[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?

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

                                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

                               __________

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

                              ----------                              
                                                                   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?

                              ----------                              


                        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:]


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    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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