all surgeries are. Nonparticipating providers, on the other 
hand, have no contractual relationship with us so they're not 
obligated to accept our allowances for their services as 
payment in full. Instead, they are free to balance bill the 
member, and many do.
    Ironically, it was to protect our members from having to 
pay exorbitant balances that we worked with OPM to negotiate a 
different benefit for surgery performed by nonparticipating 
providers. We reasoned that if we cap the members out-of-pocket 
costs, we could relieve some of the burden placed on members 
who choose nonparticipating providers for what is typically the 
most expensive type of professional service that they're going 
to receive. Members will pay 100 percent of the amount billed 
by nonparticipating surgeons up to $7,500 per surgeon, per day 
on which the surgery is performed. After that, we will cover 
the rest.
    The benefit, as you already heard, does not apply to 
emergency surgery or surgery for accidental injuries. In 
reexamining the benefit initially negotiated for 2009 and in 
view of the express concerns that we've already heard, we will 
be pursuing an alternative that would allow us to administer 
the benefit in a way that is consistent with other services 
that are covered out of network. We would do this in a way to 
ensure that the alternatives do not result in an increase in 
our premiums.
    Mr. Chairman, we take very seriously our obligation to 
offer Federal employees and retirees high quality affordable 
health insurance through the FEHBP. Blue Cross Blue Shield 
members have access to the deepest discounts and most extensive 
networks, and we strongly encourage standard option members to 
use preferred or participating providers to lower their costs. 
In order to keep our products competitive in the program, we 
are going to continue to make difficult decisions and develop 
benefit designs that meet the members' needs and keep our 
premiums competitive. We appreciate your interest in the 
program and look forward to working with you and the 
subcommittee to address this and other issues that are so 
important to Federal employees and retirees who rely on the 
FEHBP for their health care coverage.
    This concludes, Mr. Chairman, my prepared statement. I look 
forward to answering any questions that you and the 
subcommittee may have.
    [The prepared statement of Mr. Gammarino follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Davis. Thank you both for your testimony, and I will 
begin with the questioning.
    One of the major concerns that has been expressed by 
enrollees, and of course we also heard that concern expressed 
by Dr. Petrucci and Mr. Francis, testified that the 2009 
changes create this gotcha trap for people who just simply 
don't know, did not know, were not aware and are not aware. In 
addition to that, the brochure, that is the Blue Cross brochure 
summary description, nor the OPM Web site adequately discloses 
seemingly the 2009 benefit changes.
    The question, actually, to both of you, as you look back at 
this or in hindsight, do you think that enrollees were 
adequately notified? And if they were not adequately notified, 
is there any way to correct this? Or does this give us some 
information for future negotiations and especially for ways of 
trying to make sure that the consumers are aware of what 
they're getting?
    Perhaps, I will begin with you, Ms. Kichak.
    Ms. Kichak. First of all, the major change was described on 
the change page of the Federal employees benefit brochure. The 
Federal employees benefit brochure was standardized in a plain 
language initiative in which the change pages were moved to the 
front of the brochure so that they would be easily found by 
every Federal employee. They have, even when they were not in 
the front, even when they were the back page of the brochure, 
they have been known by Federal employees to be the source for 
looking at how every--how the plans are changed. And everybody 
gets a copy of the brochure for the plan they're in. That is 
provided to them. The $7,500 was also in the comparison chart 
posted on OPM's Web site.
    Now, we have changed our Web site this year to make it more 
user-friendly. We are continuously working on improving the 
information, and we will continue to do so. But that 
information was there, and it was available.
    I would also say that, again, this problem, this benefit 
was designed because of the folks who were subject to balance 
billing. I would expect that those folks who use--have been 
subject to balance billing would know to check for that in the 
brochure. The brochure is well indexed. I understand it's a 
very long brochure, but you can very easily find which section 
of that brochure deals with benefits that you're accustomed to 
using. So if you had been using nonparticipating physicians 
before, you can find that in the brochure by using the index.
    So the material is good. Yes it can be better. We are 
working on it. We're working on it in our Web site, and we can 
also work and will work to make those brochures more clear. But 
it is a very, very complex program. It's complex benefits, we 
agree. And we're not just starting that. We've been working on 
that for a very long time.
    And I think Mr. Francis mentioned that we've standardized 
the layout of brochures to help people do more comparisons.
    Mr. Davis. Let me just ask quickly, though, new enrollees, 
individuals who are just coming in, will they get the benefit 
of the proposed changes that are being worked on?
    Ms. Kichak. Well, if they're new, the plan is new to them, 
so the change page won't matter. They can look at the 
comparison chart to see how a new employee gets to choose their 
coverage when they enter. And they can get the comparison 
chart. They can look at the Web site. There are plan selection 
tools on the Web site that you can use to put your benefits in 
and get some recommendations. If you're new, you might miss the 
open season fairs we have at the agencies, but the agencies 
send--the plans send representatives to the agencies to discuss 
benefits also.
    Mr. Davis. Mr. Gammarino.
    Mr. Gammarino. Yes, I think OPM does an excellent job in 
terms of educating the changes, as Ms. Kichak has discussed.
    I think, as the other panel has already indicated, although 
we educate and educate, that doesn't mean that everybody 
understands those changes. Because of this particular issue, we 
are mailing out to every one of our members clarification 
regarding this particular issue right now. So we recognize that 
everybody didn't quite understand what the changes were. And 
we're trying to improve the education by having increased 
information go out at this time.
    Mr. Davis. Now, I think I heard Ms. Kichak suggest that if 
there were changes, that it would be very difficult to 
implement, and of course, if there are changes with one 
contract, then that necessitates taking a look, opportunities 
for other contracts. But I'm hearing you say that Blue Cross 
Blue Shield is open and is, in fact, looking at and working 
toward a different option relative to the surgery benefits and 
the way that is handled.
    Mr. Gammarino. Yes, there are two tracks that we would like 
to pursue with the agency. One is, if no benefit changes can be 
made for 2009, that we take a look at how we're going to 
administer this. I think the previous panel indicated some 
issues associated with this, and I would like to followup with 
them and understand those issues better so that we can make 
sure if we do implement this the way it's defined right now, 
that we do it in a way that is sensitive to our members.
    Additionally, I do think that what we traded off, we 
improved one part of the benefit in terms of these excessive 
billings by some of these nonparticipating providers, and we 
have a great protection now that we didn't have before. So from 
that advantage point, I think the OPM has done a very good job 
in terms of protecting their employees and their retirees.
    As I look at it, I think you could say we could have done a 
better job associated with the other side of the coin, in terms 
of people that had costs that were--that weren't excessive, but 
there is an expectation. We talked about the gold standard, and 
I take that to heart. When you take a look at the program and 
you take a look at complexity, one thing that I will be looking 
at in terms of options, and there are primarily two, one is 
from the member perspective, could they readily understand 
this? And is it consistent with the overall intent of the 
product? And I think that is some of what you're hearing is 
everything else works one way; this works another. And no 
matter how much you educate, if you have those types of 
aberrancies, it's very difficult for the member to feel 
comfortable with the coverage that they have. So that is 
something I do intend to address, either through administration 
or some type of recommendation associated with 2010 benefits.
    The other thing is cost. The tradeoff we made here results 
in less money going in one pocket and more in the other. And 
it's important as we look through this that we do it in a way 
that doesn't raise premiums. Affordability is an issue we've 
already addressed. And it's my intent to ensure that as we look 
for ways to improve how we administer this particular area that 
we do it in a way that is sensitive to the cost of care.
    Mr. Davis. Thank you very much.
    Ms. Norton.
    Ms. Norton. Thank you, Mr. Chairman.
    What changes are you considering, Mr. Gammarino?
    Mr. Gammarino. What I'd like not to do here at the hearing 
is discuss the specifics behind that.
    Ms. Norton. That is a problem. Transparency has been a 
problem here. To the extent that we can't learn anything from 
you even about what you're considering, that problem remains, 
sir.
    Mr. Gammarino. Let me try to help out there without 
negotiating here. Because that is what I don't want to do. If 
you just take a look at our benefit design, if you just take a 
look at the consistency of the cost sharing with in-network and 
out-of-network benefits, basically what you will find, you will 
see that the number in terms of the cost sharing is consistent 
regardless of the service rendered. And it's that type of--what 
would happen in this case is that consistency was broken. The 
cost sharing that is consistent with other medical services was 
broken. And it's that type of thing that I want to look at and 
try to restore that type of consistency regardless of the 
service.
    At the same time, I think it's important to protect the 
member against egregious charges and billing for out-of-network 
services.
    Ms. Norton. One thing you might want to consider is the use 
of the word ``surgery.'' We were stunned to see the across-the-
board use of that word, some clarification there to limit----
    Mr. Gammarino. That is exactly the type of thing I want to 
focus on relative to how we administer this.
    Ms. Norton. You know, if you cut somebody, that is surgery. 
You know, you put a cast on, and you still have the same $7,500 
per, ``surgery.'' That is going to give Blue Cross a really bad 
name, particularly since the language that was used and here I 
would like to hear you justify it since you, Ms. Kichak, you 
like it just the way it is.
    OK since you're supposed to be the watchdog here, do you 
approve of the fact that the language used to reveal this 
change was as follows: Some costs do not count toward this 
protection.
    Do you consider a $7,500 additional cost per surgery not 
worthy of some greater mention than that from Blue Cross Blue 
Shield.
    Ms. Kichak. First of all, most of the folks using the out-
of-patient surgery--the nonparticipating provider surgeries 
will not pay $7,500.
    Ms. Norton. That is not my question. If you have to pay it 
once, and you didn't have to pay it before, Ms. Kichak, please 
don't minimize what it means to the consumer. That is not your 
role. You are not Blue Cross Blue Shield. You're supposed to be 
the person that monitors this for us all. So whether it's one, 
whether you have to pay $7,500 or $15,000, you know, it's what, 
it's a cost you didn't have last year and did not expect this 
year. So I wish you would respond to my question. Do you think 
the language used was sufficient to inform consumers of an 
increase of this kind?
    Ms. Kichak. Can I ask which language you're reading? Are 
you reading from the change page or the brochure?
    Ms. Norton. I'm reading from the language, the only 
language that was used that gave people, reading from the 
summary, an indication of this cost increase.
    Ms. Kichak. I think we should work on the language.
    Ms. Norton. I appreciate that. If we can learn from this 
experience, we will be fine. But if the point is simply to 
justify what has happened, then, of course, we're not going to 
please consumers and we're going to think we're not getting 
anywhere.
    Indeed, I was surprised, because it's not in your oral 
testimony, here you have Mr. Gammarino--this is a difference 
maybe between bureaucrats and somebody who has to be in 
business. And we're going to have to have government respond 
the way somebody in business has to. What Mr. Gammarino says, 
he is considering changes. You say you like it the way it is. 
At least you say it in the oral testimony. I had staff look. I 
said I don't see that in her written testimony.
    If that is your view, I would like you to explain why you 
think it should remain. As it is, as best I could pick up, 
there were bureaucratic reasons that might be good and 
sufficient reasons.
    Ms. Kichak. I don't think protecting enrollees from $60,000 
and $70,000 worth of costs is bureaucratic. I mean, we have 
numerous----
    Ms. Norton. $60,000 or $70,000 worth of costs in what way?
    Ms. Kichak. That is what our enrollees, our Federal 
employees and retirees, were paying under the benefit as it is 
today, because they were totally at risk between what is 
allowable and what the balance there was.
    Ms. Norton. So you think that the underlying change is a 
good change, and you prefer to let it remain that way.
    Ms. Kichak. We constructed it to protect the extreme, and 
in that process, the people with the lower-level, lower-cost 
surgeries are paying more and we----
    Ms. Norton. Do you believe surgeries should have been, a 
distinction should be made among surgeries?
    Ms. Kichak. I believe----
    Ms. Norton. Putting on a cast and doing a major surgery 
where you have to cut somebody, to be blunt about it?
    Ms. Kichak. We are using--surgery has been categorized the 
same way in all the plans using----
    Ms. Norton. That is what I mean by bureaucratic 
explanation. Because we have always done it that way, that is 
the way, that is the reason we did it even though there was a 
substantial increase in cost to the consumer. That is the 
source of my impatience.
    Ms. Kichak. But there is not, in aggregate, there is not a 
substantial increase in cost to the consumers. On average it 
works out. Some people pay more. Some people pay less. And we 
were trying to deal----
    Ms. Norton. But the person who has to pay more does not 
have all the people who have to pay less before them or care. 
So I am not taking issue at the moment with the underlying 
decision. I am taking issue with your notion that nothing 
should be done even though the language did not warn consumers 
that there was a change that could have an effect and, if I may 
say so, a negative effect on them. And you have, I think, 
already conceded that the language needs to be used, if not 
looked at.
    Ms. Kichak. I did not mean to give the impression nothing 
should be done. I was addressing the benefit which was 
constructed, we thought, to provide a level of protection to 
our members. We are issuing additional information. We have 
sent things to the benefit officers. We have clarified the 
brochure. We have made Web changes. We are trying to improve 
the information.
    Ms. Norton. And I appreciate that, Ms. Kichak, nor do I 
have generally a problem with your materials. But then we 
haven't seen this kind of change for employees, the majority of 
whom are in this plan.
    Indeed, I would like to ask you, Mr. Gammarino, and you, 
Ms. Kichak, in considering this, did you consider other ways? 
Because I am not, as you can see from the way I was questioning 
the last witnesses, I am not in favor of the American approach 
to health care, which is that we shouldn't worry about costs, 
we, the individual. And therefore, I'm very much for your 
network notion, your making people stay in the network and, to 
the extent that it is fair and possible, pay more for going out 
of the network.
    Did you consider other ways, particularly given the figures 
that you have named, some 96 percent, virtually everybody stays 
in the network, did you consider other ways other than this 
cost? I don't know, second opinions or some kind of permission 
before you used someone outside the network, rather than to 
throw this very large payment on those accustomed to doing so, 
understand, and now are told they can't? Aren't there other 
ways to perhaps get the result you want other than through a 
large increase, per surgery, reset every time, per surgery, it 
goes up?
    Mr. Gammarino. And those are the types of things I want to 
explore. Did we consider them through negotiation? I don't have 
any specific examples, but I can just tell you, normally what 
happens during the process is there are a number of things 
considered. In this case, the balance came down on the side of 
these egregious----
    Ms. Norton. But were second opinions considered?
    Mr. Gammarino. Not to my knowledge.
    Ms. Norton. Would you agree to consider second opinions, if 
not now in the future?
    Mr. Gammarino. I would like to consider any and all options 
because this, in my opinion, is not where I want to be in the 
long run on this coverage.
    Ms. Norton. Thank you, Mr. Chairman. I may have further 
questions, but I will pass on to others.
    Mr. Davis. Thank you very much, Ms. Norton.
    Mr. Cummings.
    Mr. Cummings. Mr. Gammarino, I have been around here a few 
years, and we get a lot of promises. And I have no--some of 
those promises are kept. Some of them are not. What happens is 
that, what I have noticed is that people will make promises, 
and then they wait, either for a new Congress and/or 
circumstances change, whatever, and the promises sometimes 
disappear.
    But people still have problems, the people we represent. So 
I just want to nail you down a little bit here. What are we 
talking about timetable-wise? And by the way, your reputation 
is impeccable. But I am telling you, the people that I 
represent, they like to have answers, because they have to make 
decisions. In 6 days, I think, it is, a few days, a decision is 
going to have to be made. You talked about reconsidering, 
reexamining certain things. And I am just trying to figure out, 
what is your timetable? I mean, how do you see that happening?
    Mr. Gammarino. Let me give you I guess what I would 
consider the outside time, OK? And that is if--remember that I 
can't act unilaterally.
    Mr. Cummings. I understand.
    Mr. Gammarino. And so, in this regard, at a minimum, I am 
going to be seeking changes for the next calendar year when we 
go through benefit negotiations. That is a minimum, depending 
upon what I can achieve between today and in a very short time 
period. I do want to do something. This is not consistent with 
how we want to deliver products to our members. And I can 
just--I have been before you many times before. And this is 
something I want to change. In the short run, at a minimum, if 
the benefit cannot be modified for 2009, then I want to look at 
all I can do on the administrative front to ease the burden on 
members that are affected by this change.
    Mr. Cummings. Now let me--let's come to my constituents. 
Let's say these folks back here are my constituents here. And 
there is somebody here who is considering a non- network 
surgical service. They want to have that done within the next 6 
months. How does--I mean, and they are looking at Blue Cross 
Blue Shield. They love you. They think you have done a great 
job, but now they are facing a decision. And this sounds nice, 
but they got to make a decision. So what do you say to them?
    Mr. Gammarino. What they have to do is go by the brochure 
as it stands today. I would not expect them, with what I have 
put on the table so far, that they may get the type of change 
that they would expect. So I think you have to go by the 
negotiated brochure as it stands today. And at a minimum, you 
would expect something in 2010. And then, if we can pursue 
other options that are agreeable with the agency, I want to 
implement them.
    Mr. Cummings. Ms. Kichak.
    Ms. Kichak. Uh-huh.
    Mr. Cummings. Do you feel like your constituents, our 
employees, know about these changes?
    Ms. Kichak. We think that we are getting the information 
out, yes. And we think it is--again, because these claims with 
nonparticipating providers have been so damaging to people who 
use non-par doctors, not just in this instance, but this is the 
first time anybody has tried to deal with the balance billing 
problem; these folks are paying the full balance bill. And so 
we think, certainly if they have been subject to it, they are 
looking at this kind of thing. We are sending out more 
information. As Mr. Gammarino said, they are sending out more. 
We have changed our Web sites. The information is getting out.
    Mr. Cummings. Did you consider having an extension of the 
enrollment period?
    Ms. Kichak. No. 1, it is very difficult to extend the 
enrollment period. And the other thing is that creates extreme 
challenges for the operation of the program because we are 
already getting to mid-December. We are in the first week in 
December. Anybody who changes has to get their enrollment card, 
possibly get new doctors, learn new benefits. We have to get 
that information from the places where the changes occurred, 
whether it was in the HR office or on the Web site, out to the 
plans. And there is always a struggle at the beginning of the 
year around January if an enrollee needs new services and they 
don't have that enrollment card yet. And if you extend the open 
season, that jeopardizes that even further. So we don't think 
that is a good idea. Now, there is an opportunity for people 
who learn this over the next week to go to their HR office and 
say, I need to make a belated enrollment for this reason. But 
we do not want to extend the open season.
    Mr. Cummings. Mr. Chairman, I just have one last question.
    Mr. Gammarino, I appreciate your testimony. And you talked 
about the surgery benefit charge with regard to the 2009 option 
plan. But let me just ask you about this. You know, that change 
was not the only thing that we were concerned about. 
Catastrophic out-of-pocket limits for 2009, for example, will 
increase by $500. Further, monthly premiums will increase 13 
percent to $152.06 for individuals and $356.59 for families. 
These are real dollars. And you know, thank God, gas has come 
down, but people see their paychecks shrinking, shrinking, 
shrinking. And can you help me and explain to me why that is? I 
mean, that 13 percent increase is quite substantial. And I 
think it is a little bit above what it has been in the past. I 
think it was like around 8 percent in the past.
    Mr. Gammarino. Well, it has actually been lower than that.
    Mr. Cummings. Yeah, so help us to understand that.
    Mr. Gammarino. Sure.
    Mr. Cummings. Because you can imagine when people see that 
coming out of their paycheck, and they are used to--people that 
I represent, a change of that amount of money can throw their 
budgets completely off, or some of these young people getting 
their families started or whatever. So can you help us with 
that?
    Mr. Gammarino. Right. I would like to just go back and 
level set, the increase we had this year was greater than our 
competition, and it was greater than what we had put through 
the last few years.
    Mr. Cummings. Your increase was greater than your 
competition?
    Mr. Gammarino. Sure.
    Mr. Cummings. OK. I just wanted to make sure I understood.
    Mr. Gammarino. So I appreciate your question, you know, 
why? Why did that happen? There is a couple of things going on. 
One thing that you will see in the FEHBP, you will see dynamics 
where carriers are going up and down and changing benefits. We 
don't do it in lockstep. Actually, if you just take a look at 
what our premiums have been on standard option, that is our 
flagship product, over the last 5 years, our average has been 
5.8 percent, the last 4, 4. So we have--last 4 years, 5 
percent, and in the last just couple years, 3.5. So we were 
holding our rates down actually lower than our competitors on 
average in previous years. So, in one sense, we are catching 
up.
    The other thing that was happening is our coverage really 
hadn't changed much over the last 5 to 6 years. Our copays on 
drugs, for example, really, if you just take a look back in 
previous years, they really hadn't changed since 2002. And what 
was happening is a lot of our competitors have been making 
changes. They have been making benefit modifications. They have 
been introducing new lower cost products.
    And additional to that is the demographics of the standard 
option Blue Cross Blue Shield. And this is something that, you 
know, the country is seeing. The FEHBP sees even greater. And 
then the standard option Blue Cross Blue Shield sees it even 
more. And that is the aging of the American population. The 
average age in our standard option product now is 61. OK. That 
is not your typical plan. And the fact that we have been able 
to hold down our premiums and keep our coverage relatively 
stable for the last 5 years I think has been a great 
accomplishment. But that safety valve we had to let go of. The 
fact of the matter is the last couple years, our expenses are 
running at a rate that is slightly greater than the premium 
income.
    And Ms. Norton, to your question about reserves, that is 
one thing that we do at Blue Cross Blue Shield. It allows us to 
stabilize things year to year. Normally we can draw down 
sometimes our reserves and sort of cushion some of the things 
that go on from year to year. So it is a combination of the 
demographics of the population. It is a combination of the 
dynamics of the FEHBP, where price is king in terms of people 
looking at benefit plans. People are very price-sensitive. And 
in many cases what you are going to see over probably the next 
couple of years is more and more cost-effective plans and 
probably enrollees making that choice through open season to go 
to lower cost plans. The Federal employee and retiree are very 
astute shoppers. You know, we talked about the educational 
issue. That is true. But I will put these shoppers in health 
care up against anybody in the country in terms of overall 
understanding of their benefits and in getting value for their 
dollar.
    Mr. Cummings. Just one real quick thing. Following that 
logic then, it seems to me then that you probably--I would 
almost have to predict that premiums will continue to sky 
rocket for Blue Cross and Blue Shield. And let me tell you why, 
based upon what you have just said. Younger people are going to 
probably go for the plans that are cheaper, figuring they are 
not going to get sick; they are not going to need whatever. 
Older people will go more I guess toward Blue Cross and Blue 
Shield because they feel like they can get the things that they 
need. So that 61 may go up even higher. That average age of 61 
may go up even higher. Is that a reasonable assumption?
    Mr. Gammarino. That is a hypothesis that might play out. 
What I think you are going to find is, No. 1, everybody in the 
FEHBP, if you want to play in this market, you are going to 
have to be able to service and manage an aging population. 
Nobody is going to get out from underneath that. If you just 
take a look at demographics, No. 1, it is one of the few 
employer groups now that also the retirees get exactly the same 
coverage at the same price. So from that--you know, that is a 
little bit out of the--so when you take a look at, you know, 
other employers, a lot of them just cover their actives. In 
this case, the band is a lot bigger. And so it is just 
something I think we are in it for the long run, so we are 
going to find solutions and value propositions that even if 
they may be paying more for our plan, but they are going to get 
a value proposition in terms of what they need to navigate for 
their medical care that we believe that they are going to be 
willing to pay for.
    Mr. Cummings. Thank you, Mr. Chairman.
    Mr. Davis. Thank you very much, Mr. Cummings. Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    This is a great panel presentation, just because it shed a 
lot more light on the issue. What is intriguing to me is, 
normally when you have proposals for these changes in the 
benefits and the costs that go with them, it is driven by the 
plan's concern about, you know, protecting the economic model 
and solvency and so forth. And many of the changes proposed 
fall into that category. But it seems like the one having to do 
with the out-of-network surgery was based on a much different 
premise. And so my first question is, it sounds like OPM went 
to Blue Cross to initiate this change, not the other way 
around. Is that true?
    Ms. Kichak. That is correct.
    Mr. Sarbanes. OK. You said that there is an exception with 
respect to this change for emergency surgery and another 
category. What was the other category?
    Mr. Gammarino. Accidental injuries.
    Mr. Sarbanes. So how come? Why is there an exception for 
those two?
    Mr. Gammarino. I think the thinking is the member had very 
little choice in terms of where they had to go for the care. 
And therefore, we weren't going to--we were going to safeguard 
their interest because they are in an ambulance; they are going 
to the nearest facility, being treated by the best available 
physician at that time. And----
    Mr. Sarbanes. So they might have to go out of network----
    Mr. Gammarino. They might.
    Mr. Sarbanes [continuing]. Is the point.
    Mr. Gammarino. Yes, it happens.
    Mr. Sarbanes. That is the reason, right?
    Mr. Gammarino. Yes.
    Mr. Sarbanes. OK. But if they go out of network, then they 
are still going to get hit with that balance billing issue that 
you are trying to protect all the other people from. So I don't 
understand, if that is the underlying rationale, why you are 
not trying to protect those people, too, Ms. Kichak.
    Ms. Kichak. Yeah, I think, first of all, this is the first 
time that balance billing has been addressed in any way, 
frankly, I think in any of our plans. And we have been trying 
to get our hands around this for a couple of years. This was 
not a casual, easily arrived at benefit. And yes, we initiated 
it, and we worked with Blue Cross, and we have been trying to 
deal with this issue. So I think one of the reasons it started 
this way is this is where we saw the most egregious claims, and 
so we were starting to address what we saw the most of, which 
was elective surgeries with nonparticipating providers; balance 
billing is a concern, but nobody is addressing that.
    Mr. Sarbanes. I understand. I am just pointing out it seems 
a little bit contradictory, because you could say that the 
person who is in the most gotcha position is the person who, 
through an accidental injury and an emergency, went to a 
nonparticipating provider and then ends up with this huge 
balance billing issue again, which if that is the basis for 
your concern and wanting to push this change, it is a little 
odd that you exempt them from it. That is all I am----
    Ms. Kichak. We get at OPM about 2,000 what we call disputed 
claims a year. And that is where we start to see where our 
enrollees are having difficulty. And we were not getting those 
disputed claims on the emergency side. And you heard the doctor 
earlier say that, on emergency conditions, he was saying that 
their balance billing is not as large because they recognize it 
is an emergency. So maybe the doctors haven't been balance 
billing in those situations. We were not experiencing--we were 
not getting the concerns from our enrollees. And so that is not 
where we started with this.
    Mr. Sarbanes. OK. So let me ask this question. You know, 
again, this is not a change that is being forced by the 
economics, which is what I----
    Ms. Kichak. Right, it is not.
    Mr. Sarbanes. And I apologize because I hadn't read ahead 
to some of the testimony, but was the assumption I was going on 
when the first panel was before us. But if it is not forced by 
the economics, then there is much more flexibility to try to 
fix this problem, maybe rethink it as others have been 
suggesting.
    One question I had, and this would follow on the 
observation that the Federal employees are astute shoppers, had 
you thought about making it an option? Because it is about 
protecting the consumer here. That was your goal. When I say an 
option, in other words, that you would say to people, if you go 
out of network, there are two options that could be available 
to you. One is the one you have had, which was the 25 percent 
plus the exposure to the balance billing, or you could pick 
this option, which would be a cap at $7,500 through the 
deductible, where you won't have any exposure to the balance 
billing. Beyond that, and you being astute shoppers and trying 
to judge, particularly if it is applicable to elective surgery 
only, where presumably you could try to ascertain ahead of time 
what the costs might be and the charges might be, you can 
choose as a consumer. Now, I understand you might end up in a 
situation which you don't want to have, which is where you have 
people with different results hollering at each other and 
hollering at you because they are wondering, well, how come the 
person over here made out better than I did? And I didn't 
realize when I picked one that I was getting foreclosed from 
this better scenario over here. But I just wonder if that was 
considered at all.
    Ms. Kichak. That wasn't considered. I don't think in the 
past we have ever had an option for allowing folks to choose 
their benefit at point-of-service. And that has some negatives 
in that people are obviously going to choose what is 
financially the best interest to them. And then it is hard for 
us to predict the costs. But we are trying to find the right 
solution to provide the broadest protection for our Federal 
employees. And we will definitely work with Blue Cross on 
examining a multitude of options.
    Mr. Sarbanes. Again, the only reason I offered that, and I 
will close my questioning, but the only reason I offered it is 
because you alluded to the costs, you can't predict the costs.
    Ms. Kichak. Right.
    Mr. Sarbanes. But this particular change, as we have all 
agreed, has not been driven by the cost concerns on the plan's 
side. It is being driven by a desire to protect the consumer in 
some instances from him or herself is what I am hearing. So if 
that is what is driving it, then you could offer the option to 
the astute shopper to decide, well, you know, I want to take 
the chance on the balance billing thing because I think this is 
where I am going to end up, or I want that comfort of knowing I 
will be capped out at the $7,500 if I have to go for this out 
of network. And there may be other reasons why that is not a 
good idea. But it seems to me that it at least is something to 
look at, given what is driving the proposal here.
    Ms. Kichak. Of course, the better thing for the enrollee is 
to try to find a participating provider. Since participating 
providers were introduced into the program, there has always 
been a financial incentive for people to use them. And that 
affords them the most protection in these instances. Because 
those charges that are not covered then are part of the 
catastrophic, too. But again, we are willing and happy to 
explore as many options as possible. Because we did not like to 
see what was happening to our enrollees.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    Mr. Davis. Thank you very much, Mr. Sarbanes.
    Mr. Gammarino, let me try and make sure that I understand 
why the Blue Cross premium for the standard plan increased more 
significantly than other plans and why that increase took 
place.
    Mr. Gammarino. The experience of this group over the last 
couple of years exceeded the premiums coming in. So we were 
drawing down the reserves. And we got to a point where we had 
to not only increase, but for the long run health of the 
product that so many people rely on, we had to make benefit 
changes and actually keep this product in line with a lot of 
the competitive products out there. We don't stand on an island 
alone. So when other people have products that allow them to 
price a product lower than ours, and this is a very price-
sensitive market, that type of alignment can't go on too long. 
And that is part of the reasons why you saw the types of 
changes that we put in place for 2009.
    Mr. Davis. Do you know how much reserve you had to draw?
    Mr. Gammarino. Our reserves right now stand at about 4.7 
months, about $8 billion. And for the comfort of our enrolled 
population, particularly for these troubled times we are in, it 
should be noted for the record that these reserves are held by 
Uncle Sam and are dedicated only to this product and can only 
be used for this. And they are held in U.S. Treasuries, so it 
is a very safe financial instrument.
    Mr. Davis. Ms. Kichak, we are up against the wall in a 
sense in terms of there only being six additional days for 
employees and beneficiaries to know what they are facing. Are 
there any statutory reasons that we cannot extend the 
enrollment period?
    Ms. Kichak. Well, there is a process to go through. I mean, 
it is not--and not created by me--but we are required to do 
public notice to extend it. So there is a process, but there is 
no statutory bar from extending the open season.
    Mr. Davis. And do you know how long the public notice----
    Ms. Kichak. No, I don't. I think--I don't know. I could 
certainly get that information for you quickly.
    Mr. Davis. It would appear to me that while there isn't 
much that could be done, that it could be very beneficial and 
very helpful if the enrollees had additional time to really 
look at the instruments that they were going to be buying into 
and where they had as much information. And I would suspect 
that many people are just beginning to take notice. I am 
saying, prior to now, they probably had not given much thought 
to it, and they were more than likely ready to re-up. I am just 
thinking of my own situation, where my primary care physician 
is making some changes. And we have been together for 15 years. 
And I have some considering to do before I decide if I am going 
to follow with him or if I am going to maintain what I already 
had. I knew that he was leaving, so at least in my case, I have 
had some time to think about it. But I am not sure that, you 
know, hundreds of thousands of our enrollees have had that 
opportunity. I think if we could look at that. And I am trying 
to determine what harm, if it is possible, might actually----
    Ms. Kichak. The harm is, and there is harm, the harm is 
trying to get the information out to the carrier, to the 
carriers as to who they are covering in 2009. And we want to 
make sure that if something happens on January 1, 2009, and the 
person needs to go to the hospital, they have that card that 
says this is the coverage I have. And by extending open season, 
that is what we jeopardize. Particularly for our annuitants, a 
lot of this, they are not in the office, they have to get 
information, and it is a risk to extend the open season.
    Mr. Davis. But would not the enrollees maintain the same 
coverage that they had until they exercised the option to 
change?
    Ms. Kichak. No. The effective dates for coverage are in the 
contract. Coverage for any open season change becomes effective 
on January 1st for retirees. And I believe, and we have talked 
about--I believe it is the Monday of the first pay period of 
the new calendar year for employees.
    Mr. Davis. I think I would certainly, as chairman of the 
subcommittee, appreciate a hard look at any possibility that 
there might be to give employees and retirees as much of an 
opportunity to be as informed as they could possibly become. 
And I would certainly appreciate that.
    Ms. Kichak. We will get back to you very quickly.
    Mr. Davis. Ms. Norton, do you have any----
    Ms. Norton. Yeah, Mr. Chairman, I think that I would like 
to question Mr. Gammarino about other ideas, too. This would 
seem to be the easiest idea.
    Of course, you are covered if you choose before January 
5th. Even if you don't, as you indicate, have your enrollment 
card, you are covered.
    Ms. Kichak. You are covered. It is just very stressful for 
the enrollee if they go someplace for service, and they don't 
have that card, and there is a question. You are definitely 
covered.
    Ms. Norton. I can understand. The problem, Ms. Kichak and 
Mr. Gammarino, comes from what amounts to a huge reliance on 
the carrier to not do these kinds of increases very suddenly. 
And so that you depend upon your carrier, because your carrier 
has a good reputation for not putting large charges on you 
quickly, then you have a reliance problem and a reliance trust 
I may say, Ms. Kichak, which could be broken, which is 
something I don't think we want to have happen. And we do want 
a solution that takes into account all concerned, the 
government as well as, of course, the provider.
    Now, it is important that it has come out that you 
initiated this idea. And I can understand your concern if there 
were what amounts to, I understand it a rather small number, 
but some providers who found themselves with a bill very much 
larger than they expected. You would want to somehow prepare 
them for this up front rather than have this come after the 
surgery. Did you suggest a large amount might be in fact in 
order?
    Ms. Kichak. Did----
    Ms. Norton. Did you, who brought this idea to Blue Cross 
Blue Shield, suggest that, in order to get the attention of the 
subscriber, a large amount per surgery might be in order?
    Ms. Kichak. No, we did not suggest a large amount to get 
people's attention. This was strictly, when I answered the 
question, it wasn't cost driven; we did not make this change to 
increase costs or to save money. But what we did was we priced 
from an actuarial point of view how much it would cost to cover 
these charges over X amount and how much would be saved by 
billing under X amount. And $7,500 was where the people at the 
low end were contributing enough money to fund the people in 
the catastrophic situation.
    Ms. Norton. I see.
    Ms. Kichak. So we did not----
    Ms. Norton. It is important to understand where this amount 
came from.
    Ms. Kichak. Right. And we probably----
    Ms. Norton. As you looked at this, if you are not in 
business, but you are looking at this simply by doing the math, 
you may not consider that there might be other ways to do it. 
Did you consider, Ms. Kichak, in your discussions with 
Gammarino, that there might be alternatives to simply pricing 
the amount in light of the figures that were before you?
    Ms. Kichak. Absolutely. This was--I do not know all the 
back and forth, but this was not a simple, how about this, and 
let's do it. This was a negotiation in which we asked for 
proposals to resolve this question. They responded. We went 
back and forth.
    Ms. Norton. But you looked like you knew exactly what the 
amount was, because you said it was about $7,500 per----
    Ms. Kichak. Well, that was when we came to the let's do the 
cost-neutral within this benefit.
    Ms. Norton. Yeah, again, there is a difference between 
somebody who doesn't have to worry about customers and 
providers and somebody who can sit in the government and say 
this is what the figures are.
    I mean, Mr. Gammarino got the point, Ms. Kichak. You showed 
him some figures, and it sounds to me as though those figures 
were highly suggestive and did not in fact encourage Mr. 
Gammarino to think of other ways that might have accomplished--
and I have no idea--but might have accomplished something of 
the same purpose. And I really do think it is going to be very 
important, particularly for OPM, if this is what you are in the 
business of doing. The one thing that I have learned from my 
work in chairing another subcommittee is what I don't know 
about business. And my approach would certainly not have been 
to say here is the cost, you come up with what you are going to 
do about it. It would have been to say, here is the cost, now 
how can we make sure that cost is not borne across the----
    Ms. Kichak. This was a bilateral negotiation back and 
forth.
    Ms. Norton. All negotiations are by definition bilateral. I 
think you get my point, and I want to go on. I think the fact 
that a concrete figure from the government is before the 
provider sends a very strong message. And I am suggesting that 
you play a dual role here that more and more I find in conflict 
with one another. Because you are--I am not sure who you are in 
fact representing here. When all the alternatives, which in a 
real sense isn't your job--you don't know how to consider all 
the alternatives. That is what Mr. Gammarino is in business 
for. And if he were made to show why some alternatives he might 
suggest would or would not accomplish the same end, then I 
would be convinced. That is what I call a bilateral 
negotiation, where I am in the position of the government, I am 
not in business, and I know that anybody who is in business 
does not want to raise anything. He doesn't want to raise a 
cent. So if it looks like the government's giving him 
permission to do it, then of course, it makes it far easier 
than it would be if the government said, look, I know you don't 
want to put what people will see as additional cost. This, 
however, is what it costs your network, therefore show me how 
you might accomplish the cost saving for all involved, because 
I am with you on that, through either imposing a cost up front 
so people know in advance or through an alternative you might 
name. That, in my judgment, where one side knows a whole lot 
more than the other, you know a whole lot more about what it is 
costing across the network; he knows a whole lot more about 
alternatives that might be useful.
    Mr. Gammarino, I don't know, I am not convinced that 
extending the time would be catastrophic. I think it would be 
something that is not in your hands. I think it would, if I 
were OPM, I wouldn't like to be the government here saying I, 
the government, who did not in fact--who in fact allowed this 
summary to go forward, which said that there will be some 
additional costs, I, the government say, because I have saved 
you money, be happy, and to ignore the transparency matter, 
which is what the government is there for.
    So I don't understand her role, but I do understand your 
role. And I do understand the difficulty this raises for you. 
It seems to me that there are a number of things you could do. 
You could go back to the status quo ante right now. Because I 
am only interested in remedies here. You could say, OK, we are 
going to try to make up for at least some of this next year, 
but there wasn't the kind of fair notice that subscribers are 
used to from Blue Cross. So, OK, I don't think that makes you 
less competitive. You could do it after it closed, and not 
throw everything up for people trying to shift everything one 
way or the other. You could distinguish among kinds of surgery 
very sharply, keeping in mind what we in the law call the 
reasonable man theory: What does the average person mean by 
surgery? And you could, if there are costs, and you go back to 
the status quo ante, you could, in 2010, try to make up for 
those costs in a more transparent way. Do you find any of those 
unreasonable suggestions?
    Mr. Gammarino. I think they are all something that we 
should evaluate. I mean, I think I have been pretty clear that 
I don't want to stick with the status quo. And I think I have 
been clear about the reasons for that. And they are focused on 
the member. This is not how I want our members to see our 
product going forward. And it is not what I want the brand to 
stand for.
    Ms. Norton. And of course, we didn't--we don't see that it 
is going to save you a lot of money.
    Mr. Gammarino. This is not a money issue for me.
    Ms. Norton. I am just looking for some sense that anybody 
in business is looking for--you got a lot of goodwill out here.
    Now, you know, Ms. Kichak doesn't care about your goodwill. 
She is doing her job. And she does it very well but in my 
judgment quite too bureaucratically. You got to care about 
that. And therefore, I am looking for some way to send a 
message to the consumer that the reliance you have had on Blue 
Cross Blue Shield is still intact.
    I do want to ask you something about your surplus. You 
mentioned reserves. My question did not go to reserves.
    Mr. Gammarino. OK.
    Ms. Norton. It went to surplus and your nonprofit status. I 
don't touch the notion of reserves, especially for health care 
insurance companies. And frankly, I don't touch much the notion 
of surplus. But of course, Blue Cross Blue Shield is unique in 
the business as a nonprofit. And there have been some concerns. 
Let me ask you, would you prefer to be a nonprofit--the company 
had some issues with that before--or not, and why not? Or why?
    Mr. Gammarino. Well, the plans that are independent 
companies that are licensed for the brand, there are 39 
independent companies, they have chosen to collectively 
underwrite the cost--underwrite the FEHBP product we have. But 
outside of that, they are independent companies. Most of them 
are not-for-profit. There is one for-profit. So the brand 
itself doesn't dictate one or the other.
    Ms. Norton. By the way, which one is the for-profit one?
    Mr. Gammarino. It is WellPoint. WellPoint is the parent 
company. When you see it aligned with Blue Cross Blue Shield, 
you normally see it aligned with Blue Cross Blue Shield Anthem 
of Ohio or Blue Cross Blue Shield----
    Ms. Norton. Isn't it true that Blue Cross Blue Shield 
sought to get rid of its nonprofit status in recent years?
    Mr. Gammarino. Which? Was there a particular plan when you 
say Blue Cross Blue Shield?
    Ms. Norton. CareFirst, for example.
    Mr. Gammarino. I think CareFirst a couple of years ago went 
down that path, but I think they clearly didn't----
    Ms. Norton. Why was that? Why is that better for some 
plans?
    Mr. Gammarino. I think that--and I am not a proponent on 
either business model, because they both work under the brand. 
The brand licensure requires fiscal accountability----
    Ms. Norton. So why would some prefer one and----
    Mr. Gammarino. I think, from what I see, a lot depends upon 
your market. A lot depends upon your need for capital. A lot 
depends upon the competitive models up in your particular 
market that are successful. And certainly depending upon 
sometimes your relative financial health, capital may be easier 
if you are a for-profit to obtain.
    Ms. Norton. There has been some testimony before from the 
prior witness and from you about the use of, you indicated, 
reserves. I need to know whether the surplus, the very large 
surplus that--and by the way, I am agnostic on a surplus, 
particularly since there are no standards for how much surplus 
or not surplus a company like yours should have. But you know, 
as it continues to grow and to get very large, then people 
began to look at Blue Cross Blue Shield because it is 
nonprofit. And if you had a large surplus, you are supposed to 
distribute some of it. And then people got hungry about your 
surplus, and they had their hands out for your surplus. And the 
standard answer, as I have indicated, is, well, we use it to 
keep down the costs for our subscribers. That is a perfectly 
satisfactory--in fact, that is the best use of it, as far as I 
am concerned. Is, in fact, your answer--I mean, when you 
referred to my question before you mentioned reserves. I am 
asking you, is the surplus being used, instead of being 
distributed the way nonprofits do it, is the surplus being 
used, let us say in this region, for example, to keep down the 
cost of health care here relative to what other companies face?
    Mr. Gammarino. I think you are talking outside of the 
FEHBP, is that correct?
    Ms. Norton. Yeah.
    Mr. Gammarino. You are talking about outside of that?
    Ms. Norton. Yes, I am speaking about the surplus.
    Mr. Gammarino. And I am not prepared really to address 
that. You know, every Blue Cross Blue Shield plan is regulated 
by the State that they are licensed in. And those definitions, 
as you just pointed out, Ms. Norton, they probably vary in 
terms of what is considered a surplus. I think also the 
economic times probably may cause people to rethink what a 
surplus is. I know today collectively Blue Cross Blue Shield is 
very proud of the fact that our 100-plus members nationwide can 
feel very secure in the fact that financially, collectively and 
independently, we have sufficient capital to ride out with our 
members this economic downturn.
    Ms. Norton. Yeah. It is hard to be an enemy of surpluses, 
even before the present turn down. But what of course Blue 
Cross Blue Shield has to be aware of, as a nonprofit, it gets 
more scrutiny from government because of it. And just this 
year----
    Mr. Gammarino. Sure it does.
    Ms. Norton [continuing]. There was a big controversy 
involving CareFirst here when a large payment to an executive 
who was leaving was paid, and the Maryland insurance 
commissioner required that it be cut in half, citing the 
inconsistency of such a large payout of severance, the 
inconsistency with the nonprofit mission. So I just remind you 
of this not to beat up on the surplus; I am where you are. I am 
not even sure what the surplus, anybody's surplus is today. But 
to say that one of the reasons we are looking at Blue Cross 
Blue Shield is that so many Federal employees, but the other 
reason is that you are very different because of the nonprofit 
status you enjoy or not, considering whether or not you would 
rather be a commercial company.
    Thank you very much, Mr. Chairman.
    Mr. Davis. Thank you very much. And it appears to me that 
maybe you are being warned that there are individuals who are 
seeking ways to tax everything that may not be taxed, including 
religious institutions, including hospitals, including probably 
Blue Cross Blue Shield. Hopefully, we won't get to the point 
where, you know, Russia got one time when they didn't have 
anything to tax, and they ended up wanting to put a tax on the 
air. But we wouldn't want to get to that point I am sure. Thank 
you both very much.
    Yes, Mr. Gammarino.
    Mr. Gammarino. Mr. Chairman, I was wondering if I could 
just clarify one thing that I heard. There was a question of 
Mr. Francis related to Medicare B and the issue with the 
nonparticipating physicians, the $7,500, and where does that 
fit? If they have Medicare B, are they still required to pay 
that? And I did want to indicate that when our members have 
Medicare B as primary and we are secondary, any type of cost-
sharing, whether it be deductibles, co-insurance or copayments 
would be waived. So, specifically in the case of that $7,500, 
it will be waived. So I wanted to make sure the committee 
understood that.
    Mr. Davis. Thank you very much. Thank you both. And thank 
all of those who attended.
    This hearing is adjourned.
    [Whereupon, at 12:47 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Elijah E. Cummings 
follows:]

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