[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
THE FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM: IS IT A GOOD VALUE FOR
FEDERAL EMPLOYEES?
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HEARING
before the
SUBCOMMITTEE ON FEDERAL WORKFORCE,
U.S. POSTAL SERVICE AND THE CENSUS
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
APRIL 11, 2013
__________
Serial No. 113-32
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Printed for the use of the Committee on Oversight and Government Reform
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida ELIJAH E. CUMMINGS, Maryland,
MICHAEL R. TURNER, Ohio Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee MATTHEW A. CARTWRIGHT,
TREY GOWDY, South Carolina Pennsylvania
BLAKE FARENTHOLD, Texas MARK POCAN, Wisconsin
DOC HASTINGS, Washington TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming ROBIN L. KELLY, Illinois
ROB WOODALL, Georgia DANNY K. DAVIS, Illinois
THOMAS MASSIE, Kentucky TONY CARDENAS, California
DOUG COLLINS, Georgia STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina MICHELLE LUJAN GRISHAM, New Mexico
KERRY L. BENTIVOLIO, Michigan
RON DeSANTIS, Florida
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Stephen Castor, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Federal Workforce, U.S. Postal Service and the Census
BLAKE FARENTHOLD, Texas, Chairman
TIM WALBERG, Michigan STEPHEN F. LYNCH, Massachusetts,
TREY GOWDY, South Carolina Ranking Minority Member
DOUG COLLINS, Georgia ELEANOR HOLMES NORTON, District of
RON DeSANTIS, Florida Columbia
WM. LACY CLAY, Missouri
C O N T E N T S
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Page
Hearing held on April 11, 2013................................... 1
WITNESSES
Mr. Jonathan Foley, Director, Planning and Policy Analysis, U.S.
Office of Personnel Management
Oral Statement............................................... 5
Written Statement............................................ 7
Mr. William A. Breskin, Vice President of Government Programs,
Blue Cross and Blue Shield Association
Oral Statement............................................... 16
Written Statement............................................ 19
Mr. Thomas C. Choate, Chief Growth Officer, UnitedHealthCare
Oral Statement............................................... 31
Written Statement............................................ 33
Mr. Mark Merritt, President and CEO, Pharmaceutical Care
Management Association
Oral Statement............................................... 41
Written Statement............................................ 43
Ms. Jacqueline Simon, Public Policy Director, American Federation
of Government Employees
Oral Statement............................................... 59
Written Statement............................................ 61
APPENDIX
The Honorable Blake Farenthold, a Member of Congress from the
State of Texas, Opening Statement.............................. 92
The Honorable Eleanor Holmes Norton, a Member of Congress from
the District of Columbia, Opening Statement.................... 93
Health Plan Competition in the FEHB Program...................... 95
Testimony of Walton Francis, Independent Consultant and Principal
Author of Checkbook's Guide to Health Plans for Federal
Employees...................................................... 103
Questions for the Record to Mr. Jonathan Foley................... 116
THE FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM: IS IT A GOOD VALUE FOR
FEDERAL EMPLOYEES?
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Thursday, April 11, 2013
House of Representatives,
Subcommittee on Federal Workforce, U.S. Postal
Service and The Census,
Committee on Oversight and Government Reform,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:01 a.m., in
Room 2154, Rayburn House Office Building, Hon. Blake Farenthold
[chairman of the subcommittee] presiding.
Present: Representatives Farenthold, Walberg, Gowdy,
DeSantis, Issa and Norton.
Also Present: Representative Connolly.
Staff Present: Molly Boyl, Majority Parliamentarian;
Caitlin Carroll, Majority Deputy Press Secretary; Sharon Casey,
Majority Senior Assistant Clerk; Adam P. Fromm, Majority
Director of Member Liaison and Floor Operations; Linda Good,
Majority Chief Clerk; Jennifer Hemingway, Majority Senior
Professional Staff Member; Mark D. Marin, Majority Director of
Oversight; James Robertson, Majority Professional Staff Member;
Laura L. Rush, Majority Deputy Chief Clerk; Scott Schmidt,
Majority Deputy Director of Digital Strategy; Peter Warren,
Majority Policy Director; Jaron Bourke, Minority Director of
Administration; Lena Chang, Minority Counsel; Kevin Corbin,
Minority Professional Staff Member; Yvette Cravins, Minority
Counsel; Carla Hultberg, Minority Chief Clerk; Adam Koshkin,
Minority Research Assistant; Safiya Simmons, Minority Press
Secretary; and Mark Stephenson, Minority Director of
Legislation.
Mr. Farenthold. The subcommittee will come to order.
As is our tradition, I would like to begin this hearing by
stating the Oversight Committee's mission statement.
We exist to secure two fundamental principles: first,
Americans have a right to know the money is taken from them
from Washington is well spent and, second, Americans deserve an
efficient, effective Government that works for them. Our duty
on the Oversight and Government Reform Committee is to protect
these rights. Our solemn responsibility is to hold the
Government accountable to taxpayers, because taxpayers have a
right to know what they get from their Government. We will work
tirelessly in partnership with citizen watchdogs to deliver the
facts to the American people and bring genuine reform to the
Federal bureaucracy. This is the mission of the Oversight and
Government Reform Committee.
At this point I will recognize myself for a brief opening
statement.
The Federal Employees Health Benefits Program is the
largest employer-based health insurance program in the Country,
covering more than 8 million Federal workers, retirees, and
their family members through the plans participating in. Since
1960, the plan has offered Federal participants multiple health
plan options through private health insurers, a hallmark of the
program.
The average health insurance premiums are on the rise. More
specifically, the FEHB premium has risen 5.78 percent over the
last five years. While this is a pretty small increase compared
to what we are seeing in some private sector rates, where rates
have risen much more, it is our duty to see how we can continue
to save taxpayers' hard-earned dollars and provide the best
coverage for our Federal workforce. In these tough times, we
must ensure that OPM is providing affordable benefits to FEHB
participants in the most cost-effective way and giving them the
best benefits that we can afford.
Recently, a study by the CBO, Congressional Budget Office,
found that, on the average, the cost of health benefits,
including health insurance, was 48 percent higher for Federal
civilian workers than for their private sector counterparts,
perhaps explaining the lower percentage increase in the
premium. But the Federal Government still pays, on average,
$6.00 per hour more for employee benefits than in the private
sector. It goes without saying that buying power is also
important.
Competition is critical, as well. OPM can leverage
enrollees' purchasing power to reduce costs and obtain greater
value for Federal workers and their family, as well as for the
Federal Government and taxpayers. The OPM must manage today for
future increases in costs and projected increases in
utilization of health care services.
The President's budget, announced yesterday, has several
initiatives intended to improve the value of FEHB. This hearing
provides committee members the opportunity to determine the
impact these and other proposals will have on provider choice,
coverage, and cost. As Government watchdogs, we are always
looking for ideas that will lower costs and improve the value
of FEHB without unnecessarily restricting consumer choice.
With these broad goals in mind, I would like to thank our
witnesses for being here today and for their willingness to
testify.
I will now recognize the gentlelady from the District of
Columbia, Ms. Norton, for her opening statement.
[Prepared statement of Mr. Farenthold follows:]
Ms. Norton. Thank you very much, Mr. Chairman. I thank you
for bringing together these witnesses to discuss the Federal
Employees Health Benefits Program, including the
Administration's proposals for what it calls modernizing the
program.
FEHBP is, of course, the largest employer-sponsored health
insurance program in the Country, covering 8 million
individuals. Last year it provided close to $45 billion in
benefits to Federal employees, retirees, and their families.
Since its creation in 1959, FEHBP has been regarded as a model
for health insurance reform, and private and public insurance
programs such as Medicare. It has also been looked at as a way
to expand insurance coverage to the non-Federal community, such
as small business employees or the uninsured.
FEHBP has generally performed as well or better than large
private employers. Industry experts have rated the benefits
offered to enrollees as competitive with other employers.
Premium increases are consistently below those of other large
employers. For example, according to Barclays U.S. Healthcare,
over the last decade, FEHBP premiums have increased 7.7
percent, compared with 9.3 percent in the commercial market.
In 2012, FEHBP premiums increased by 3.8 percent, while the
industry surveys show that private sector plans rose by an
average of 8.1 percent.
However, this does not mean that FEHBP is a perfect program
or that it does not need improvement. For example, coverage for
same sex domestic partners, while prevalent in the private
sector, is currently not included in FEHBP. Prescription drugs
are of a particular concern. One-third, or $15 billion, of the
total FEHBP annual costs were for prescription drugs; and OPM
estimates that, for 2013, 25 percent of that, or about $4
billion, will be spent on specialty drugs. That is a
significant increase over 2009, when specialty drugs accounted
for only 10 percent.
This hearing provides stakeholders and members with a
chance to discuss the pros and cons of the FEHB proposals,
including in President Obama's fiscal year 2014 budget that was
just issued. While I share the Administration's view that the
50-plus-year-old FEHB Program can be, as the Administration
puts it, modernized, but certainly improved, I believe we
should approach this cautiously and deliberately to ensure that
any changes would improve the health of our Federal employees
and retirees, and keep premiums and costs low and affordable.
This is especially important at this juncture because
Federal employees are already experiencing pay and benefit
cuts, and cannot afford to take more hits. Federal employees
are working under a three-year pay freeze. New employees are
forced to pay more for their retirement contributions than
existing employees, and more Federal workers face furloughs. On
top of that, the President has recommended in his budget that
Federal workers contribute an additional 1.2 percent more for
their pensions and accept a reduced COLA for their annuities
based on the changed CPI formula.
I thank you, Mr. Chairman, and appreciate this opportunity
to examine the merits of the Administration's proposals, and
look forward to hearing from our panel of witnesses and thank
them for their testimony.
Mr. Farenthold. Thank you very much, Ms. Norton.
We will now recognize the chairman of the full committee,
the gentleman from California, Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman. Thank you for holding
this important hearing. And I want to thank Delegate Norton,
our ranking member, because, in fact, this is the first and
only federal exchange. Eight million Americans depend on this
exchange, and it is the model, at best, for what we intend to
make available to those who do not otherwise have employer
healthcare providers.
Numerous times during the Affordable Health Care Act
drafting and discussion I used the FEHB as the model for
perhaps everyone who should have the same fine health care that
members of Congress and every Federal employee has. Why not?
Let us just simply duplicate this. So when I discover, as the
President has discovered, that although a great and
longstanding model, it is not a model with as open a process
and as much competition as we could have. I look and say, my
goodness, if we can't get this 50-year-old system to be
optimized, will we in fact deal as well with 50 State systems;
some of them run by the States directly, some of them
federalized.
So today's hearing is important on all those counts.
I think to every member of Congress who is in that program.
It is important. To every staff member now or retired, who
depend on this system, getting it right, getting competition,
opening it up in a way that is a plus, and not a minus, is
important, but I think for all of us who are seeing the
testimony today, let's just assume that they are testifying
about a national exchange that every American is going to be
in. Do we currently have a system that would make the optimum
national exchange or should we make it better? And can we do
better for the 8 million and the other 316 million Americans?
With that, I thank the chairman and yield back.
Mr. Farenthold. Thank you, Mr. Chairman.
At this point let's introduce our members of the panel.
Before I do that, I do want to say, without objection, all
members will have seven days to submit opening statements for
the record.
Now we will go to our panel. First up will be Mr. Jonathan
Foley. He is the Director of Planning and Policy Analysis at
the U.S. Office of Personnel Management.
Next up will be Mr. William A. Breskin. He is the Vice
President of Government Affairs at Blue Cross and Blue Shield
Association.
Mr. Thomas C. Choate is the Chief Growth Officer at
UnitedHealthCare.
Mr. Mark Merritt is President and CEO of the Pharmaceutical
Care Management Association.
And Ms. Jacqueline Simon is Public Policy Director for the
American Federation of Government Employees.
Pursuant to the rules of the committee, all witnesses will
be sworn before they testify. Would the witnesses please rise
with me?
If you will raise your right hand, please. Do you solemnly
swear or affirm that the testimony you are about to give will
be the truth, the whole truth, and nothing but the truth?
[Witnesses respond in the affirmative.]
Mr. Farenthold. Let the record reflect that all witnesses
have answered in the affirmative.
You may be seated.
We have a relatively large panel today. In order that
everyone has sufficient amount of time to testify and the
members of the subcommittee have sufficient amount of time to
ask questions, we would ask that you limit your remarks to five
minutes. There is a timer in front of you that will count down
with a green light, then a yellow light, and a red light. When
the red light comes on, it will start up and we will know
exactly how long you went over.
So we have your entire testimony that you submitted in the
record. Hopefully, the members of the committee have already
reviewed it. So if you will summarize what you consider to be
the salient points in the five minutes, it would be greatly
appreciated.
We will start with Mr. Foley. You are recognized for five
minutes.
WITNESS STATEMENTS
STATEMENT OF JONATHAN FOLEY
Mr. Foley. Thank you, Chairman Farenthold, Ranking Member
Norton, and members of the subcommittee. Thank you for the
opportunity to appear before you today to discuss the Federal
Employees Health Benefits Program.
Established in 1960, the FEHB Program is the largest
employer-sponsored health insurance program in the Country,
covering approximately 8.2 million Federal employees, retirees,
and their dependents. The Office of Personnel Management
administers this $45 billion program through contracts with
private insurers.
Currently, there are 95 health plan contracts, with 230
different Government options.
The FEHB Program uses market competition and consumer
choice to provide comprehensive benefits at an affordable cost.
Average yearly premium increases have declined in each of the
last four years, dropping from 7.4 percent in 2010 to 3.4
percent in 2013.
My written testimony addresses the subcommittee's interest
regarding the relationship between Medicare and the FEHB
Program, and the impact of the Affordable Care Act on the
program. I will spend the remainder of my remarks discussing
the FEHB Program and its modernization.
The FEHB Program was designed to offer a range of health
insurance choices that are reflective of the most competitive
options available in the commercial marketplace. As the health
insurance market continues to change, OPM has done its best to
keep pace. However, there are a number of areas where the
original authorizing legislation passed in 1959 constrains OPM
from responding to the changed marketplace.
For example, the statute only allows OPM to contract with
four plan types. Under the service benefit plan type, Blue
Cross Blue Shield offers two government-wide benefit options.
The second plan time, indemnity benefit plan was held by Aetna
until the late 1980s, but is now vacant. The third plan type
consists of employee organization plans. The employee
organization plans were grandfathered into the FEHB Program and
no new employee organization plans are permitted to join. The
final plan type is made up of comprehensive health plans, HMOs,
offered at the State level, which have no restrictions in the
number of plans participating as long as they meet FEHB
qualifying criteria and State licensure laws.
Missing from the current mix are regional plans that are
widely available in the commercial market. If these regional
plans were available, FEHB enrollees would benefit from having
greater choices that represent best practices in the private
sector and more closely resemble product combinations available
to private employers and State and local governments.
It is important to emphasize that this proposal would not
require that OPM contract with every health plan that applies
to participate in the FEHB Program. This proposal would simply
provide OPM with the ability to consider additional plan types
and contract with plans only when it is in the best interest of
the FEHB Program and its enrollees.
Next, OPM proposes increasing its contracting discretion by
allowing direct contracting with pharmacy benefit managers.
Most FEHB carriers contract with pharmacy benefit managers to
purchase prescription drugs and manage pharmacy benefits on
behalf of their enrollees. However, current law precludes OPM
from contracting directly with PBMs. With the ability to
contract directly for PBM services, OPM would obtain better
discounts by leveraging the 8.2 million covered lives,
providing for more uniform performance across the FEHB, and
allowing a more consistent formulary structure and patient care
management.
OPM also proposes authorizing the FEHB Program to offer a
``self plus one'' enrollment option, aligning the program with
other large and private employers, as well as State and local
governments. Currently, the FEHB Program is only authorized to
offer self only and self and family options. By adding the self
plus one option, an employee or retiree who does not need a
family plan, for example, because they need only to cover a
spouse or a child, can choose the self plus one option, rather
than the self and family option.
OPM also proposes allowing FEHB enrollees to add a domestic
partner to their FEHB enrollment. This proposal would align the
FEHB Program with best practices in the private sector, as
larger employers competing for talent are increasingly offering
domestic partner benefits.
Finally, OPM proposes allowing premium differentials tied
to wellness. This proposal provides OPM with the authority to
prove a limited adjustment to rates charged to enrollees based
on their health status and participation in health and wellness
programs. For instance, this proposal would allow OPM to
increase the enrollee share of premiums for those who use
tobacco products and do not participate in tobacco cessation
programs. This proposal aligns the FEHB Program with current
trends in the commercial market, increases the use of
preventive services, and encourages enrollees to make
improvements to their health status, resulting in a reduction
or delay of the onset of chronic diseases and associated costs.
Overall, these proposals would result in net mandatory
savings of $8.4 billion over a 10-year period. In addition to
cost savings, the proposals directly support OPM's mission of
recruiting, retaining, and honoring a world-class workforce to
serve the American people.
Thank you for the opportunity to testify, and I am happy to
address any questions you have.
[Prepared statement of Mr. Foley follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Farenthold. Thank you. I am sure we will be back to you
with questions when we finish the panel.
Mr. Breskin, you are now recognized for five minutes.
STATEMENT OF WILLIAM A. BRESKIN
Mr. Breskin. Thank you. Mr. Chairman and other members of
the subcommittee, good morning. My name is Bill Breskin and I
am the Vice President of Government Programs for the Blue Cross
and Blue Shield Association. Thank you for this opportunity to
discuss the value of the Federal Employee Health Benefits
Program. We look forward, with members of the subcommittee, to
ensure that Federal employees and retirees continue to have
high quality, affordable health care coverage.
The Blue Cross and Blue Shield Association and
participating independent local Blue Cross and Blue Shield
Plans have jointly administered the government-wide Service
Benefit Plan from the very beginning of the program in 1960.
Today we provide health insurance to more than 5.2 million
active and retired Federal employees and their dependents. Last
year, for the second consecutive year, premiums for the most
popular option increased by only 2 percent. We are proud of the
millions of Federal employees that select Blue Cross Blue
Shield for our affordable premiums, our high level of customer
satisfaction, low administrative costs, and constant
innovation.
With 230 product offerings in the Federal workforce
nationwide, and with very high levels of customer satisfaction,
the FEHBP is often cited as a model for choice and competition.
No matter where they live, Federal enrollees can choose from
among a minimum of 13 national products offered by six
different carriers, each with a uniform premium nationwide. In
fact, 80 percent of Federal employees select these nationwide
options.
Combined with local plan options such as HMOs, high
deductible health plans, and consumer-directed health plans,
Federal enrollees may have as many as 24 different plan choices
in some States. No other employer-sponsored health program
anywhere offers anything like this level of choice. Indeed, it
would be hard to identify any government program having greater
competition.
Blue Cross Blue Shield has remained dedicated to FEHBP
enrollees, having offered its products for 53 years, every year
since the Program's inception. We know that Federal employees
and retirees have a broad choice of coverage every year. We
also understand the need to reduce; Federal spending has never
been greater, and we are leading in care delivery, innovation,
and other key strategies that improve health and attack health
cost drivers.
We leverage the innovations and provide the relationships
used by 85 of the Fortune 100 companies who turn to the Blues
for their employee health benefits. Out standard in basic
option plans offer more than 25 innovative features, including
wellness programs and incentives, online transparency tools,
and other management programs to improve the health of Federal
employees and the value of their benefits.
The service benefit plan will also offer patient-centered
medical homes in every State, plus the District of Columbia, by
the end of the year, having already offered PCMH in several
States. No one is more innovative and committed to bringing
cutting-edge innovation to the FEHBP than the service benefit
plan.
Today I want to offer the Blues perspective on two proposed
changes to the FEHBP: first, the addition of regional PPOs in
the program and, second, the prescription drug carve-out.
Introducing regional PPOs into the FEHBP will result in
higher costs for both the Federal Government and Federal
employees, and will jeopardize the most popular nationwide
offerings. Instead of offering uniform premiums nationwide,
regional PPOs will be allowed to cherry-pick low-cost regions
and charge a premium that reflects the cost of that region
only. This will lead to higher premiums in the nationwide plans
or regions not picked up by the new PPOs, as more enrollees in
the low-cost areas choose the regional PPOs. Within a few
years, the nationwide plans will become noncompetitive and will
likely stop offering nationwide coverage altogether.
This would leave certain areas of the Country undeserved or
potentially not served at all, and create gross disparities in
health insurance coverage for enrollees in different areas. An
analogy exists in the Medicare Advantage Program: a national
PPO is allowed, but there has never been a nationwide option
because nationally priced PPOs cannot coexist with locally
rated PPOs, for the same reason that would occur in the FEHBP
should regional PPOs be allowed.
Assuming all PPOs were offered on a regional basis, 54
percent of Federal employees and retirees are likely to see
their health premiums increase. An analysis of Avalere Health
concludes that Federal spending would increase by $5.7 billion
over 10 years if PPOs were offered on a regional basis.
Rather than introducing regional products into the FEHBP
and creating an unlevel playing field for competition, we
believe a better approach would be to open up the program to
any carrier willing to participate on a level playing field
nationwide, and to give carriers additional flexibility to
offer products and more aggressively incorporate their latest
private sector innovations for controlling costs.
Another change that is being proposed is consolidating
contracting for prescription drug benefit management in the
FEHBP. Proponents of the carve-out approach argue that
streamlined purchasing of prescription drugs will save money
and lower administrative costs. However, under the pharmacy
benefit carve-out, health plans will have limited access to
pharmacy claims that would otherwise help identify members who
may benefit from case management and coordination of care. This
leads to increased costs and poorer health outcomes.
Furthermore, prescription drug carve-out will reduce
beneficiary choice by limiting prescription drug benefits,
preventative effective integrated management of pharmacy and
medical benefits, and compromised care management utilization
management techniques that help ensure safety and adhere to
best practices.
In closing, let me say that the career staff at OPM have
done a superb job in managing this program, which is the gold
standard of competition and choice, and a model for health care
reform. We have identified in our testimony additional
innovations that OPM should consider, including premium
discounts, incentives for enrollees to choose high-quality
providers, and coverage for new, cutting-edge access for points
for health care. Blue Cross Blue Shield is committed to working
with OPM and Congress to keep the FEP at the forefront of
innovation and make the FEHBP even better, without disrupting
the coverage millions of Federal employees have selected today.
I appreciate the opportunity to discuss the value of the
FEHBP and I look forward to your questions.
[Prepared statement of Mr. Breskin follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Farenthold. Thank you very much.
We will now go to Mr. Choate from United. Thank you.
STATEMENT OF THOMAS C. CHOATE
Mr. Choate. Thank you, Chairman Farenthold and
Congresswoman Norton, for holding this important and timely
hearing. I am honored to give UnitedHealth Group's perspective
on how increased competition will bring more choices, higher
quality and better value to Federal employees in the health
benefits program. Reform of the program will better serve the
program's sponsors, beneficiaries, and the American taxpayers.
My name is Tom Choate and I am the Chief Growth Officer for
UnitedHealthCare, a business segment of UnitedHealth Group. I
have worked for many years on our FEHBP business and with the
Office of Personnel Management.
United Health Group is a diversified health benefits
services company based in Minnetonka, Minnesota. We serve more
than 80 million people and have the unique ability to engage in
all aspects of the health care delivery system and apply
lessons learned at a full-scale in the marketplace. As a
result, we view health care delivery and benefit design through
multiple lenses.
One thing we know for certain: it is essential for any
employer who sponsors health plans to be able to offer choice
of affordable, high-quality benefit options to its employees,
while ensuring the employer gets the best value for its
resources.
Unlike virtually any other employer, the Federal Government
can't do this because it is hindered by the law governing the
program. That law has not been updated in any meaningful way
since President Eisenhower signed it in 1959. The law reflects
the way health care was delivered and consumed five decades
ago. As a result, competition in the program has eroded.
Since 1995, one plan has more than doubled its market
share, from 30 percent to 62 percent of Federal workers. The
second largest plan has 7 percent market share. To be clear,
that is a 55 point difference between number one and number two
competitors. That is clearly not a market in which real
competition exists. OPM itself acknowledged last year that
``the competitive environment is not as robust as it should
be.''
The result of this virtual monopoly is exactly what you
would expect, it is a system with no real incentives to
increase quality, value, and choice for more than 8 million
people. It also limits the Federal Government's ability to
confront the challenge of rising health care costs.
Lack of competition inevitably leads to the following
issues: first, as with any market that becomes more
concentrated, consumers pay more. This is clearly an issue with
FEHBP.
Last year, a Health Affairs article found that in areas of
strong program competitiveness, premiums were more than 10
percent lower than compared to areas of low competition. It
also found that real competition in the program only exists in
about 15 percent of the Country. That means that in 85 percent
of the Country people in this program pay more than they should
because competition does not exist in any meaningful way.
Second, with little competition, health plans have fewer
incentives and little capacity to innovate and provide better
quality. And, third, Government costs continue to rise. This
year the program will cost taxpayers $34 billion. In this age
of fiscal challenges, the Federal Government needs the same
tools to manage costs that every other large employer has.
The President's 2014 budget, released yesterday, calls for
Congress to make several reforms to the program. This includes
a proposal that would give OPM the authority to offer new
health plans with comprehensive medical benefits. This proposal
provides no advantage to any one plan; it merely adjusts the
program to reflect the realities of the modern health care
system. Plans would still be required to meet all of OPM's
existing requirements for participation. OPM would still
exercise its oversight authority. In fact, OPM's role in
premium design and benefit negotiations would be strengthened
by increased competition.
The premise underlying the FEHBP since its inception in
1959 was that competition among health plans results in lower
prices and better value. Much has changed since 1959. We have
moved from rotary phones to smart phones and from 45s to
iTunes. The driving force behind such innovation has been
competition, which revolutionized the way we live, including
the way many Americans consume health care. Now it is time to
update the 1959 law. Federal employees and taxpayers should
benefit from the innovation and competition in the market, just
as they do in every other market.
In closing, we all know one thing has not changed since
1959: the simple economic principle that consumers benefit from
increased competition.
Thank you for the opportunity to testify this morning and
for your leadership on this committee.
[Prepared statement of Mr. Choate follows:]
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Mr. Farenthold. Thank you, Mr. Choate.
We will now recognize Mr. Mark Merritt, the President and
CEO of Pharmaceutical Care Management Association. Mr. Merritt,
you are recognized for five minutes.
STATEMENT OF MARK MERRITT
Mr. Merritt. Good morning, Chairman Farenthold and members
of the committee. I am Mark Merritt, President of the
Pharmaceutical Care Management Association. PCMA is a national
association representing America's pharmacy benefit managers,
or PBMs, who administer prescription drug benefits for more
than 216 million Americans through Fortune 500 companies,
insurers, unions, FEHBP, Medicare Part D, and other State and
Federal agencies.
PBMs use a number of sophisticated tools and strategies to
modernize pharmacy benefits, reduce cost, and expand access to
medications. Specifically, we negotiate discounts from
drugstores and drug manufacturers, design formularies that
promote generics, create pharmacy networks that offer 90-day
mail service, and use health IT like e-prescribing to improve
patient safety.
Although no employer or government program is required to
use a PBM, almost all choose to do so because of the savings
and improvement of benefits involved. Each PBM client has
different needs and decides for itself how aggressive to be in
terms of cost-cutting, formulary design, drugstore networks,
and other areas of pharmacy coverage. In 2003, Congress modeled
Medicare Part D on the successful examples of FEHBP and other
employers which reduce costs by hiring PBMs to administer
benefits and negotiate discounts.
Fortunately, Part D has been a great success. It is not
only extraordinarily popular with seniors, but it is the only
major entitlement program to come in under budget each year of
its operation.
Likewise, in Medicaid, several governors, ranging from
Andrew Cuomo of New York to Rick Perry of Texas, have begun to
engage PBMs to reduce wasteful pharmacy spending. PBMs helped
save New York Medicaid over $400 million in the first year
alone, and this was done without cutting benefits or reducing
the number of Medicaid enrollees. On a national scale, a recent
report shows that overall U.S. prescription drug spending
actually dropped last year.
But there is more PBMs can do to reduce costs for payers
across the Nation, including FEHBP. Long recognized as the gold
standard for employer-sponsored health benefits, FEHBP,
nonetheless, has unique and specific needs. First, unlike some
Federal programs which simply deliver health benefits to a
fixed set of enrollees, FEHBP uses benefits as part of a
broader strategy to recruit and retain Federal workers. This
requires generous benefits that offer broad choice,
flexibility, and access. Accordingly, FEHBP offers a wide range
of options for Federal workers, retirees, and their families.
Apparently, the approach is working, because a recent OPM
survey showed that enrollees are satisfied with their benefits
by a 7 to 1 margin.
Second, many FEHBP retirees are enrolled in Medicare Part A
and B, but not Part D. They choose, instead, to maintain their
FEHBP drug coverage an allow Medicare to cover their other
medical expenses. Lastly, FEHBP's active population is older
than that of the typical employer and likely to take more
prescription drugs.
PCMA believes OPM has significant running room to innovate
and further reduce pharmacy benefit costs. To this end, OPM has
suggested in its March Carrier letter the plan's detail how to
make better use of PBM tools like tiered cost sharing, prior
authorization, and step therapy to promote generics and more
affordable brands. OPM also encourages plans to explore mail
service and specialty pharmacies, and specifically highlights
the potential of preferred pharmacy networks, which can achieve
even greater savings on prescription drugs with minimal member
disruption.
In closing, we understand and appreciate OPM for seeking
new ways to leverage PBM tools to improve prescription drug
benefits in FEHBP. We look forward to working with the members
of the committee on this and other important issues.
Thank you for having me today and I would be happy to take
any questions you might have.
[Prepared statement of Mr. Merritt follows:]
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Mr. Farenthold. Thank you, Mr. Merritt.
We will now recognize Ms. Jacqueline Simon, Public Policy
Director for the AFGE.
STATEMENT OF JACQUELINE SIMON
Ms. Simon. Chairman Farenthold, Ranking Member Norton, and
members of the subcommittee, thank you for the opportunity to
testify today on behalf of the more than 650,000 Federal
workers in 65 agencies that AFGE represents.
Health insurance benefits are extremely important to AFGE's
members. We have been very frustrated by our inability to have
much of a voice when it comes to FEHBP. Because the program is
statutory, we are unable to use the collective bargaining
process to make our priorities and preferences known, and OPM
has, in the past four years, adopted a culture of extreme
secrecy regarding FEHBP, leaving us almost completely in the
dark about the program and the changes they have contemplated.
In particular, our request for information about the likely
impact on enrollees of changes being considered today were
refused until the last minute, when OPM realized we intended to
complain about the withholding of information at today's
hearing. In fact, all we had received prior to preparation of
our testimony was a large font 10 screen PowerPoint
presentation from last December that raised many questions, but
answered none.
We ultimately received another document last week that
revealed what was in the Administration's budget release
yesterday; that the proposals amount to a multi-billion dollar
cost-shifting that will ultimately cause great financial harm
to many of our members.
Federal employees currently pay an average of 30 percent of
FEHBP premiums, in addition to sometimes substantial out-of-
pocket deductibles and co-payments. In some plans, the
employees' share of premiums is 64 percent. Yet, we get almost
no information or any input in decisions about changes in
benefits, administration, or structure. We are apparently
supposed to just keep quiet and keep paying.
After a three-year pay freeze, massive increases in
employee costs for FERS and furloughs of up to 14 days, Federal
employees can hardly afford to keep quiet. And like every other
middle-class American, no Federal employee can afford to pay
any more than absolutely necessary for health insurance.
We believe the changes in FEHBP that OPM is proposing will
have some winners and losers, but that overall they will shift
costs for the program away from the Government and onto the
backs of Federal workers.
The proposal described as giving discounts for wellness
would charge more to those with the misfortune of being ill or
aged or overweight. The proposal to expand plan types is a
proposal that will bring in plans with inferior benefit
packages and will worsen the program's already risk
segmentation. It will also mean charging employees in high
health care cost cities more for their health care. These are
not necessarily cities where salaries are higher.
The proposal to carve out prescription drugs may become a
proposal to transform the prescription drug coverage into
either a voucher or, worse, an employee pay all pseudo benefit.
The proposal to add ``self plus one'' is a proposal to charge
families with more than two persons more for their benefits.
Interestingly, when the PowerPoint was shown to AFGE last
December, there was a slide with an OPM proposal to eliminate
the statutory provision that prevents the Government from
paying more than 75 percent of any FEHBP premium. It was
presumably the spoonful of sugar to help the medicine go down.
All the other proposals take benefits away. This one would have
helped many low paid and uninsured Federal workers gain some
coverage. But this proposal has been eliminated from the
PowerPoint document that now circulates. Word is that OPM
approved the cuts and nixed the one thing that would have
provided a benefit.
So AFGE is in a difficult position. We believe strongly
that FEHBP is in need of reform, but all the rhetoric about the
benefits of competition, how it will lower costs, ring hollow
when there is no standard benefits package and the program is
structured to maximize risk segmentation. Without a standard
benefits package, competition doesn't lower prices, it just
divides up the market. OPM's proposals divide up the market
further, geographically in terms of risk and in terms of health
status.
As for regional PPOs, we know the most expensive and least
accountable plans in the program are the regional HMOs. They
are in and out of the program, merge with one another, drop
providers, add providers. They are generally unstable. We often
hear from our members that these regional plans charge the
Government far more than they charge local employers. But again
OPM has not made the case on the merits of this proposal; we
are just told that it is a best practice in the private sector,
a sector not known for best practices in the area of health
insurance.
We believe strongly that in light of the extremely large
share of FEHBP costs that Federal employees shoulder, we
deserve an opportunity to have input on the benefit structure
and administration of this program; not a PowerPoint once in a
blue moon, but a regular exchange of information and concerns,
and opportunity to have questions answered and employees'
perspectives given serious consideration. We have such
opportunities in the thrift savings plan, we have it with the
Federal Salary Council for workers on the general schedule, and
in the Federal Prevailing Rate Advisory Council for blue collar
Federal workers. All these advisory councils are statutory and
all work extremely well.
We urge the subcommittee to consider establishing an FEHBP
advisory committee so that Federal employees have a regular
opportunity to learn more about their health insurance program
and know that their interests, views, and concerns are
receiving the attention they deserve. Thank you.
[Prepared statement of Ms. Simon follows:]
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Mr. Farenthold. Thank you, Ms. Simon. We appreciate your
testimony and I certainly do have some questions for you when
the time comes.
Pursuant to an agreement with the minority, Mr. Walberg,
who has another hearing or something to attend, we are going to
go out of the normal order of questioning. Mr. Walberg has
quite a few questions, so we have agreed to allow Mr. Walberg
10 minutes for questioning, and then Ms. Norton 10 minutes of
questioning, then we will come back to myself and Mr. Gowdy for
the usual five minutes of questioning, and any other members
who may show up in the meantime.
So at this point I will recognize Mr. Walberg for 10
minutes.
Mr. Walberg. Well, I thank the chairman. Being subcommittee
chairman and my subcommittee going on right now, you understand
why I would like to get back as soon as possible, so that they
don't realize they can do it better without me.
First, I would like to thank you and I would like to thank
Chairman Issa for holding this important hearing. I certainly,
had I been here when the witnesses were welcomed, would want to
welcome them as well and thank them for appearing across the
board.
Today we take a look at the Federal Employee Health
Benefits Program and consider changes that can strengthen the
program going forward. I have reviewed each of the witnesses'
testimony and concluded that the FEHBP has been a valuable and
well-administered program, but also one that is seriously
hampered in responding to the present challenges and
opportunities in the health care marketplace.
Unfortunately, the FEHBP and its administrator, the U.S.
Office of Personnel Management, OPM, are hamstrung by a 50-
plus-year-old statute which locks OPM into a delivery structure
that reflected the health care industry in 1959, but not now.
Most reforms, such as those outlined in the President's budget,
which was released yesterday, can provide the statutory changes
necessary to allow the FEHBP to access the myriad products and
services that comprise today's health care marketplace.
The hallmarks of a model health care program are healthy
competition, consumer choice, and high-quality care at a
reasonable cost. The FEHBP, through most of its existence, has
included these vital components. However, due to the lack of
authority for OPM to entertain scores of new and different
insurance products, the program has stagnated. There are
roughly 50 percent fewer carriers participating in the program
today than in 1990. Many Federal employees and retirees,
depending on where they live, have limited options to choose
from. Many of the latest plan designs and innovations in health
care management are not available to either OPM, as the
administrator of the plan, or Federal employees and retirees as
participants in the plan.
For all these reasons, opening up the FEHBP to greater
competition and, therefore, greater choice will serve the
Federal Government, Federal employees, and retirees and
taxpayers well. OPM will retain all of its regulatory and
negotiating authority to ensure the prospective new plan
entrants will strengthen the overall program and provide
greater value to the participants.
I am particularly pleased that there is interest in
addressing this issue by both the legislature and the executive
branch. As such, Mr. Chairman, I would like to submit for the
record OPM's white paper on the subject, as well as a letter
from three providers, Aetna, Humana, and UnitedHealthcare.
Mr. Farenthold. Without objection, so ordered.
Mr. Walberg. Let me ask my first question, Mr. Breskin.
Thank you for being here. The assumptions that your
commissioned Avalere report made about the introduction of new
plans appears, at least to me, wholly speculative. Wouldn't you
agree it more likely that new plans would enter in a gradual
manner, reflect a variety of health plan types, and that OPM
would exercise its authority to ensure that the program
operates in the best interests of the Government and its
participants?
Mr. Breskin. Thank you for the question. My reaction is I
don't know how it would play out. I certainly know this: there
is quite a bit of interest, at least in one carrier, in getting
into the program on a regional basis, and there have been no
assurances whatsoever that when they get in on a regional basis
that they are planning to serve the interests of all employees,
all of the Federal workforce throughout the Country. The point
we have raised and the point that the Avalere study is focused
on is the concern about cherry-picking, the idea that if there
are regional PPOs, that regional PPOs can choose low-cost
areas, come in, offer their products at a much lower rate than
the national carriers have to because the national carriers are
offering a single rate across the Country, and it will cause
actually a noncompetitive situation.
It is important, when we talk about competition, not just
to talk about the idea of more people starting into the
program, but also the effect on competition between having an
unlevel playing field between national PPOs and regional PPOs.
And the effect that will have is the national PPOs will not be
able to offer, because they have a single national rate, a
competitive product in those lower cost areas and will
eventually be forced to go regional as well. So what you will
end up with, actually, is fewer choices for Federal employees,
particularly in higher cost areas, and possibly no choices for
Federal employees in those high cost areas.
So Avalere's premise, I think it is a valid one, I do not
think it is speculative at all; I think it reflects the
concerns we have and the concerns about the cherry-picking that
would likely occur if someone was able to come in regionally.
Mr. Walberg. Well, I appreciate that and I think that
really establishes and sets the framework of understanding
here, and I would continue to say there are a lot of
assumptions, especially with OPM and the responsibility that
they have shown and how they are undertaken.
I guess I would turn to you, Mr. Foley. Do you agree with
both its assumptions, the Avalere report commissioned by Blue
Cross Blue Shield, and the conclusions in that report? If not,
could you tell us why not?
Mr. Foley. No, I don't agree with the assumptions and with
the conclusions. To start off, in terms of the cherry-picking
concern, OPM has that concern now with the current marketplace,
and we manage that issue by negotiating with our local health
plans and with our national health plans to make sure that the
local plans are not just choosing areas that are advantageous
to them and undercut other health plans. So we do that now in
our current market, and we would do that when we have regional
PPOs. We would look to make sure that a regional PPO is in the
best interest of the enrollees and of the program overall, and
does not undercut markets. We would make sure that they are
responsible programs in that regard.
The Avalere study assumes a very high rate of switching of
enrollees based, apparently, on price. So they have elasticity
assumptions that don't jive with our current experience or
experience over the past 50 years in terms of how employees and
retirees respond to price signals when the FEHB Program.
Choosing a health plan is a complex decision. Often it is
about the providers that you have or the brand name of the
insurer, and a lot of other factors. So price is only one
factor. So the elasticity assumptions I just couldn't agree
with.
Mr. Walberg. Well, if you could go into a little more
detail in explaining how the agency would evaluate and accept
new plan types in the program.
Mr. Foley. Sure. We would look to, first of all, our normal
process, where a health plan submits an application, and often
it is the case that a new health plan requires two or three
tries before they actually are accepted in the program because
we have concerns about customer service or the benefits that
are offered, or some of the competitive concerns that have been
raised earlier. So all of those things would enter into play,
so it might take a period of time before a new entrant would
actually come into the market.
When they do come into the market, we would look to make
sure that the region that is described is several contiguous
States, that does'nt pick any one market, does'nt undercut in
any one market, but is a blend of markets so that it does'nt
have the effect of some of the concerns that have been raised
to date. We would go through our normal process in terms of
making sure that the plan is financially sound, that it has
good customer service, and all the other criteria that we apply
normally to health plans would be applied to those plans.
So we view this as an extension and an expansion of how we
look at new entrants into the FEHB Program now.
Mr. Walberg. Okay, thank you.
Mr. Breskin, just to be clear, are you telling the
committee today that Blue Cross Blue Shield would withdraw its
participation as a service benefit plan if Congress gave OPM
the authority to accept a broad range of new health plan types?
Mr. Breskin. No, I am not.
Mr. Walberg. Well, the report seems to indicate that.
Mr. Breskin. Well, let me make things clear. First of all,
our 53 year association in the FEHBP, I think, speaks for
itself. It certainly speaks to our commitment to this program.
We have been in it through thick and thin. We got down to a
single day of reserve and we figured out a way to stay in the
program back in 1982. So we are certainly not suggesting
exiting. What we are suggesting, however, is that if we are put
in a position where we cannot compete on a national basis with
a national PPO in a competitive way, we would have no other
choice but to continue our participation in the FEHBP in a way
that would allow us to be competitive, which would have to be
regional.
A perfect analogy is on the Medicare Advantage Program,
where regional PPOs were originally started in the Medicare
Advantage Program and, in fact, back in 2003 there was an
attempt to try to put in a national PPO product or national PPO
products in the Medicare Advantage Program and, in fact, an
incentive of 3 percent was given to any carrier that was
willing to offer a national PPO product; and nobody did it.
Nobody is doing it at this point, and the reason is you can't
have two different sets of rules.
So to answer your question, no, we are committed to this
program for the long haul. But we obviously can't be put in a
position where we can't compete in a position where we can't
compete on a level playing field, and we would have to find
that level playing field and compete in that way.
Mr. Walberg. If I could ask one more question.
Mr. Farenthold. Without objection.
Mr. Walberg. Mr. Foley, if no changes are made to the
structure of the program, where do you see the FEHBP in 5
years, 10 years, 20 years?
Mr. Foley. Sure. As we look at it right now, the FEHB, if
you look at it as a marketplace, is more concentrated than the
commercial marketplace overall, so without changes, without
additional authorities, we see a continuation of that
concentration. And our concern is that that undercuts some of
the competition that exists in the program and the choice of
health plans. So it is difficult to say exactly where it will
be 5, 10 years from now, but we have seen a continuing trend
from the mid-1980s to a very high concentrated market, more
highly concentrated than insurance markets commercially, and we
see a continuation of that trend and the problems that are
associated with it.
Mr. Walberg. Less effective, less of an ability to provide
comprehensive coverage, new plans, new programs, new ideas?
Mr. Foley. Yes.
Mr. Walberg. Thank you.
Mr. Chairman, thank you for your efforts.
Mr. Farenthold. Thank you, Mr. Walberg. We will let you get
back to your subcommittee as well.
We will now recognize the gentlelady from the District of
Columbia for 12 minutes.
Ms. Norton. Thank you, Mr. Chairman.
Mr. Foley, my great problem with government has generally
been that it doesn't innovate, so I am always open to
innovation in government. I find I can't bear how hard it is to
change one little thing in government. But I have to tell you
the burden is really on you, especially when you use the word
modernize when it comes to FEHB fix. Essentially what you are
proposing to do is to fix what everybody believes, I think even
you at this table do not believe, is broken. The chairman, the
big chairman here, indicated, I think, quite factually that
FEHBP has been a model for what this Administration is trying
to do with their Affordable Health Care Act.
You have a lot of chutzpah because you have in place the
model and all we understand about what is happening with this
Administration with the Affordable Health Care Act comes close
to chaos. So at least you have one model that you can look to.
Of course, it should be looked to as a model for what to do and
what not to do. And as you do the Affordable Health Act, you
could learn from that experience, because that is a true
nationwide pool.
So, in looking at your proposal, my concern would be
capsulized in one word: price. You know, the word competition
means nothing unless you are going to reduce the price for the
average person on FEHBP. Remember, in most parts of the world
there is only one payor; and I guess you figured out why. And
that is what I want to first get back to. The reason that even
Singapore has one payor is that the first rule of insurance is
get the biggest pool you can. That is what you have managed to
do. Moreover, you have the Post Office, you have members of
Congress and all this great, big pool, the biggest pool in the
Country. Do you think that pool, the size of that pool tells us
anything about OPM's success in keeping premium costs lower
than the private sector?
Mr. Foley. First of all, thank you for your description of
the program; it is a model program and it is one that we are
proposing to modernize, but really these are changes that will
occur over periods of years and really are in the spirit of the
basic model, which is a competitive model and one that is based
on choice. The large pool that we have, the 8.2 million covered
lives, is an advantage to the program.
Ms. Norton. If you had a smaller pool, the way the average
employer apparently has, wouldn't that mean that the price for
the average Federal worker would go up?
Mr. Foley. It would decrease our negotiating power, and I
think, with reference to the proposal about contracting
authority, we are proposing to use that size, that large pool
to negotiate lower prices in the pharmacy area.
Ms. Norton. On the one hand you are trying to use that
large pool, in the pharmacy area; in the other hand, with
respect to the rest of health care, you are breaking up the
pool.
Mr. Foley. Well, the reason is different, and there are two
different markets. So you have a pharmacy benefit manager share
market, which has a few large players that are capable of
handling the business that we would bring to them. You do not
have that same situation in the health insurance base; you have
many local plans, you have many national plans. And our
strategy to increase competition in that space makes a lot of
sense to us, given the market that is there.
Ms. Norton. So you think the regional pools, for example,
which are a smaller number of employees?
Mr. Foley. We are not proposing regional pools. The
regional plans would participate in the overall FEHB; they
would be part of the same pool. So we are not carving up the
pool in any way. And, in and of itself, that should decrease
price, it shouldn't increase price.
Ms. Norton. Well, wait a minute. The point is price. What
is the point, then? If these pools do not lower the price, then
why not stick with the pool that you have, since you already
have the price coming down?
Mr. Foley. Regional plans, not pools, regional plans will
increase competition in the regions that they are serving, and
we believe that that will lower price because it will lead to
more competition; and that is what we are seeing in the
commercial market, so we would like to bring that benefit to
the FEHB market.
Ms. Norton. So you are telling me that the pool would not
be as Mr. Breskin says when he keeps his OPM cherry-picking;
you are saying do not bother, we can manage anything, where
they would cherry-pick the low-cost regions and charge a
premium that reflects that region, shifting some costs to the
larger FEHBP pool? I do not see how that can fail to happen.
Mr. Foley. Again, our actuaries have looked at this in the
way that the Avalere people looked at the circumstances, and
they estimate modest savings for this over a 10-year window, so
there are obviously different assumptions being used about the
efficiency of the regional plan, about the propensity for
Federal employees and retirees to switch plans.
Ms. Norton. Well, let's get to switching plans. First of
all, I think you have an obligation, as you come before us, to
tell the members of Congress and their staffs who are sitting
here is our Federal employees going to be on the exchange, so
that all of this is essentially moot? I mean, we were told,
when we passed the Affordable Health Care Act, that everyone
would ``go on the exchange.'' What does that mean in terms of
this? First of all, what does that mean? Are Federal employees
no longer going to be a part of their own plan, as, I might
add, other employers would continue to have, but are all a part
of the exchange and therefore would go on the exchange to find
the best deal, rather than be part of something called the
FEHBP? I mean, I am confused as to where all of this starts in
the first place, and here you are talking about changing it. No
one has told members of Congress whether they are going to be
part of the FEHBP or whether they should all be prepared to go
into the exchange.
Mr. Foley. Federal employees and retirees have employer-
sponsored coverage, it is credible coverage, and they will not
be going on exchanges. There is a provision, as you have
referenced, that affects members of Congress and their staff.
That is something that we are writing regulation on.
Ms. Norton. Well, let's straighten that out. Are you saying
to me that members of Congress and their staff will no longer
be a part of the FEHBP?
Mr. Foley. That is, right now, a subject of regulation. It
would be inappropriate for me to comment.
Ms. Norton. So we are certainly losing part of that pool.
Let me go on. How would you manage what would otherwise is
seen to be to the advantage of a regional plan to go to
regions, lower cost regions, rather than have what every other
employer has? Every other employer in the United States will
have one or two, of course. We have this wonderful galaxy. How
would you manage to keep the cherry-picking from transferring
costs to the larger pool that is not in these regional pools?
Mr. Foley. We would do it similar to the way we do it with
local plans who come in and propose areas, and if we feel that
the local plan is just picking the good risk or picking an area
to undercut a competitor, and not in the best interest of
enrollees and of the program overall, we negotiate a larger
region or a different region. An analogy might be in the
Pacific Northwest. If a regional plan came in and said that
they wanted to offer products in Washington and Oregon, and we
needed another plan in Alaska, we would negotiate that they
take Alaska as well. And that is the power that we have as a
negotiator and that is, I think, one of the strengths of this
model, is our ability to act on behalf of enrollees, and I
think that is why we have experienced the success we have over
the 50 years we have had the program.
Ms. Norton. I will leave that on the table and ask Mr.
Breskin, in fact, I will ask Mr. Foley, perhaps both of you can
explain this. This rendition that Mr. Choate's testimony gives
of how the FEHBP started with many more plans and over the
decades these plans dropped out; some were grandfathered in,
most of them dropped out. Even the health maintenance
organization dropped out. So part of the reason why one or two
plans, and the first plan that has 60 percent, which on its
face doesn't look very competitive, part of the reason may be
that these others dropped out. Well, if you have been managing
so well, how come all of these plans dropped out? Why didn't
you keep a competitive FEHBP?
Mr. Foley. We have over 230 plan options available.
Ms. Norton. No, my question is not how many do you have
now. My question is you grandfathered in plans, more than 400
participated in the program. It looks like, by attrition, some
plans have gotten dominance, rather than by competition. Why
didn't FEHBP manage to have more national plans in the program
so that it would not be caught with a model that now gives one
carrier 60 percent of the pool?
Mr. Foley. Ms. Norton, our statute limits the number of
plan types that we can have.
Ms. Norton. So when did the others drop out?
Mr. Foley. The dropping out has occurred mainly among local
HMOs. If you recall, in the 1990s there was a large and robust
HMO market.
Ms. Norton. Did 400 plans initially participate in
government-wide and nationwide plans?
Mr. Foley. No. That 400 figure is probably sort of a high
point, again, when there was a lot of HMO presence in the
1990s; and the FEHBP reflects a commercial market, to a large
degree, so if there are a lot of HMOs locally, they tend to
join the FEHB program. So we have 230 plan options and we have
increased each of the last two years the number of plan
options, and we work very hard to increase those options to
increase competition. So we are doing what we can
administratively, but the law restricts us in terms of adding
national plans or adding regional plans, for that matter.
Ms. Norton. Thank you, Mr. Chairman. I see my time is up.
Mr. Farenthold. Thank you very much, Ms. Holmes. I was
going to go next, but I do see the chairman of the full
committee is here, and out of deference to the value of his
time, I will go ahead and recognize him as our next majority
member for five minutes.
Mr. Issa. I will gladly pay you Tuesday for a hamburger
today. I owe you, chairman.
Mr. Foley, I want to be for the President's budget in this
area, but let us go through a few things. First of all,
standing behind an obsolete law is a bad excuse for why you can
or can't do anything. Wouldn't you agree that you are in the
business of saying to Congress, change the law? I have the
opportunity to be in the business of changing laws. So, first
of all, would you say that it is time to lift the cap on this
four different--in other words, eliminate many of the brush
that have become obsolete in the 1960 law?
Mr. Foley. We think it is appropriate to add additional
plan types and to allow the FEHBP to----
Mr. Issa. No, no, I understand what you are proposing
doing, but I just want to get to the core of it. Let's scrap
some of the limitations of the original law as a premise going
forward. Aetna dropped out I think before I got in Congress,
okay? It is time to say that is over with.
Now, wouldn't you agree that the legacy of my own postal
carrier and other organizational ones does, to a certain
extent, already divide up the whole process, doesn't it? In
other words, the postmaster has proposed leaving your system
because he says he can save money. I know your organization
doesn't agree, but you have two very large groups. As a matter
of fact, he represents your largest single element, current and
retired postal workers, and he says scrap it, I am leaving you
and I am going to go bid for one big entity. Isn't that true?
Mr. Foley. Yes, he has proposed----
Mr. Issa. Okay, so one of the processes should be for us to
create a situation in which numbers-based, numbers-and service-
based competitive responses should be able to be the primary
determinant of changes in this program, isn't that true?
Mr. Foley. Yes, we believe that that increases choice.
Mr. Issa. Because Delegate Norton I think did a good job of
questioning whether cherry-picking regions would make you save
money in one region for which you would like to score, but then
the national programs would have a tendency to say, in the next
rebid, you have cherry-picked a lot of things, it is going to
change how we work nationally, isn't that true? Inevitably that
you can't score as you typically do, you score that there will
be no change at the two dominant carriers in front of you, and
then you take the savings. That is just the way savings tends
to get scored, isn't it?
Mr. Foley. No, we don't agree.
Mr. Issa. But do you score an increase from Blue Cross as a
result of going to regional cherry-picking? Because you have
asked for the ability not to regionally bid come one, come all.
You have asked for the ability to cherry-pick when it works to
your benefit, isn't that true?
Mr. Foley. No. Our actuaries, as I said, have modeled this
and they come up with a modest savings. This is an incremental
change to the program.
Mr. Issa. I appreciate it is an incremental change, but I
do believe that Delegate Norton is right that we have to be
very cautious about--I have no problem with the regions, I
really don't, but I think it has to be numbers-based.
Another area is although you call for domestic partner
benefits, and I share with you that the Government has to be
competitive with the private sector, and if that includes those
benefits, so be it. Now, you are limiting it to gay couples
only, same sex couples; you are not allowing domestic partner
benefits for heterosexual couples, which makes the score
smaller, but it doesn't make you equal to the private sector,
does it? In other words, the private sector is recognizing a
domestic benefit of either gender, very often. So you are only
doing part of it there, is that correct?
Mr. Foley. No, that is not correct. The President's budget
reflects the inclusion of opposite sex and same sex couples.
Mr. Issa. Okay. Then the $240 million previous CBO would be
dwarfed; you would probably in the multi-billion dollars per
year, isn't that true?
Mr. Foley. It is approximately $600 million over 10 years
to add that benefit.
Mr. Issa. I hear you. I find that is believable as the
estimates what Obama Care was going to cost. So it is now
doubled what was estimated.
You also want to give these benefits to retirees, isn't
that true, in other words, add it to their entitlement?
Mr. Foley. To new retirees, yes.
Mr. Issa. To new retirees. Not to anyone retired as of
today?
Mr. Foley. That is the way we have modeled the benefit.
Mr. Issa. Okay. I want to make sure that was scored that
way, because we all understand that the incentive to recruit
and retain a workforce has nothing to do with those already
retired.
I would quickly like to go a couple more items. Obama Care
included a rather esoteric provision, which is the men and
women on this dais, the men and women behind there are
currently going to lose their participation in the Federal
Employee Health Care Benefit as of the end of this year, right?
Mr. Foley. We are in the process of writing regulations in
response to the law. I can't comment, or it would be
inappropriate for me to comment.
Mr. Issa. Oh, no, it is very appropriate and you will
comment, if you don't mind. It is important not that you issue
an opinion on the law at this point, although we have had
discussions between OPM on what it might mean or not mean. Is
there any economic benefit to pulling us out and putting us
into exchanges not yet formed from an administrative overhead?
In other words, somebody still has to administer these people
going into Maryland, D.C., and Virginia plans, and some
Pennsylvania; us going into plans in all 50 States in the
Union, and our district offices going into plans in all 50
States in the Union, which would be regional exchanges. Is
there any benefit to that administratively, or is that a
burdenous cost, by definition, to have a few thousand people
pulled out of the plan and then administered all over the
Country, to the Federal Government, who has to absorb this
overhead?
Mr. Foley. I am not prepared to comment on that.
Mr. Issa. I would request that you go back and have OPM
comment on it, because the Speaker just went through
sequestration; everyone went through an 8 to 10 percent cut,
depending upon which part of the budgets they were cutting. The
fact is the administrative costs would have to be borne within
legislative or executive costs.
Mr. Chairman, I would ask to have just an additional one
minute.
Mr. Farenthold. Without objection.
Mr. Issa. Thank you.
Again, I said I want to be with you, and I really do. The
proposal itself inherently is good. Let's open up the process.
Let's recognize that artificial historic definitions need to be
gone. I do believe that although I am willing to support a law
change that would create a regional opportunity, and certainly
a law change that would create a greater opportunity for
nationals to come in, I believe that, as you go back today with
the proposals from us, that you need to answer the question of
are you willing to go through a process that says you can only
do any of these if there is a finding scored by CBO or found by
GAO to be an actual savings. In other words, let's not agree to
a change that you then go through and based on a prediction
that may not be true. Are you willing to take that back today
to the Administration? Because I want to work with you. I want
to open up and change very aggressively the law, but only to
the extent that Ms. Norton and I can come to an agreement that
we have been prudent in making sure that the proof is in the
pudding before we begin significant changes with incumbent
carriers.
Mr. Foley. We are asking for the authority to contract with
regional plan types. We wouldn't do that if it weren't in the
best interest of the program. So we are approaching this in a
very deliberate and incremental way. And as I described
earlier, we would go through all the normal processes in terms
of vetting the proposal and the insurers.
Mr. Issa. Mr. Foley, I am exceeding even my borrowed time.
History has been please trust us, we will be prudent. The
history in this committee is that ain't so. So in rewriting the
law to give that kind of authority, I must admit if the
Administration, Vice President and the President, want to have,
and obviously OPM, want to have our buy-in, and you will have
it, it is going to have to be based not on we give you the
authority, trust us, but based on a much more limited, perhaps
a pilot program, certainly a bidding process that is open to
review and independent third party.
I must admit that today, discovering that Obama Care is
going to cost us double, discovering that most States don't
want to form exchanges, and that, contrary to the law as
passed, we are going to be subsidizing non-State exchanges,
which was clearly prohibited in the law, that puts us in a
situation in which we cannot deal with 8 million Americans,
current and retired, in a way that would endanger the cost and
benefit to those individuals.
So I opened with I want to be with you. I strongly want to
be with you. I believe in competition. I share with Delegate
Norton and Mr. Walberg and others, the chairman, that we want
to be with you, but we want to work on this not from a budget
proposal, but from a change in law proposal, and I look forward
to doing that.
Mr. Chairman, ranking member, I appreciate the excessive
indulgence. I yield back.
Mr. Farenthold. Thank you very much.
We now have the member of the full committee, Mr. Connolly,
who is requesting to participate. Without objection, I will
allow Mr. Connolly to participate and recognize him for five
minutes.
Mr. Connolly. Thank you, Mr. Chairman. And, before my five
minutes, I just want to thank you for your graciousness.
Because of the limitation of the space on the subcommittee, I
could not join the subcommittee. I was on it last year. But I
do represent the third largest number of Federal employees, so
I have a direct and vital interest in the subject, and I thank
you so much.
Mr. Farenthold. You are welcome. Any time.
Mr. Connolly. As well as the chairman of the full committee
and, of course, my friend and ranking member, Eleanor Holmes
Norton. And I would ask my five minutes start over. That was
all gracious, thank you.
[Laughter.]
Mr. Issa. Mr. Chairman, could you give him an extra minute
or two to say thank you, but we will start over?
Mr. Connolly. I thank my colleague.
I wanted, Mr. Foley, to focus on a proposal that came out
of the postmaster general, which was to pull the Postal Service
employees out of FEHBP.
In fact, Mr. Chairman, I would ask unanimous consent to
insert in the record the testimony of Walt Francis before this
committee last year to refresh our memories as to his analysis
of the consequences of such an action.
Mr. Farenthold. Without objection.
Mr. Connolly. Without objection. I thank the chair.
Mr. Foley, have you all looked at the possible
ramifications of such a move?
Mr. Foley. Yes, we have, and we have discussed with the
Postal Service their proposals. Essentially, the proposal to
pull out postal employees and retirees would amount to about a
quarter of the population that is in the program right now. We
believe, in aggregate, for the program as a whole, it doesn't
have a very significant price impact in the sense of disrupting
the market; however, on an individual plan basis it has a very
significant impact, looking at the 23 plans that have 50
percent or more of their enrollees that are postal employees,
retirees. That would have a significant impact on several of
those plans. So overall, as I said, the impact is not great,
but there are also unintended consequences.
Mr. Connolly. Well, you say it is not great. We had
testimony when we had that hearing that, in aggregate, to
maintain current benefits with the diminished pool, short pool
of remaining Federal employees could cost $1 billion more
annually. Does that ring a bell with you?
Mr. Foley. I don't recall a specific figure.
Mr. Connolly. I would ask, then, that you get back to us
for the record as to whether your analysis concurs with that.
It also said cost for retirees could rise rather substantially
for a retired couple.
Mr. Foley. Right. And that really is dependent on the plan
that they are in, as I mentioned.
Mr. Connolly. On the plan.
Mr. Foley. Certain plans are very affected by this change
and some, quite frankly, wouldn't stay in business, I don't
think, and some would experience increases; and it really
depends on the mix of enrollees.
Mr. Connolly. In fact, we also had some testimony that some
widows, for example, might not be covered by Medicare, given
the employment of their spouse, and they would have to find a
way to try to compensate for that if the Postal Service were to
pull out of FEHBP.
There is also, is there not, a question of viability of
some of the existing postal plans? For example, the mail
handlers standard plan has 150,000 participants, only 10,000 of
whom are postal employees. So if you were to separate the two,
in theory, that plan could go away because it is not viable
with a risk pool of 10,000 remaining. Would that be a fair
statement?
Mr. Foley. Well, if those employees were pulled out and
part of a postal plan of whatever formation that would be, the
remainder in the FEHB may or may no be a viable plan option. I
guess our concern is much greater about the plans that have a
much higher concentration of postal employees and retirees.
Mr. Connolly. I just think we have to pay attention to this
proposal and we have to, without emotion, without bias,
hopefully, we need honest analytical work. What are the
consequences both for the postal employees who are being pulled
out and for the remaining FEHB programs? Ms. Norton was
correctly citing some concerns she has about competitiveness
and entry and the number of options available. I want to know,
and I am sure my colleagues do, could this precipitative move
in fact have an unintended consequence of actually killing some
options for all employees, maybe with the best of intentions?
And the other thing I am really interested in is, at the
end of the day, net, does it in fact save money.
My final point, Mr. Chairman, I was so glad to hear of the
concern of the chairman of the full committee about members of
Congress and their staff being pulled out of the FEHBP, and the
fact that that actually could have attendant unforeseen
administrative costs, and I certainly agree with him and would
remind him that that was a Republican amendment to Obama Care
in the Senate led by Senator Chuck Grassley of Iowa. I just
want to get that in the record.
Thank you, Mr. Chairman.
Mr. Farenthold. Thank you.
At long last it is my turn to ask some questions. I will
probably go down in history as one of the most generous
chairman with time.
Mr. Connolly. You have my vote.
Mr. Farenthold. So I am going to start out with Mr. Foley.
Mr. Foley, I think we can kind of summarize your proposals in
three big areas that we are talking about right now: that is,
opening up the program to more regionalized care to increase
competition; you guys taking over and doing prescription drugs
in-house; and then, finally, adding in some alternative
coverages, be it the ``plus one'' coverage, as well as some
incentives for wellness. We are going to kind of focus on those
issues broadly.
My first question, let's talk a little bit about the
regions. It has been mentioned that cherry-picking, I
understand in the much less stressful environment of South
Texas than Washington, D.C., we would probably get some lower
rates. The chairman pointed out we really don't have a firm
score on doing that yet, is that correct?
Mr. Foley. We have estimated that the expanding the plan
types would save approximately $240 million over 10 years.
Mr. Farenthold. I am going to go to Mr. Breskin, who has
the vast majority. You think that number is reasonable and will
hold?
Mr. Breskin. I don't, and I think it doesn't take into
account what we have described as the phenomena that will
likely occur. Of course, the Avalere study indicated it would
be more like $6 billion increase over the 10-year period.
Mr. Farenthold. All right. I would imagine Mr. Choate is
going to have a different opinion of that as well.
Mr. Choate. Historically, obviously, as we have seen
competition increase, we are not endorsing one specific type of
plan designed to be added; we are simply asking for OPM to have
the capability of being able to offer local, national,
regional, any type of plan that any commercial market would be
able to offer today, and at their discretion be able to offer
those.
Mr. Farenthold. Okay. Let's get back to Mr. Foley here. So
you guys want the power to do your own prescription drug
program. Would you cover all prescription drugs, are you guys
going to cherry-pick, or how are you going to choose which ones
you do or don't cover yourself, and then do you dump the dogs
to Mr. Merritt?
Mr. Foley. The way we would approach the pharmacy benefit
manager option would be that we would first look at it and look
at the market and the kinds of bids we get in. We are not
entering into this if it is not good value for enrollees and
for the program as a whole. We think it is good value;
otherwise, we wouldn't propose that we go down this path.
Mr. Farenthold. So you are asking us to trust you with no
numbers.
Mr. Foley. No. We estimate that it would save $1.6 billion
in mandatory savings over a 10-year period.
Mr. Farenthold. But just to get back to my original
question, you all aren't talking about taking over all of them,
just the more common drugs that you see the highest use of?
Mr. Foley. We would see that we would, pharmacy is a
complex market and we would see that we would want to look at
specialty drugs, for example, separately and consider whether
that makes sense to have as part of a single PBM purchase; and
we would want to make sure that the benefit design is
consistent with the plans that we have, being able to transmit
information in real-time to have as good or better coordination
with the medical benefit.
Mr. Farenthold. Now, having dealt with Mr. Merritt's group
in trying to get some specialty drugs that my doctor wants my
wife and myself to be on, I can guarantee you are doing a good
job trying to save the Government money. There are an awful lot
of hoops that we have to jump through to do that. Would cherry-
picking off some of the prescriptions from your program run up
your costs significantly? How would it affect your members?
Mr. Merritt. Well, it depends. I mean, we don't believe
that price controls generally save money, they more shift cost
to other programs. And one challenge would be if there is
direct negotiation in the form of price controls, that most
likely that would probably shift higher costs into the exchange
and other programs. When you add 8 million lives into that
program, probably the response a manufacturer is going to have
are to raise prices across the board. So we see a number of
ways you can save money without that, and, as with most
employers, there is a lot more you can do to save money as
people get more comfortable, in terms of preferred pharmacy
networks, more generic utilization, and things like that.
Mr. Farenthold. A little bit off the subject, but just
something of personal interest to me, having grown up at the
soda fountain of my pharmacy, I am really kind of seeing a
shift pushing to the big Walgreens, CVSes, and a lot of
pressure on those small family-owned pharmacies. What can we do
about that, or is that just an inevitable force of the
marketplace?
Mr. Merritt. Well, some of that is a little bit of an urban
myth in the sense that small pharmacies continue to grow; they
are very profitable. As you were saying, let's see the score on
how much is really going on. The reality is that PBMs are there
in the marketplace to save money for consumers and employers
and government programs, and some folks would rather we just go
away, like it was 20 years ago, but people can't afford to do
that. They want better benefits and, frankly, we move a lot of
business to the most efficient drugstores, those who offer the
best prices, and certainly those in rural areas where there
aren't many options have a lot of negotiating power and do very
well.
Mr. Farenthold. All right.
Ms. Norton, I gave everybody else a little bit of time.
Would you object to me taking another minute and a half?
Ms. Norton. Unanimously.
Mr. Farenthold. All right, thank you.
I wanted to get to Ms. Simon for a minute. Now, you haven't
gotten a lot of questions, but you raised some real concerns on
the part of the Government workforce. You pointed out that
there might be a problem with bringing in a wellness program,
and to me that just seems counterintuitive. Why would you not
want to have incentives for the workers that you represent to,
for instance, quit smoking?
Ms. Simon. Well, part of the Affordable Care Act already
provides coverage for smoking cessation; it was a requirement.
But we, of course, want every incentive for Federal employees
to be able to pursue wellness. What we don't want is price
discrimination against those who have the misfortune of being
ill or obese.
Mr. Farenthold. Well, isn't there a difference between the
misfortune of being ill and choosing to smoke? I have the
misfortune of being overweight. I might be subject to one of
those.
Ms. Simon. Well, in my written testimony I suggest an
alternative, which is what AFGE does as an employer.
Mr. Farenthold. Incentive?
Ms. Simon. It doesn't penalize those who have an illness or
who are older but provides money for fitness classes and gym
membership, and that sort of thing.
Mr. Farenthold. And you also expressed a little bit of
concern about a ``plus one'' program. To me, this seems like
since the employees pick up a share of their health care,
giving those married couples, or in this case we are even
talking about expanding it into same sex couples of opposite
sex domestic partners. To me, this seems like a cost savings
for some of your members that mirrors what is almost
universally done in the private sector.
Ms. Simon. Well, thank you for bringing that up, Chairman
Farenthold. Here is the awkward thing, and this hearing has
felt rather gratifying to me because I am listening to the
members of the subcommittee ask all the same questions we have
been trying to ask of OPM, and we haven't been able to get any
answers beyond trust us, either. For many, many years, as long
as I have been involved with advocating for Federal employees
regarding FEHBP, OPM's actuaries have told us that ``self plus
one'' would be actually more expensive than a family, families
of more than two persons.
And now, suddenly, we are getting different numbers, but we
are only getting the bottom line, and we have not been able to
see what kinds of assumptions OPM has used in its calculations
for saying this will cost this or this will cost that; this
will save this amount of money. We really do want to know
exactly how they arrived at their estimates for changes in
premiums to family coverage, what the premiums would be for
``self plus one,'' and we have been denied that information.
We can't really say, one way or another, whether this would
be good, who would be the winners and who would be the losers,
until we see how those numbers were constructed.
Mr. Farenthold. All right. Well, thank you very much.
Did anybody on this side have any additional questions?
Ms. Norton. Just for the record, Mr. Chairman, first, there
are a couple questions from Representative Danny Davis that he
would like answered for the record. That is number one.
Mr. Farenthold. And he will get this into the record. We
will send this to you guys, and if you would respond in
writing, it would be greatly appreciated.
Ms. Norton. And I wonder if Mr. Foley would respond in
writing as well to the suggestion of Ms. Simon for the AFGE
based on what the Federal Government does in other areas.
Apparently in the thrift savings bond area we have a thrift
advisory council. Even with salaries we have a federal salary
council.
Mr. Foley, what bothers me most about your proposal is that
there is no constituent. Those who use the plan apparently have
not had an opportunity to look at it and to advise you on it.
Now, their views are not determinative, but they are part of
the market. I would like to have Mr. Foley respond to the
chairman on whether he believes that the model from these other
areas would also perhaps advise an employee advisory council
for this area as well.
Mr. Farenthold. And I will just speak from personal
experience in listening to folks, in our case it is
constituents, but in your case it would be customers, is always
a valuable experience. I would join with Ms. Norton in
encouraging you to take a look at that.
Ms. Norton. And one more thing for the record. Mr. Foley
indicated what the savings would be for the negotiations for
pharmaceuticals. I think he said $1.6 billion over a 10-year
period. But he never gave us what the savings would be if we
went to the larger plan with regional plans he is proposing. So
I would ask that you provide for the chairman what the marginal
savings, I believe that is your word, would be if we switched
to the plan that OPM is recommending today.
Mr. Farenthold. All right, with that, I would like to thank
the witnesses and the members of the panel for participating
today.
The subcommittee will stand adjourned.
[Whereupon, at 11:35 a.m., the subcommittee was adjourned.]
APPENDIX
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Material Submitted for the Hearing Record
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