<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:60956.wais]
FEHBP: OPM'S POLICY GUIDANCE FOR FISCAL YEAR 2000
=======================================================================
HEARING
before the
SUBCOMMITTEE ON THE CIVIL SERVICE
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
MAY 13, 1999
__________
Serial No. 106-49
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
60-956 WASHINGTON : 2000
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
JOHN T. DOOLITTLE, California (Independent)
HELEN CHENOWETH, Idaho
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Carla J. Martin, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on the Civil Service
JOE SCARBOROUGH, Florida, Chairman
ASA HUTCHINSON, Arkansas ELIJAH E. CUMMINGS, Maryland
CONSTANCE A. MORELLA, Maryland ELEANOR HOLMES NORTON, Washington,
JOHN L. MICA, Florida DC
DAN MILLER, Florida THOMAS H. ALLEN, Maine
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
George Nesterczuk, Staff Director
Jeff Shea, Professional Staff Member
John Cardarelli, Clerk
Tania Shand, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on May 13, 1999..................................... 1
Statement of:
Flynn, William E., III, Associate Director, Retirement and
Insurance Services, Office of Personnel Management......... 17
Gammarino, Stephen W., senior vice president, Federal
Employee Program, Blue Cross and Blue Shield Association;
Dr. Joseph Braun, chief medical officer, George Washington
University Health Plan; and Bobby L. Harnage, Sr.,
president, American Federation of Government Employees..... 46
Letters, statements, etc., submitted for the record by:
Braun, Dr. Joseph, chief medical officer, George Washington
University Health Plan, prepared statement of.............. 84
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 7
Flynn, William E., III, Associate Director, Retirement and
Insurance Services, Office of Personnel Management:
Information concerning monetary values................... 44
Information concerning the President's budget for the
FEHBP.................................................. 35
Prepared statement of.................................... 19
Gammarino, Stephen W., senior vice president, Federal
Employee Program, Blue Cross and Blue Shield Association,
prepared statement of...................................... 50
Harnage, Bobby L., Sr., president, American Federation of
Government Employees, prepared statement of................ 66
Morella, Hon. Constance A., a Representative in Congress from
the State of Maryland, prepared statement of............... 12
Scarborough, Hon. Joe, a Representative in Congress from the
State of Florida, prepared statement of.................... 3
FEHBP: OPM'S POLICY GUIDANCE FOR FISCAL YEAR 2000
----------
THURSDAY, MAY 13, 1999
House of Representatives,
Subcommittee on the Civil Service,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:20 a.m., in
room 2154, Rayburn House Office Building, Hon. Joe Scarborough
(chairman of the subcommittee) presiding.
Present: Representatives Scarborough, Morella, Cummings,
Norton, and Allen.
Staff present: George Nesterczuk, staff director; Garry
Ewing, counsel; John Cardarelli, clerk; Jeff Shea, professional
staff member; Tania Shand, minority professional staff member;
and Jean Gosa, minority staff assistant.
Mr. Scarborough. Good morning. I want to thank all of our
witnesses for participating in this important hearing today.
My name is Joe Scarborough. I appreciate you being here,
and I apologize for the delay. You all are experts on the
Federal Employees Health Benefits Program. I'm sure the
subcommittee is going to benefit greatly from your insights on
the impact that OPM's policy guidance for the year 2000 will
have on the FEHB and those who rely on it for their health care
coverage.
The FEHB is the largest employer-sponsored health benefits
program in the Nation. Approximately 9 million individuals,
Federal employees, retirees and their families, obtain their
health care insurance through the FEHB. In the eyes of Federal
employees and the annuitants both, it is one of the most
important benefits the Federal Government provides for active
and retired civil servants.
Over the years, the FEHB has earned a widespread reputation
as a model employer-sponsored health benefits program. Even
now, many experts consider the FEHB a model for reforming
Medicare.
Nevertheless, we've seen some disturbing developments in
the direction of the FEHB in recent years. The development
that's most visible I'm sure to individual enrollees is the
dramatic premium increases during the last 2 years.
During that period, FEHB premiums have increased on average
by 8.5 percent in 1998 and 10.2 percent in 1999. The
President's budget appears to anticipate another double digit
increase again for the year 2000.
We have also seen a trend toward more mandated benefits and
an increased standardization in FEHB. I believe this
development is a real threat to the FEHB. The key to the
program's success has been its market orientation. Consumers
may choose the health plan that best meets their needs from
among many competing offerings. That framework has made it
possible for both employees and annuitants to receive high-
quality health care coverage at reasonable premiums.
Mandates and standardization are incompatible with this
successful approach. Now experts have been warned and have
warned this subcommittee that mandates and overregulation of
the FEHB market adds costs to the programs and reduces consumer
choice. Mandates have both visible and hidden costs.
The visible cost, of course, is the added cost of providing
the mandated benefit. The hidden cost results from the loss of
flexibility that carriers should have to design the innovative
benefit packages that will be both attractive to consumers and
cost effective.
When viewed in isolation, however, the cost of providing a
single benefit often appears very reasonable. But it's much
harder to calculate the hidden, but very real, costs of the
loss of flexibility and consumer choice. Each mandate creates
its own cost spiral which in the aggregate is an engine for
driving up premiums.
As the administrator of the FEHB, OPM also affects premiums
and the quality of health care available to the employees and
retirees through administrative directives and through other
mandates.
For example, directives drawn from the President's self-
titled patient's bill of rights such as information disclosure
requirements and the right to demand amendments to one's
medical records could really increase costs without providing
benefits to enrollees.
On the other hand, if OPM provides carriers with sufficient
flexibility to implement these instructions, their costs may at
least be contained.
For these reasons, this subcommittee has a duty to
carefully examine the directives in the call letter. In
conducting this examination, I believe the following questions
are critical.
First of all, does the policy directive address a real
problem in the FEHB? Second, will the directive increase
premiums or lower the quality of health care for Federal
employees and retirees? Third, will the directive be
implemented in a reasonable manner?
The answers to these questions are important to each person
who relies on the FEHB, for the carriers who participate in the
program, and finally for the taxpayers who will be shouldering
the burden of paying for 72 percent of FEHB premiums.
I look forward to exploring these issues with each of our
witnesses and again thank them for their cooperation in making
this hearing possible.
Now it's certainly my privilege to turn it over to the
ranking member, Mr. Cummings, for any comments that he may
have.
[The prepared statement of Hon. Joe Scarborough follows:]
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Mr. Cummings. Thank you very much, Mr. Chairman. Today's hearing
has been convened so that the subcommittee can continue its
close oversight of the Federal Employees Health Benefits
Program, an essential benefit program for Federal employees and
retirees. Specifically, we will seek to determine the nature of
the guidance to be provided to participating health insurance
plans by the Office of Personnel Management through its call
letter for the 2000 contract year.
In addition, the subcommittee will seek to determine the
impact on FEHBP of President Clinton's executive memorandum
mandating compliance with the patient's bill of rights.
Much has occurred, however, since we held a similar hearing
last March. This year's call letter requiring full disclosure
in the use of provider discounts effectively implements H.R.
1836, the Federal Employees Health Care Protections Act,
enacted by Congress last year.
Though OPM's Inspector General found no unethical conduct
on the part of plans who arrange for provider discounts, the
implementation of the act strengthens OPM's ability to use
administrative sanctions against health care providers who seek
to defraud and abuse the government's health benefits program.
In 1998, FEHB plans supported and implemented important
consumer protections outlined in the patient's bill of rights.
These included information disclosure, access to emergency
care, access to obstetricians and gynecologists, and access to
specialists for people with special care needs.
At last year's hearing, I stated that I applauded the
expansion of these important benefits and protections, but that
it must be understood that expansion does not come without a
cost.
I am pleased that the cost of implementing these
protections to date is less than 25 cents per enrollee.
Finally, I understand that there is some controversy over
the application of cost accounting standards to FEHBP
contracts. Cost accounting standards are designed to increase
the uniformity and consistency with which cost accounting data
is supplied by contractors to the government for the purposes
of assisting in either negotiation, pricing, or administration
of contracts.
CAS are applied to all contractors that perform under
negotiated, cost-based pricing arrangements with the Federal
Government in order to ensure that costs are properly
allocated. Blue Cross and Blue Shield has raised concerns about
the difficulties of implementation of CAS on FEHBP plan
contracts and would like to extend section 518 of the Omnibus
Appropriations Act of 1998 which exempts carrier contracts from
the application of CAS.
The American Federation of Government Employees believes
the FEHB contracts should be subject to CAS so agencies can
ensure the accuracy of bills submitted by contractors. There is
also a concern that premiums will increase if CAS are not
applied to FEHBP contracts.
I am looking forward to testimony from OPM, Blue Cross and
Blue Shield, and AFGE on the pros and cons of applying CAS to
FEHBP contracts and to ultimately do what is in the best
interest of enrollees.
I thank all of the witnesses for coming this morning to
testify before the subcommittee, and I hope that you can shed
some light on these very important issues.
Mr. Scarborough. Thank you, Mr. Cummings.
[The prepared statement of Hon. Elijah E. Cummings
follows:]
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Mr. Scarborough. Mrs. Morella.
Mrs. Morella. Thank you, Mr. Chairman. And I also
appreciate your holding this oversight hearing to discuss the
administration of the Federal Employees Health Benefits
Program. Like many of my constituents, I was shocked last fall
when I learned that, on average, premiums in the program would
rise by 10.2 percent in 1999. Within this overall rise in
premiums, there was an average increase of 7.4 percent in the
employee and retiree share of the FEHBP premiums.
As before, I'm concerned that the magnitude of this
increase was so far above the 3.5 percent rate of medical
inflation, and I must point out that an article in the journal
Health Affairs reported last year that premiums in private
employer-sponsored health plans would rise at the considerably
slower rate of 3.3 percent in 1999. How will this discrepancy
affect the increase, if any, of the premiums in the year 2000?
In particular, I think we need to discuss the specific cost
increases and efforts being made to avoid or to limit them. For
instance, last year it was reported that prescription drug
costs, which account for approximately 20 percent of FEHBP
expenditures, would rise by as much as 22 percent. According to
the Employee Benefit Research Institute, private insurance
payments for prescription drugs increased 17.7 percent in 1997,
after growing 22.1 percent in 1995 and 18.3 percent in 1996.
FEHBP is the country's largest employer-based health
insurance program serving the health care needs of almost 10
million Federal employees, retirees and their families. And
basically I think it's a good program.
But how are FEHBP's plans using this leverage to implement
meaningful cost containment mechanisms with the goal of passing
on the savings to plan members?
Further, a leading explanation for the sharp growth in drug
expenditures is that prescription drugs are a substitute for
other forms of health care. The theory is that using
pharmaceutical products will result in cost savings in other
areas of the program.
For example, last year I was active in the passage of
legislation requiring all but five religious-based FEHBP plans
to cover all five methods of prescription contraceptives.
Previously, only 19 percent of Federal health plans covered all
five methods.
And while it's difficult to determine the extent to which
these contraceptives save the health plans money by protecting
women's health, preventing unintended pregnancies and reducing
abortions, I'm interested in learning more on the
implementation and the impact of this provision.
On a related note, I'm curious how other preventative
measures like ensuring consistent coverage of bone density
tests through a comprehensive national coverage policy in the
FEHBP would reduce future costs to the program.
And, finally, I'm also interested in hearing about those
steps that are being taken to ensure uninterrupted complete
service to all plan participants in light of Y2K. I understand
that carriers are required to report on their Y2K compliance
status along with their
benefit and rate proposals on May 31st. At this point, what can
the witnesses tell us about their progress in assuring Y2K
compliance?
I thank you, Mr. Chairman. I look forward to hearing the
panelists and I yield back.
[The prepared statement of Hon. Constance A. Morella
follows:]
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Mr. Scarborough. I thank Mrs. Morella. Mrs. Morella is a
champion of the rights of Federal employees and we certainly
appreciate her help and participation on the committee, as we
do Mr. Cummings and obviously also Ms. Norton.
I would like to recognize Ms. Norton for any opening
statement she may have.
Ms. Norton. Thank you, Mr. Chairman. And I appreciate your
views of the occasion of the issuance of OPM's annual call
letter inviting proposals for the change in rates and benefits
to do oversight on the very important, perhaps the most
important program for Federal employees, the Federal Employees
Health Benefits Program.
I think that I can say without contradiction that the FEHBP
works better than many health plans in the country. That does
not mean that this plan is anywhere close to perfect; and,
therefore, the opportunity to look more closely at how to
improve it, should in fact be welcome.
The concern about costs abated for a while, because costs
slowed considerably during the early 1990's, and now we are
back where we were with costs going up very rapidly.
And one is almost left to believe that companies were
inclined to control costs during the time when the President's
comprehensive health plan was being passed that at least it had
a deterrent effect on costs, because when that bill died,
almost on cue, we began to see costs going up again.
Now, I would be the first to admit that there are other
factors in the marketplace, but I am very concerned that costs
for the FEHBP which had done a good job in controlling costs
have begun now to keep pace and exceed costs elsewhere,
without, it seems to me, a credible explanation.
I note that there has been some objection to President
Clinton's Executive order implementing a patient's bill of
rights. I just think that's a pitiful way to try to account for
costs increases, particularly, since what the President's
modest version of a patient's bill of rights did was
essentially sanction the plans already allowed--virtually all
of the controversial differences between the Democrat and
Republican bills in the House and Senate are not even in the
Executive order, and some of them couldn't be in the Executive
order in any case because you can't do them in Executive
orders.
So I will be looking this morning for some serious
discussion about costs and why costs are going up from FEHBP
and from the carriers who are here. If you're serious about
costs, you've got to look beyond whatever small costs come out
of something like a patient's bill of rights and get down to
real explanations about why these costs began to go up again
during the mid and late 1990's while you were able to hold them
down in the early 1990's.
These costs are not simply borne by the taxpayers, they are
also borne by employees. The taxpayers deserve a credible
explanation and so do Federal employees.
Thank you very much, Mr. Chairman.
Mr. Scarborough. I thank you, Ms. Norton. Now we will hear
from our friend from Maine.
Mr. Allen. Mr. Chairman, I simply want to thank you for
holding this hearing and state that I look forward to hearing
the testimony of all of the witnesses. And I appreciate your
being here today. It's no secret I have a special interest in
the rapid increase in the price of and utilization of
prescription drugs, and I think that if we can understand how
prescription drug prices are affecting the Federal Employees
Health Benefits Program, we will have a better sense for how
that issue is affecting Medicare beneficiaries and others in
private plans throughout the country.
So I appreciate your holding this hearing, Mr. Chairman.
Thank you.
Mr. Scarborough. Well, thank you, Mr. Allen.
Now we're ready for our first panel. We ask William E.
Flynn III, Ed Flynn, who is the Associate Director of
Retirement and Insurance Services in the Office of Personnel
Management to please come forward--and, as you know, going
through this routine quite a few times since this is an
investigative committee, we ask that you raise your right hand
and take the oath.
[Witness sworn.]
Mr. Scarborough. Thank you. If you could be seated and
please give us your opening statement.
STATEMENT OF WILLIAM E. FLYNN III, ASSOCIATE DIRECTOR,
RETIREMENT AND INSURANCE SERVICES, OFFICE OF PERSONNEL
MANAGEMENT
Mr. Flynn. Thank you, Mr. Chairman. Good morning to all the
members of the subcommittee. I do want to thank you for
inviting me today to discuss OPM's goals for negotiations later
this summer with health plans that participate with us in the
Federal Employees Health Benefits Program. At the outset, I
would like to say that we are confident that the objectives
we're pursuing will strengthen our ability to provide high
quality affordable health care for the 9 million individuals we
cover.
In addition, the program will remain a model employer-
sponsored program that relies on competition and consumer
choice. As importantly, we value greatly the opportunity to
partner with the almost 300 health plans which play a vital
role in insuring the program's success. Quite honestly, we
couldn't offer the program without them. As one example, over
the past 2 years in collaboration with health plans, we've
undertaken full implementation of President Clinton's patient's
bill of rights.
For total costs of less than $10 annually for each
policyholder, participants in the program this year will have
greater access to care, emergency rooms, and from specialists
when needed and more information enabling them to make informed
health care choices.
For contract year 2000, which will begin next January, we
have focused our objectives in the following areas: further
work on implementation of the President's patient's bill of
rights, quality measures for health care, family-centered
health care, enhancements in customer service, clarifications
in provider contracts, implementation of the Department of
Defense's demonstration project involving the Federal Employees
Health Benefits Program, and Y2K or year 2000 compliance.
Now, in the remaining few minutes, Mr. Chairman, I would
like to point to a few items which I believe can help set a
context for our discussions today. First, we are as concerned
as anyone over the rising costs of health care. The Federal
Employees Health Benefits Program is a market-based program,
and testimony at last fall's hearing aptly demonstrated that
the cost increases we were experiencing were being driven by
the same forces, and generally at the same levels, as other
parts of the health care economy.
The total average premium in the program today is about
$4,400 per year. In an era of managed care and some of the
problems that it has generated, investing $10 per year in
safeguards, information and other protections associated with
the patient's bill of rights seems a prudent investment.
This is particularly so given our emphasis on results in a
setting where we rely on health plans to install procedures
which are appropriate for their individual business settings.
Second, I think it's important to constantly reinforce the
idea that this program is an important component of the
compensation package which the government offers in order to
attract and retain the kinds of employees necessary to carry
out the work of government. For that reason, we must always
stay attuned to what our customers tell us.
We undertake extensive efforts to do that, some of which
led to the objectives outlined in the call letter. Nonetheless,
we can always do better. I am concerned when I hear that
important participants in this program believe that their views
are not being heard.
However that belief has come to be held, it's harmful and
I'm confident we can and will overcome it.
And finally all of us are interested in holding costs down
or perhaps even reducing them. Most commentators believe that
the savings which resulted from the widespread introduction of
managed care have now been achieved and are not likely to be
repeated except at the margin.
In this context, it's entirely reasonable to carefully
examine alternative means of achieving savings. And I believe
two areas hold particular promise.
The first can be found in the increasing volume of
knowledge about health care quality and techniques that produce
healthy outcomes. In the few short years I've been associated
with this program, there have been remarkable advances in the
collection, analysis, and dissemination of data about
treatments that are effective and cost efficient. We should do
more.
And second, we have seen how the creation of preferred
provider networks has helped control costs in the Federal
Employees Health Benefits Programs. Those networks are widely
offered within each of the health plans that participate. It's
only reasonable to suppose that aggregations of networks which
can take several different forms might be further effective in
controlling costs into the future.
In short, Mr. Chairman, there are things which can and
should be considered and discussion of them should be
inclusive. We can't afford to simply assume that things will
take care of themselves. And we look forward to working with
you and other members of the committee and others on these
important matters. Thank you.
[The prepared statement of Mr. Flynn follows:]
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Mr. Scarborough. Thank you, Mr. Flynn. We appreciate it. In
my opening statement I set out three questions that I said I
thought were going to be important to be answered. I want to
put them to you now and get your feedback. First of all, what
problems in the FEHBP do the policy directives in the call
letter that you sent out address?
Mr. Flynn. Well, Mr. Chairman, I think the first thing I
would do is just quickly go back through the topical headings
in the call letter. I would be the last person to characterize
those headings as problems in and of themselves.
For example, implementation of the DOD demonstration
project is something that Congress passed last year and that
we're in the process of implementing, I might add, on a
cooperative basis with the health plans. We will be
participating in that with the Department of Defense and other
key stakeholders.
Y2K compliance, I think, will largely not be a problem, but
it certainly is an issue that we must address.
Ms. Norton mentioned the President's Executive order
directing Federal departments and agencies that administer
health benefit programs to implement the President's patient's
bill of rights. This is not a problem. It's an opportunity for
us, I think, to do some good things.
In the areas of quality health care, family-centered health
care, and enhanced customer service, I think what we're doing,
Mr. Chairman, is encouraging health plans to build on
strengths. So, you know, you can look at this in terms of the
cup's half full or half empty. I would like to think it's more
than half full and we want to make it better.
Mr. Scarborough. Do you see any of these directives causing
the costs to go up further or causing the quality of health
care for Federal employees to decline?
Mr. Flynn. Mr. Chairman, when we lay out our negotiation
objectives for the coming year, we look at, among other things,
the impact on costs in this program. In the invitation letter,
which you sent us, you asked us about our projected impact on
increased costs in the program, and we've provided that.
I think that the total amount of increased costs that we
expect in the program for 1999, based on the things that we are
looking for, is somewhere in the neighborhood of about $20
million.
That covers things like 90-day transitional coverage as
part of the patient's bill of rights initiative, for a cost of
$3.8 million, and about $12 million for various types of
preventive screening services, and a few other items like that.
The two that I can see real quickly are about $15 million, or
somewhere in that $15 to $20 million cost range.
Mr. Scarborough. OK. While we're talking about costs and
increases, what about the question regarding how much you
expected the premiums to go up?
I know we had asked you that question, and the answer was a
bit ambiguous. While you can't look into the crystal ball,
obviously, you had to consult with OMB while they were making
their projections on how much they expected the costs to go up.
So could you give us something--and again I understand you
can't look into the crystal ball until you finish negotiations
this summer, but could you give us and give people, especially
that have a lot of Federal employees in their District, some
sort of idea about how much you expect the premiums to go up?
Mr. Flynn. Well, you're right, Mr. Chairman, we really
won't know until it's over. I would just simply say a couple of
things. First of all, you pointed out the differentials
reflected in the President's budget. Those don't reflect
premium increases per se. The numbers in the President's budget
are on a fiscal-year basis. This program operates on a
calendar-year basis.
The numbers in the President's budget reflect all income to
the Federal Employees Health Benefits fund, not all of which
reflects premium increases but some demographic shifts as well.
So looking at those figures and using some standard assumptions
about inflation and the economy, in general, produces those
numbers; and they're not intended to be a reflection of what is
expected to occur next year's premium.
I think the best thing that I can say about next year right
now is that there will be an increase. I don't know how much it
will be. But I'm confident that this program will look next
year, just like it looked last year and in the years previous,
like other health care programs, like what other private sector
employer sponsors are experiencing, and we will do our best to
manage with that.
Mr. Scarborough. I know you will. Obviously there are a lot
of outside forces that you all can't control. Do you think it's
safe to say, though, that it will most likely be a double-digit
increase this year?
Mr. Flynn. I would not go so far as to say double-digit
increase, Mr. Chairman. Again, we won't know until it's over,
but that is not where I would be at this point, but I cannot
say with any definitive sense at this point.
Mr. Scarborough. OPM has, though, talked with OMB, have
they not? What has OPM told OMB that they expect the increase
to be?
Mr. Flynn. Well, I think we, and OMB in the projections in
the President's budget, assume among other things, that the
general trend in medical inflation will be what it's been for
the past several years; and for the past several years, it's
been up there. Again it's an attempt to portray early on in the
budget process what might occur.
Mr. Scarborough. Right.
Mr. Flynn. But you really don't know until the rate
proposals come in.
Mr. Scarborough. Right, and my red light is on. But was
there a hard number that when OPM was talking to OMB, did you
all say, well, it looks like it's going to be more than last
year, it's going to be--I'm just trying to get--I'm certainly
not trying to put you on the spot here. I'm just trying to get
a ballpark, 2 percent is different from 12 percent, and you all
have discussed this.
And, obviously, again, those of us that are up here have an
awful lot of Federal employees that it should help if they can
project what is going to happen 6 months from now.
Mr. Flynn. Well, there is a specific number that we have
agreed on. I don't know what that is exactly. But I would be
glad to go back to the staff and provide it for the committee.
Mr. Scarborough. Great, I appreciate that. That would be
helpful.
[The information referred to follows:]
The numbers in the President's Budget for the Federal
Employees Health Benefits (FEHB) Program represent the total
income to the Employees Health Benefits Fund in FY 1999 and FY
2000. Because these are income totals, the increases are due in
part to changes in population assumptions. Further, the basis
for these numbers is fiscal years rather that FEHB contract
years that renew on a calendar year basis.
Our submission for the FY 2000 President's Budget
anticipated an average increase in FEHB enrollee contributions
of 9 percent for contract year 2000. Further, we estimated that
total Government contributions will increase by 8.2 percent and
that total permiums under the program will increase by 8.4
percent.
Mr. Cummings.
Mr. Cummings. Thank you very much, Mr. Chairman.
Let me just go back to something. The beneficiaries of all
of this, of course, are the Federal employees, and you're
trying to make sure that we have the best plan possible. And I
was kind of struck by something that I read in Bobby Harnage's
statement, from the American Federation of Government
Employees--and he is going to testify in a few minutes--that
the current structure of FEHBP gives Federal employees
virtually no meaningful voice in setting premiums and benefits.
Has OPM solicited their recommendations? I mean, you know,
like recommendations from employee unions for proposed benefit
packages and designs that would possibly reduce the rate of
growth of premiums? You know, I mean, have you had those kinds
of discussions?
Mr. Flynn. We certainly have had those discussions at an
informal level, Mr. Cummings. I also read that statement and
want you and everyone to know that to the degree that an
organization such as AFGE feels somehow excluded from the
process of being able to give us their opinions and views,
that's something that I need to correct. And I would make a
commitment to do that.
We do get a lot of input. We hear from individual
employees, the National Association of Retired Federal
Employees, Federal departments and agencies, unions, and health
plans. There's a lot of input we get. We do customer
satisfaction surveys. I've talked in my testimony about focus
groups that we've conducted that have been facilitated by the
Gallup organization.
The thoughts, the expressions of interests, the needs and
desires expressed by the customers--the stakeholders in this
program--are extremely important to us, and we need to look for
ways in which we can get that input effectively.
Mr. Cummings. Well, I just want to make sure--I agree with
what you just said. It just seems to me that if I've got the
beneficiaries who are paying the premiums saying we really want
to sit down, we really want to work with you, because we're
paying, we note the Federal Government is paying their piece,
but we're paying, too, and our employees, you know, they want
to get the best package for their dollar, and saying that maybe
there's some things that we can tell you that will help.
I don't want us to be in a situation--and I'm sure all of
us would agree with this up here--we don't want a situation
where they're locked out, because they speak for a lot of
people who are the beneficiaries of this. That statement really
bothered me when I read it, because I was just wondering if we
are becoming such experts that we allow folks who could
possibly help us out of the process.
And I'm glad to hear your commitment. And I hope that when
I ask you that question again the next time I see you that we
have--if correction is appropriate, and I take it that it is,
just listening to what you just said, that that will take
place.
Let me move on to something else. Mr. Allen a few moments
ago talked about this whole thing of prescriptions, and I'm
sure he will get into it even more. But I just had a press
conference in my district--and I hadn't even talked to him
about it yet--but about this whole thing of prescriptions and
the elderly.
I was just shocked when I began to read the report that was
done on my district with regard to the kinds of money that
insurance companies--I mean the kind of discounts that are
given to the preferred customers as opposed to my elderly
people who don't have insurance.
It just got a phenomenal response in my district. People
seemed like they came out of the woodwork. And I was just
wondering, how do prescriptions play into this? I hope you
don't mind me getting into this. How do prescriptions play into
this whole premium situation? Can you help me with that?
Mr. Flynn. Well, I will try, Mr. Cummings. This is a good
deal from recollection, but prescription drugs in this program
account for about $1 out of every $5 in the premium that's
charged, about 20 percent. And as Mrs. Morella mentioned in her
opening statement, in large measure because of the increasing
role of prescription drugs in health care generally, but also I
think in some respects it is attributable to the demographic
characteristics of the group that participates in the Federal
Employees Health Benefits Program. We have seen over the past
several years these costs rising at annual rates of around 20
percent.
This is an area that, not just for us, but for health care
administrators and people who have an interest generally, I
think does need a lot of attention. Clearly, drugs play an
important role in health, but clearly they are playing an
increasingly larger role in terms of the costs of health. I
don't have an answer to that. But it is a big issue for us as
well.
Mr. Cummings. The light is on, but, Mr. Chairman, just one
other question.
Mr. Scarborough. Sure.
Mr. Cummings. In your negotiations--and I'm not trying to
get into anything that's secret or whatever--but, I mean, when
you sit down and you talk about--if you're talking about 20
percent, I mean, and you sit down and you're trying to figure
out, you know, just negotiating, I take it that there comes up
discussions with regard to prescriptions, right?
Mr. Flynn. Sure.
Mr. Cummings. And I mean do you see any light at the end
this escalating tunnel? I mean, in other words, do you see it
getting at least stabilizing or getting any better?
Mr. Flynn. Well, at last fall's hearing, Mr. Gammarino and
a gentleman from Merck-Medco that runs a pharmacy benefit
program both testified, and I would tend to agree, that there
is nothing out there that one can point the finger at that says
these trends will stop. They offered some suggestions for
controlling costs that had to do with copayments and
deductibles and things like that.
And the only thing that I said that I thought we ought to
begin to take a look at that I made some reference to in my
opening statement this morning is that perhaps--because of the
importance of this benefit and because just as you've
mentioned, Mr. Cummings, the tremendously deep discounts that
are given to volume purchasers--it is time for us to look at
the possibility of carving out a national prescription drug
benefit for the entire program, and perhaps look at partnering
with other government agencies on the purchase of
pharmaceuticals for Federal employees, retirees, and others who
get benefits from Federal programs, as a way of perhaps
controlling these costs.
But these are extraordinary times. Those are extraordinary
increases, and those are the kinds of things that I think we
need to consider.
Mr. Cummings. Thank you.
Mr. Scarborough. Thank you, Mr. Cummings. Now, I see the
voice of quiet moderation has entered the committee room. Mr.
Mica from Florida.
Mr. Mica. Thank you, Mr. Chairman. I'm pleased to be with
you again, and I'm shocked that Mr. Flynn has returned for
another round of abuse. But welcome back, Ed.
Mr. Flynn. Thank you, sir.
Mr. Mica. Mr. Flynn, how many folks do we have that are
policyholders----
Mr. Scarborough. Mr. Mica, you are soft spoken. I'm having
trouble hearing you. If you can get a little closer.
Mr. Mica. How many folks do we have that are policyholders
in FEHBP?
Mr. Flynn. I believe the number is about 4.1 million.
Mr. Mica. 4.1 million?
Mr. Flynn. I believe that's correct. It's in that range.
Mr. Mica. And how many of the 4.1 million would be affected
by the patient's bill of rights?
Mr. Flynn. All of them, sir.
Mr. Mica. All of them. So your calculation of $10 per year
for each policyholder would be $41 million?
Mr. Flynn. Yes. It actually works out, Mr. Mica, to a
little bit less than $10 a year. I think the precise
calculation is about $8.61. And I think actually the range is
about $35 million.
Mr. Mica. Well, President Clinton attended an event in
Philadelphia on April 9th to promote his patient's bill of
rights and director LaChance, with whom you may be acquainted,
was also at the event. The President said that the patient's
bill of rights was implemented in the FEHBP for less than a $1
a month per enrollee. Is that pretty accurate?
Mr. Flynn. Yes, sir. I believe he said less than $1 a month
and less than $10 a year.
Mr. Mica. He made it sound like less. He said less than a
$1 a month, and you said $10. But you said the total is between
$35 and $40 million probably?
Mr. Flynn. I think actually between $30 and $35 million,
Mr. Mica.
Mr. Mica. When we held the original hearings on the
President's bill of rights proposal, it's my understanding that
just about everyone testified that there was no medical
benefit, most of the patient's bill of rights dealt with
regulatory items or mandates.
Mr. Flynn. Well, I don't think I would characterize my
testimony in that way, Mr. Mica.
Mr. Mica. Well, what specific medical benefit is there? Is
there additional mental health coverage or additional--specific
medical benefit?
Mr. Flynn. Well, yes, Mr. Mica, I believe so. In fact, if I
might just take a moment. One of the things that you were
particularly concerned about at that hearing was the estimate,
if you will recall, of about $17 million for information
disclosure, which I think has potential to have a direct impact
on people's health. And let me take one example----
Mr. Mica. Again, direct medical benefit, can you point to
one single direct medical benefit?
Mr. Flynn. Yes, sir, I believe I can. I was just trying to
do that very quickly. I think that the evidence is ample
throughout the United States that one of the ways in which
people stay healthy is by following the instructions of their
providers, by following the instructions that are contained on
the prescription medicines that they're supposed to take, and
so on and so forth. And there is a great problem with people's
understanding of that.
Mr. Mica. So it costs us $35 to $40 million----
Mr. Flynn. No, sir.
Mr. Mica [continuing]. For that benefit?
Mr. Flynn. No, sir, not at all.
Mr. Mica. Let me just ask you, since I don't have a lot of
time. We had testimony before about the amount of increase in
premiums, the average increase in premiums. What was the
percentage?
Mr. Flynn. The average increase in the total premium last
year was just over 10 percent and about 7.4 percent, if I
recall correctly, for individuals.
Mr. Mica. So a 10 percent increase in premiums. Didn't we
also have a reduction in the number of people participating as
far as plans?
Mr. Flynn. We had a reduction in the number of plans
participating, Mr. Mica, of about 60 to 65 or thereabouts, yes,
sir.
Mr. Mica. Dropped out.
Mr. Flynn. Mostly small health maintenance organizations
comprising less than 2 percent of the total enrolled
population.
Mr. Mica. Patient's bill of rights with no tangible direct
medical benefits, an increase of 10 percent, and then a
reduction in choices of plans available is sort of my take on
this.
Mr. Flynn. Well, I think it would be a mistake to draw that
conclusion, Mr. Mica. I think that we've demonstrated that
we're talking about less than $10 per year per person with a
total premium of $4,400, and that seems to us to be a prudent
investment in some of these protections.
Mr. Mica. As the former Chair of the subcommittee, I have
had a chance in the last month and months since I left that
position to talk with hundreds of Federal employees. And most
of them are concerned about less money in their paycheck and
higher premiums and concerned again about a system that was
pretty cost effective and accessible to them, now getting
expensive and inaccessible.
And then I talked to the other folks, the providers, and
they're boxed in by more regulations, more mandates. In fact,
one of my other concerns is the inability of some of the
vendors who are providing these services to know exactly what
they're to provide or be able to provide it and still stay
competitive in our system that was modeled to provide
competition.
I guess my time is about up. But what do you think about my
responses to those folks that are looking for lower premiums,
rather than higher premiums, and vendors who are providing
services who are looking at fewer regulations and mandates and
paperwork as opposed to more, which we're imposing?
Mr. Flynn. Mr. Mica, the way I would respond to that is to
say, first of all, I would want to have an opportunity to
listen to and consult with anybody who expresses those kinds of
concerns. If there are good ideas to make this program run
better, I certainly want to make sure that we take a look at
them.
I would also say that the overwhelming evidence that we get
from participants in this program and from the health plans
with whom we participate is exactly the opposite of that, and
that most people do, in fact, believe they have a good health
program.
They are concerned about the costs, but they get good value
for the dollar. And I think we have a demonstrated track record
of partnership with the health plans that participate in this
program.
Mr. Mica. Mr. Chairman.
Mr. Scarborough. Thank you, Mr. Mica. Mr. Allen.
Mr. Allen. Thank you, Mr. Chairman. I want to make a few
comments following up on Mr. Mica's comments and then turn to
some questions for you, Mr. Flynn.
First of all, I guess I would point out that, as you have
testified, the prescription drug costs in this program are
going up by 17 percent last year.
Mr. Flynn. In that range, yes, sir.
Mr. Allen. In that range, 17 to 20 percent. In fact, for
prescription drugs, the purchases, total purchases for
prescription drugs across the country have been going up 15,
16, 17 percent, now year after year after year. And if we're
talking about how to save money on programs and we're worried
about $8.61 per year to put in patient protections, we ought to
turn our attention to the pharmaceutical industry, which is by
far the most profitable industry in this country.
There are lots of ways of measuring profits. But in terms
of return on revenues, the pharmaceuticals earned 18.5 percent,
No. 1 in the country; return on assets, 16.6 percent, No. 1 in
the country; return on equity, 39.4 percent, No. 1 in the
country. If we're looking to control costs in any health care
plan and we do not pay attention to the prescription drug
costs, we are making a fundamental mistake.
Let me turn more narrowly now to a specific issue. The data
that we have for the Blue Cross and Blue Shield program is that
I think you said 20 percent of the program's total expenditures
were for prescription drugs. I don't know if that was the
Federal Employees Health Benefits Plan overall or the Blue
Cross and Blue Shield portion.
Mr. Flynn. Overall. But I would suspect that the Blue Cross
and Blue Shield is not much different from that.
Mr. Allen. OK. Assuming that it's 20 percent or somewhat
higher, one of my concerns is how that benefit is managed and,
in particular, you have a 20 percent copay for members who buy
their drugs at pharmacies, but no copay if they buy it through
mail order.
One of my concerns is that at the local pharmacy today,
people get some advice. They get some help; the pharmacists
know their drugs and can help people manage them. I question
whether you get the same kind of hands-on management from mail
order.
My question is really if you can talk to us about how that
prescription drug benefit is managed and also how--whether or
not you think that the utilization, the overall use of
prescription drugs might be driven down if you equalized sort
of the playing field between mail order and retail pharmacies.
Mr. Flynn. Mr. Allen, first of all, you've brought up what
is a very important issue and something that has been an
important issue between us and the Blue Cross and Blue Shield
Federal Employee Program in the course of our negotiations with
them.
Let me try and answer the larger issue about copayments
between the local pharmacy and mail orders first and then talk
a little bit about the situation with respect to Blue Cross and
Blue Shield.
With the 285 plans that participate in this program, we
really rely on them for expertise and benefit design in the
establishment of copayments and copayment differentials; and we
look to them to propose how to modify those designs from one
year to the next.
As long as they are reasonable and seem to be within the
general mainstream of practice, we negotiate and generally
accept different kinds of benefit designs for prescription drug
programs from one health plan to another.
With respect to the Blue Cross and Blue Shield prescription
drug program, it is no secret, because it has been talked about
in testimony before this subcommittee on a couple of occasions,
that the Federal employee program does believe that the
imposition of a copayment on Medicare-eligible retirees for
their mail order drugs would be an important way to rationalize
their benefit design and to insert some utilization controls at
that particular distribution point.
I note from reading their prepared testimony that this
remains an issue with them. I'm not surprised that it is. And
I'm sure that we will have long and fruitful discussions over
that over the course of our negotiations this summer. But I'm
not really in a position to talk about the outcome of that at
this point.
Mr. Allen. One followup, is there any concern that the
primary mail order contractor for the program Merck-Medco is
owned by a manufacturer and might have some conflict of
interest in terms of encouraging utilization of its own
products?
Mr. Flynn. No, Mr. Allen. Again, just to clarify, what
we're talking about here is the Blue Cross and Blue Shield drug
program, not the drug program for the Federal Employees Health
Benefits Program in general. When Merck-Medco was established,
that was a concern, the fact of its affiliation with the
pharmaceutical manufacturer, Merck, and a number of fire walls
were put into place to assure that there wasn't some sort of
incorrect or improper influence applied.
I think Blue Cross and Blue Shield can speak more directly
to that. But I know it was a matter that was looked at by the
Federal Trade Commission. And, of course, Merck-Medco as the
mail order pharmacy benefit manager for Blue Cross and Blue
Shield covers lines of business that are far more extensive
than the Federal employee program.
All of our indications, I might add, from the customers'
satisfaction surveys we've done, show people are very satisfied
with the service they get from that particular contractor.
Mr. Allen. Thank you. Thank you, Mr. Chairman.
Mr. Scarborough. Thank you, Mr. Allen. Ms. Norton.
Ms. Norton. Thank you very much, Mr. Chairman.
May I note that in the rear are students from Bruce Monroe
Elementary School who are part of a program that I started
called D.C. Students in the Capitol. Its purpose is to make
sure that every youngster in the District has to come to the
Capitol at least once, meet their own Congresswoman, see what
the Capitol is like, especially since so much of our business
unfortunately gets transacted here.
These students happen by chance to go to the same
elementary school I went to, and I have said to them that I was
particularly pleased to see Bruce Monroe here, because when I
went to Bruce Monroe there was no representative to come to
see, there was no Mayor and there was no city council. So to
see them here is for me especially poignant.
Like Mr. Allen, I am very concerned about the
pharmaceutical costs and recognize that the burden is on the
plans to be competitive here and to hold down costs. I wonder
if you are aware of changes from year to year in the number of
Federal retirees who may have changed their vendors for
prescriptions from local pharmacies to mail order purchasing.
Mr. Flynn. I don't have any of those numbers at my
fingertips, Ms. Norton. We probably have some data that we
could extend or extrapolate to the overall program to
demonstrate the movement into mail order, particularly for
maintenance drug therapy. We could provide this to you at a
later point, if that would be of interest.
Ms. Norton. Well, I mean it's of interest. One of the
reasons--I ask about retirees. They may have been slow to
change vendors because they are used to going into the local
pharmacy.
Well, of course, without some substantial education, you
may not know that the best delivery may be in the mail, where
the same delivery can occur and then the costs are
substantially less often for those kinds of transactions,
except that if that's not the way you've done it for most of
your life, most of your adult life, it's not most likely to
occur.
This kind of education--is this kind of education a part of
what you do at OPM? How do you change people's habits? If it is
your job to hold down costs, isn't part of that job to help
people recognize that they can get the same benefit, for
example delivery, that you might have gotten from the local
pharmacy, at a greatly reduced cost?
Mr. Flynn. Part of our job, Ms. Norton, is to educate and
inform. We do a great deal of that through the materials that
we produce. The health plans that participate in the program do
so as well.
I would just point to another area of this program as an
indication of the degree to which this particular retired
population is willing to change. The Office of Personnel
Management, among all agencies that pay retirement benefits,
has the highest rate of EFT participation, about 90 percent.
Ms. Norton. Say that again.
Mr. Flynn. We have the highest rate of electronic funds
transfer participation, among all benefit-paying agencies, at
about 90 percent for our retirees. When we do surveys of the
National Association of Retired Federal Employees and others,
we find that computer utilization, Internet access, things like
that, are all way above the national averages.
So I think this sort of tangential evidence is good, but I
do think we have an educational challenge in front of us. There
will always be ways we can do it better, but we have
responsibilities. We share them with the health plans, and we
want to make sure that people understand how they can get that.
Ms. Norton. Maybe retirees have a great incentive to watch
this sort of thing. It may be--the problem may be with
employees. I mean, I suppose at--the root of my question is
what kind of education are you doing on this kind of change
with employees and retirees, because unless these habits are
changed by the consumer, then you're going to have problems
holding down costs because you haven't educated people about
holding down costs.
I ask about this cost--I've had experience myself in the
difference between ordering something from a vendor, that's
covered by a plan, and going to the drug store and there is a
very substantial difference here.
Mr. Flynn. Yes, there is.
Ms. Norton. When one gets information that says you can
change your health care plan, you almost want to put it down,
unless there's something that very easily indicates what the
differences would be and points them out to you. Is that kind
of information available to employees?
Mr. Flynn. Yes, it is, Ms. Norton. And we make extensive
efforts to provide it. In fact, I will just mention one very
quickly. We've been involved, in partnership with the health
plans, in a major effort to make sure that our informational
and educational materials are written in plain language so that
we broaden the base of people who understand and who can act on
the basis of good understanding of what's in their best
interests. I think that's been an important effort. And I look
forward to some of the results of that.
Ms. Norton. If I might ask a question about the costs of
the patient's bill of rights. One of the costs was direct
access to OB/GYN, as I recall, it was $2.9 million.
I was interested that that cost was only a million dollars
less than the costs of transition costs, the transition costs
of keeping people on plans. I really didn't understand that
figure, particularly since most younger women, and I think even
middle aged and older women, use OB/GYN--or one or the other
far more than anything else.
Aren't there two transactions? I mean, why isn't that
saving money, if, in fact, the great majority of women use an
OB and/or GYN?
If I go first to my internist, then he says why don't you
go see my gynecologist, then, of course, there are two charges.
I don't understand why there is this $2.9 million for women to
go straight to OB/GYN, and I would like to see some figures
that would indicate why there would be an increased charge--an
increased cost, I'm sorry.
Mr. Flynn. Sure. And I will be happy to go back with our
actuaries and provide for you for the record if that's
acceptable.
Ms. Norton. What percentage of women use a physician mostly
for OB and/or GYN?
Mr. Flynn. I don't personally know that today. Certainly we
can provide that information for the record.
Ms. Norton. You have no idea why this $2.9 million is
listed as a cost of going directly to OB/GYN?
Mr. Flynn. It is----
Ms. Norton. Or what accounts for the costs?
Mr. Flynn. It is primarily the change in the benefit
pattern within those few plans that didn't already provide
direct access to OB/GYN.
Ms. Norton. I'm sorry. Changing the benefit pattern--if I
can just get this clarified. What does that mean? I can't
answer what you mean.
Mr. Flynn. It essentially allows women to have direct
access for routine screenings and other preventive care without
having to go through a primary care physician. As to the basis
for that $2.9 million cost estimate, I don't have all the
details in front of me, but, as I say, I would be happy to
provide it. But it's a very, very small number in the final
analysis, in any event.
Ms. Norton. Small number. I don't know why it's $2.9
million. You see the hypothesis, what you have indicated is
counter-intuitive.
Mr. Flynn. It is counterintuitive.
Ms. Norton. My hypothesis would be instead of two
transactions there ought to now be one, since I believe most
women use an OB/GYN. And so I would like an explanation for
that figure, and I would like it to be provided both to the
committee and to me.
Mr. Flynn. Mrs. Norton, absolutely I understand it is
counterintuitive, and that's why I would like to provide a more
complete answer if I could.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T0956.024
Mr. Scarborough. Thank you for this line of questioning and
also for this great program. What is it called, Classroom in
the Capitol?
Ms. Norton. D.C. Students in the Capitol.
Mr. Scarborough. Why don't you all raise your hands? What
grade are you in, sixth grade? OK. Well, thanks for visiting us
today and go home and tell your families and all of your
friends that are of voting age that Mrs. Norton continues to
fight for you in committees and on the House floor, and that
she's also a great champion for you, a great example of what
you can do. One of you ought to come and take her place after
she retires.
Mr. Mica. Soon.
Mr. Scarborough. Not soon, Mr. Mica, not soon. Just ignore
Mr. Mica, he's a mean-spirited Republican. You can go back and
tell your parents that, too. So thank you for coming. We
appreciate it.
Speaking of mean-spirited Republicans, Mr. Mica has one
very quick followup question, and if anybody over here in the
gentle section wants to ask a quick followup, we will be fair.
Mr. Mica.
Mr. Mica. Well, again, you've described this as only $10 a
year more, the President a dollar a month, and actually we're
at a $35 to $40 million a year increase. And you said there was
a 10 percent increase last year on average. I believe those are
the correct statistics.
What contributed the most to the increase in the last year?
Was that prescription drug costs?
Mr. Flynn. Yes, sir.
Mr. Mica. And that leads me to my question: What did the
patient's bill of rights do to help in that area? Anything to
bring down the costs or deal with the problem of the biggest
escalating factor?
Mr. Flynn. Well, Mr. Mica, the patient's bill of rights is
not intended to address any particular aspect of health care
per se. It's designed to provide access to information,
safeguards to assure----
Mr. Mica. Did it do anything to help in that area that
we've experienced the greatest amount of costs?
Mr. Flynn. The only way that I could really answer that,
Mr. Mica, is to say that the patient's bill of rights wasn't
per se intended to reduce costs. It was intended to better
balance the rights of individuals who participate in managed
care health insurance programs.
Mr. Mica. And one area where it could have reduced costs,
for example, in the direct access to OB/GYN services, which was
pointed out here, we haven't seen that happen?
Mr. Flynn. Only because of my own inadequacies, Mr. Mica. I
would be happy to provide additional information for the
record.
Mr. Mica. We look forward to your additional information.
Thank you, Mr. Chairman.
Mr. Scarborough. And, Mr. Mica, let his humility be an
example to you talking about inadequacies.
Mr. Allen, you have a followup, also.
Mr. Allen. I just thought in light--I guess I should say,
Mr. Mica, if you want to sign on to a bill that would reduce
prescription drug costs for the elderly, I have a bill for you.
But we can talk about that afterwards.
I just thought it would be useful to put the numbers on the
table we were talking about, on the one hand, about $35 million
being the overall global costs for the patient's bill of
rights.
Could you give me two numbers: one, give me the dollar
number that reflects the 10 percent premium increase; and then
the 100 percent, the total premiums paid by Federal employees
under this Federal health care plan.
Mr. Flynn. Well, in round numbers, 10 percent----
Mr. Allen. All I'm asking is round numbers.
Mr. Flynn. Ten percent increase in round numbers is going
to be about $1.7 billion. And the total premium income to the
program--and I don't have my calculator with me--but if you
figure an average premium, Mr. Allen, of about $4,400 per year
and 4.1 million policyholders in the program, you should get
pretty close to the total costs.
The thing that I would just emphasize is that that total is
then on average split 28 percent being paid by the individual
employee or retiree and the balance of 72 percent being paid as
the government contribution toward the cost of that care.
Mr. Allen. I thank you. I just wanted to have the numbers
in context.
Thank you, Mr. Chairman.
Mr. Scarborough. Thank you, Mr. Allen.
We certainly appreciate your testimony here today. And I
know you're a very busy man, and I apologize for keeping you
waiting 20 minutes at the beginning. But thanks again. We look
forward to seeing you soon.
Let's call up our next panel. We have Steven Gammarino who
is senior vice president of the Federal Employee Program, Blue
Cross and Blue Shield Association. We have Dr. Joseph Braun,
chief medical officer at George Washington University Health
Plan, and we have Bobby Harnage, Senior, president of the
American Federation of Government Employees.
All right, gentlemen, if you could raise your right hands.
Dr. Braun. I happen to be a Quaker. Could I affirm to the
oath instead of swearing to it, please?
[Witnesses sworn or affirmed.]
Mr. Scarborough. Please have a seat.
And let's start with Mr. Gammarino, senior vice president,
Federal Employee Program, Blue Cross and Blue Shield
Association.
STATEMENTS OF STEPHEN W. GAMMARINO, SENIOR VICE PRESIDENT,
FEDERAL EMPLOYEE PROGRAM, BLUE CROSS AND BLUE SHIELD
ASSOCIATION; DR. JOSEPH BRAUN, CHIEF MEDICAL OFFICER, GEORGE
WASHINGTON UNIVERSITY HEALTH PLAN; AND BOBBY L. HARNAGE, SR.,
PRESIDENT, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES
Mr. Gammarino. Good morning, Mr. Chairman and members of
the subcommittee. I thank you for the opportunity to appear
before this body today about the changes for the year 2000. I'm
also pleased to note that this is my first appearance before
the subcommittee since you became chairman, Mr. Scarborough.
Blue Cross and Blue Shield looks forward to continuing a
productive relationship with the subcommittee.
My testimony today will highlight several trends affecting
the program currently that we believe are adversely impacting
the well-being of the program.
These trends are: the increasing administrative burdens on
participating carriers, reduced carrier flexibility, movement
away from a level playing field, and the standardization of
health plan administration.
Before I go further, Mr. Chairman, since I will be
summarizing my testimony, I would like my full written
testimony to be put into the record.
Mr. Scarborough. Without objection, so ordered.
Mr. Gammarino. These trends will be reflected in my
comments today in the following areas: the impact on costs and
quality of the policies set forth in this year's call letter
and other matters of concern to the Blue Cross and Blue Shield
Association.
Your invitation requested our views on how the provisions
of OPM's call letter for the year 2000 are likely to impact the
costs and quality of health care coverage. Implementation of
the patient's bill of rights is one case in point. For example,
we have a requirement that patients have a right to obtain and
amend his or her medical records.
This will potentially require us to change our provider
agreements. Such contract changes are inappropriate, we feel,
for our plan. With a network of more than 400,000 providers and
provider contracts developed, in most cases, for the Blue Cross
and Blue Shield plans' commercial business, directing our local
plans to recontract for these issues would come at a tremendous
cost and, we think, add very little value to the program.
We simply have no reason to be involved in the relationship
between the physician and the patient with regard to medical
records. We're also concerned that should we attempt to
recontract for this issue it is possible that some providers
may simply refuse, thus reducing in size the broad networks
which our enrollees expect and rely on today.
With proper consultation between the agency and carriers
and reasonable flexibility, as was shown last year, it is
possible that the substance of the patient's bill of rights
could be implemented without major adverse impact on the
program.
However, I should note that the set of requirements OPM is
requiring are quite distinct from any of the various patient
right acts currently being considered before Congress.
Indeed, despite the assertion by some that the FEHBP
experience demonstrates that the pending patient's bill of
rights would not be costly, the requirements of the bill being
implemented in the FEHBP last year and this year are
significantly less onerous for health plans than some of those
being discussed on Capitol Hill today.
One final initiative mentioned in the call letter concerns
the Department of Defense Demonstration Project for
Participation by Military Retirees. Now, this area is also a
cause for concern. While we share the agency's interests in
setting premiums that are at an attractive level for eligibles,
we are concerned about their intent to ensure participation
while mitigating carrier risk. We have, in discussions with
OPM, told them we believe their intended course of action with
regard to financing this project is contrary to law and
incompatible with the very structure of the program.
Please let me explain. One percent of the premium in the
plan in the program is set aside in the administrative reserve,
the purpose of which is to cover OPM expenses in administering
the program, OPM uses only a small fraction of the available
amount and the unused portion is distributed to carriers based
on their market share in accordance with the directions in the
law.
We understand that the agency proposes to utilize the
unused portion of the reserve to pay off any deficits carriers
may incur because of the demonstration project without regard
to the statutory instructions.
We find absolutely no basis in current law for this action.
The legislation that authorized the demonstration project gave
OPM access to the reserve to defray any additional costs it may
incur, but it said nothing about carrier costs and did not in
any way alter the distribution scheme set forth in the basic
law.
Now why is this important? It is important because OPM's
proposed action is incompatible with the concept of an insured
competitive program, which is what the FEHBP is in law and in
fact.
OPM would, in effect, be redistributing the premium income
among the carriers, taking money that was derived from one
carrier's premium and giving it to another. In a self-insured
program, this would not be a problem; but in a competitive
insured program, it undermines the integrity of the rate-
setting process and erodes the basis for carrier liability.
Now, while the call letter draws attention to specific
program-wide initiatives for the coming year, there are, of
course, other issues affecting the FEHBP in general that are
not addressed in the call letter. One area of great concern to
us is the administration's continuing efforts to impose the
cost accounting standards on this program. These standards,
which are developed primarily for contractors doing business
for the Department of Defense, are overseen by the Cost
Accounting Standards Board.
As you know, upon the requests of this subcommittee and the
Committee on the Government Reform, Congress included a
provision last year exempting carrier contracts in this
program. The administration, specifically OMB, opposed this
provision at the time, even though OPM was on record as
recognizing the inherent difficulties in attempting to fit
these standards in this program.
We note that the President's fiscal year 2000 budget
proposes to delete this exemption. The Blue Cross and Blue
Shield Association actively sought this exemption last year
and, with your help, obtained that exemption. Simply put, for
reasons stated by many--before many subcommittees before, Blue
Cross and Blue Shield Association, as the agent for the plans,
cannot sign a contract with OPM that contains a cost accounting
standard clause, or that otherwise applies cost accounting
standards coverage.
Given the administration's reluctance to recognize the
inappropriateness of applying the cost accounting standards to
our program, as evidenced by the proposal to delete the
exemption, we're also convinced that congressional intervention
is required. Once again, we ask for your assistance in
retaining this statutory exemption.
The second area of significant concern is the lack of
sufficient flexibility to adapt our benefit structure to the
trends affecting us today. The cost trends, for example, in
prescription drugs continue to outpace by far all other benefit
trends. The demand for new, expensive drug therapies continues
to increase, fueled by direct-to-consumer advertising.
Other factors, such as the aging of enrollee population,
also contribute to the rising costs, as I testified last year.
And in the Service Benefit Plan, we continue to experience
wastage and high utilization that is encouraged by the
availability of ``free drugs'' for some of our enrollees. We
have sought to control our costs by introducing cost sharing,
but in the past 2 years we have simply been told no.
In summary, the fundamental strength of the FEHBP has been
derived from a number of important features: the ability of
enrollees to select from a number of competing health plans
that best meet their needs; the ability of carriers to compete
on a level playing field, and to bring needed and attractive
products to the marketplace; and, finally, the ability of the
program administrators to make intelligent choices, consistent
with the law and regulation.
Thank you, Mr. Chairman, once again, on behalf of Blue
Cross and Blue Shield. I appreciate the opportunity to come
before you, and I would be pleased to answer any questions at
this time.
Mr. Scarborough. Thank you, Mr. Gammarino.
[The prepared statement of Mr. Gammarino follows:]
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Mr. Scarborough. Mr. Harnage has a flight that he has to
catch at 1. Why don't you go ahead and we will take your
testimony now, and then we will go back to Dr. Braun. If you
can stay through his testimony also, I will ask panel members
to direct their questions to you, and you just stay as long as
you can.
Mr. Harnage. I appreciate that.
Mr. Scarborough. If that works for you.
Mr. Harnage. It works for me.
Mr. Scarborough. All right, Mr. Harnage.
Mr. Harnage. Thank you very much, Mr. Chairman. It's a
pleasure to see you this morning, and I appreciate the
opportunity to you and the subcommittee members to testify on
this important issue this morning. I am the national president
of the American Federation of Government Employees, AFL-CIO,
and represent a little better than 600,000 Federal and DC
government employees.
I know that my written comments will be submitted for the
record and I will simply try to summarize this morning. Many
people point to the Federal Employees Health Benefits Program
as a model health insurance program. But I assure you that
AFGE's perspective is the program is anything other than a
model.
Although, we know that health care costs have gone up
everywhere, we also know that the program costs have gone up
far more than--much more than they should have, and Federal
employees have had to shoulder much more of the costs and
increased costs than they should have.
I want to focus my comments this morning on three related
issues within the Federal Employees Health Benefits Program.
The first issue is the premium inflation. The second issue is
the need to make sure that OPM obtains from the program
contractors the cost accounting information necessary to verify
the accuracy of the bills they submit. These accounting
standards affect all businesses which sell services to the
government and are important safeguards against contractors
overcharging for anything from health care services to fighter
aircraft.
The third issue is our continuing effort to convince OPM to
permit employee representatives to play a more important and
active role in annual negotiations with program carriers over
benefits and premiums as well as quality standards.
This is a clear case where the government and its unions
have a mutual interest in a partnership to create a program
that works better and costs less. I hope the members of this
subcommittee will support our efforts in this area.
Over the past 2 years, the premium--program premiums have
risen an average of more than 18 percent; in 1998, it was 8.5
percent; in 1999, it was 10.2 percent. And experts have warned
that we are in for more of the same.
Instead of pledges to bring this inflation under control,
our stern warnings to the insurance companies that the program
will not tolerate a repeat of the 1980's decade-long nightmare
of double-digit increases. All we hear from OPM are vague
repetitions of the industry's own propaganda.
What it amounts to is blaming Federal employees, the
victims of this inflation, for causing the inflation. The
program requires Federal workers to shoulder an usually high
cost-sharing burden when compared to other larger employer-
sponsored plans, both private and public sector. We need
serious long-term relief from these costs.
Federal workers who have been continually denied the full
pay raises due to them are now expected to continue to pay the
full amount of every program premium increase OPM approves.
This brings me to the subject of the government's cost
accounting standards. In cases where cost data supplied by
contractors is used to negotiate contract prices or
reimbursement, the government has to be able to verify the
accuracy of this cost data.
The method for doing this is a rigorous application of cost
accounting standards. Experts in this area use a rule of thumb
estimate that the government saves about 5 percent of
expenditures as a result of these standards; yet one carrier in
the program managed to insert in last year's omnibus spending
bill, a free ride for 1999.
You heard right: there are no standards governing the
measurement, assignment, and allocation of costs to the
program's experienced rated contracts.
Instead of allowing this 1-year exemption to continue or to
become permanent law, I urge the subcommittee to insist that
OPM and the carriers resolve any disputes on this issue so that
Federal workers can be assured that all unnecessary costs will
be eliminated.
Despite the fact that the program's financing structure
requires Federal employees to pay at least a quarter, but on an
average 28 percent of premiums, in addition to substantial out-
of-pocket copayments, we are denied any meaningful voice in
setting the program's benefits or its prices. AFGE has
developed an excellent track record in working with Congress
and other agencies throughout the government to bring about
changes which are beneficial to the government and employees
alike.
FEHBP is a prime example of a program which could benefit
from serious employee input. One of the main issues OPM
highlighted in this year's call letter to carriers, concerns
the details of covering the President's executive memorandum on
the patient's bill of rights. That is primarily an issue of
enrollees in managed care.
Let me say that I appreciate Congressman Cummings' inquiry
into our participation with the previous person testifying. He
did, prior to the testimony, give me an invitation that he did
want to work with us more closely; but I assure you, his idea
of us working more closely is far from what my idea is.
I'm not looking for formal consultation. I'm looking for
full participation at the table when we talk about and when we
review the data and talk about the benefits and talk about the
price increases. Consultation doesn't get us anywhere.
And on the issue of including the view of Federal workers
in setting quality standards, OPM's approach has been to
conduct an annual Gallup poll of customer satisfaction. That in
no way substitutes for us being at the table, able to deal with
the rising costs,
both to the Government and to the Federal employee on costs of
this benefit program.
That concludes my statement. I will be happy to answer any
questions that you might have.
Mr. Scarborough. Thank you, Mr. Harnage.
[The prepared statement of Mr. Harnage follows:]
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Mr. Scarborough. Dr. Braun.
Dr. Braun. Thank you, Mr. Chairman. Mr. Chairman and
members of the committee, my name is Dr. Joseph L. Braun; and I
am the chief medical officer of the George Washington
University Health Plan in Bethesda, MD. The GW Health Plan has
over 25,000 members enrolled in the Federal Employees Health
Benefits Program.
Today, I will be testifying on behalf of the American
Association of Health Plans, the principal national
organization representing health maintenance organizations and
preferred provider organizations and similar network-based
plans in the United States. A significant number of AAHP
member-plans participate in the FEHB program.
Given that the FEHB program serves as a model for health
coverage, we urge caution in interfering with this program's
success. The success depends in large part upon the flexibility
Congress accords to the OPM in administering the program.
AAHP and its member-plans have a long-standing relationship
with the Office of Personnel Management and have worked closely
with OPM in the past years to resolve benefit, administrative,
and other issues.
We look forward to continuing our partnership with OPM to
improve the FEHB program and to relay our concerns about the
carrier letter for proposed benefits and rate changes in the
contract year 2000.
Between 1998 and 1999, 95 health plans decided not to renew
their contracts with the FEHB program. While many of these
terminations were attributable to health plan consultations and
acquisitions, some plans terminated their contracts because of
insufficient FEHB program enrollment, a noncompetitive FEHB
program premium, and unpredictable utilization risk from a
small number of enrollees.
AAHP and its member-plans are concerned that many of the
requirements imposed by current bills in Congress and other
recently passed mandates would micromanage health plan
operations and freeze medical practice and present day
patterns.
As a result, these legislative proposals, if enacted, would
significantly drive up health care costs and the number of
uninsured Americans while doing nothing to improve and, in
fact, potentially reducing the quantity and quality of care.
The President's patient's bill of rights--let me just say a
few things about this. By working in collaboration, OPM and
health plans have insured that many of the protections
contained in the President's health care consumer's bill of
rights could be implemented smoothly.
However, there are several requirements which may be
especially difficult for health care plans to implement. We
caution Congress that administrative and benefit mandates have
the danger of making the FEHB program unwieldy, more expensive,
and less responsive to the beneficiaries' needs.
One example of this is the area of information disclosure.
Health plans routinely make information readily available to
enrollees. However, we believe the OPM's information disclosure
requirements are overly broad and burdensome. Some information
such as disenrollment rates may be difficult for health care
plans to keep current.
And while health plans are committed to informing the
members upon requests about how participating physicians are
paid, we caution that such information may be difficult for
members to understand and may, therefore, lead to further
confusion.
The second area of concern relates to transitional care.
Health plans believe that patients who change from one provider
to another included from a nonnetwork provider to a network
provider should be assisted in making this transition as easy
as possible.
OPM's interpretation of the President's bill of rights
could impose unnecessary requirements in this area.
Many health plans already have voluntary procedures to
facilitate the transfer of care from one practitioner to
another when in the best interests of the patient.
Now let me turn to the topic of assessing quality health
care. We support OPM's efforts to improve the FEHB program
through enhanced quality measures. In an effort to reduce the
administrative burden on plans, OPM decided to adopt a health
plan and employee data information set more popularly known as
HEDIS as its quality measure.
While we greatly appreciate the use of HEDIS, we have two
concerns. First, the OPM requires that health plans collect
additional HEDIS data specifically for children, but a single
plan may not have a large enough survey pool for results to be
statistically valid.
Furthermore, while the OPM has provided each plan $7,000 to
cover the costs of this survey, this amount does not begin to
cover the actual costs of such a survey.
In the issue of provider contracts, let me just say a few
words. OPM encourages health plans to provide access to
nonphysician providers when appropriate; however, we are
concerned with this lack of adequate accreditation standards
for nonphysician providers.
While, in some cases, nonphysician providers may broaden
the health care delivery system for plan members, many such
providers may not contract with managed-care organizations, and
additionally some nonphysician providers, such as nurse
midwives, may be required to be under the supervision of a
licensed physician under State law.
The President's plain language initiative is such another
example of how OPM is working with the health plans to improve
the quality of care received by FEHB members. The plain
language initiative facilitates better consumer understanding
of health care plan options and benefits.
OPM has worked closely with the AAHP and its member-plans
to revise the FEHB program brochure in plain language. Let me
just say AAHP member-plans are working hard and succeeding at
providing access to high quality care for their FEHB program
members.
We cannot forget, however, that one of the greatest
barriers of access to care is affordability, even in the FEHB
program market. Health plans have played a key role in keeping
health care affordable for millions of Americans by focusing on
continuous quality improvement and developing innovative
strategies to provide patients with the care they need.
In order to promote affordability, to improve access and to
do no harm, Congress and the OPM must continue to allow health
plans the flexibility to meet the needs of the Federal
employees. We caution Congress against the urge to micromandate
and manage programs, an urge that can alter the FEHB program's
role as the national standard-bearer for health care coverage.
I thank the ladies and gentlemen for this opportunity to
speak on this vital subject.
Mr. Scarborough. I thank you, Dr. Braun.
[The prepared statement of Dr. Braun follows:]
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Mr. Scarborough. Mr. Mica has a meeting coming up, and I
would like him to begin the questions. Mr. Mica.
Mr. Mica. Thank you, Mr. Chairman. Welcome back, Mr.
Gammarino. And Mr. Gammarino, my interest has been to bring
down the costs for Federal employees. I happen to be a Federal
employee. I am happy to participate in one of those, and I am
not interested in increased costs. You ought to hear my wife
when the costs go up; it's not a pleasant scene.
I am interested in benefits, and I represent a lot of
senior citizens in central Florida and retirees--the benefits
and the quality of care is very important to them.
I preface this question in light of that background. Has
OPM ever invited you to suggest an innovative benefits package
design that would help cut the costs of health care for our
employees, for our retirees, and taxpayers while still
providing high-quality coverage?
Mr. Gammarino. Before I answer that question, it's good to
see you again.
Mr. Mica. Thank you.
Mr. Gammarino. Specifically, the answer to that question is
no. But I don't know that that's OPM's job. I do think though--
--
Mr. Mica. Maybe you could provide to the committee, because
you know Mr. Gammarino, you're probably the biggest coverers,
aren't you? You cover the most Federal employees, retirees.
Mr. Gammarino. We cover the most Federal and retired
employees.
Mr. Mica. And I think Mr. Harnage represents the most
Federal employees. I would love to see you guys get together
and sit down, even without OPM, because they might be a
distraction, and you said you wanted to participate and come to
us with an alternative, because you sure as hell aren't going
to get it done through them. And it doesn't seem to be their
objective.
Most of the things they come to us with drive up the costs.
And you just heard testimony here of increasing costs. And if
it's a patient's bill of rights that mandates these costs, if
it's prescription drugs that account for the largest increase,
we need to be looking at some alternatives that bring more
people coverage and access at reasonable costs. So I would
really appreciate if--and I'm asking you to work with us and
maybe sit down with----
Mr. Gammarino. If I can just followup more specifically to
your question. When I said they haven't asked, I really think
it's our obligation. I think we do have roadblocks. You've
pointed out many of them.
But the major one we need is flexibility of benefit design.
It does no good to have any proposal if we have significant
hurdles and roadblocks in terms of OPM accepting any innovative
benefit design.
Mr. Mica. If you were going to look at the No. 1 area in
which we could possibly have the potential for cutting costs,
would that be the item that you would address, flexibility and
design of the package?
Mr. Gammarino. Yes, it would, and it would be specifically
on prescription drugs. I know everybody here has indicated such
a significant concern and our enrollees express that time and
time again.
Mr. Mica. Mr. Harnage had complained that we had given a
waiver for 1 year on the accounting standards. If we impose
that, what is going to happen? And is there any way that the
costs and other things that OPM has a way to verify them, check
them now?
I mean, we want to do what he would like to do, but what's
going to happen if we do the alternative? We've given you a
waiver how can we ensure that we are getting that information
or OPM is accurate?
Mr. Gammarino. Right. I would be pleased to address that
question. First, a point of clarification, we have a permanent
exemption relative to the cost accounting standards. It is not
a 1-year waiver at all. Somebody is going to have to repeal
that and hopefully they won't succeed.
Mr. Mica. If it was repealed, what would happen? And then
the other thing, too, is since you have this permanent status,
how is the Federal Government taxpayer and the Federal
employees representative group assured that they are good
provisions for OPM to check on these costs?
Mr. Gammarino. Right. I would be happy to answer that
question. First, let's talk about costs. When it comes to the
cost accounting standards in this program, first of all, we're
only talking about, on average, 7 percent of the overall costs.
Ninety-three percent of the costs of this program are
related to benefit dollars. Those are provider liabilities that
are passed through the program that we actuarially rate for, so
they would not be included in CAS at all. So that just leaves 7
percent.
Today, under the Federal Acquisition Regulations, which are
commonly called the FAR, there are very specific cost
accounting standards that we and other carriers have to abide
by; and there's been previous testimony before the GAO panel on
CAS last year that the agency has found over the last 39 years
that those types of regulations that we have today are quite
adequate to ensure that the government is being charged
appropriately.
I might also add that we do have an administrative cap.
Although it is a cost reimbursement program, we can never
exceed that cap; and it's adjusted each year by inflation and
by how well you do in the marketplace.
Mr. Mica. The final question. There has been some talk
about the costs of the patient's bill of rights, and the
President, I think, has said that it wouldn't cost much more to
impose his patient's bill of rights, his proposal across the
board and in a congressional mandate for all health care folks.
There are some differences between what he's proposed at large
and what FEHB has enacted.
What are those major differences, is the first part of my
question. And then the second is, what would be the costs? I
know at least one of those is to allow the suit of the
carriers. What effect would that have on FEHB, and then again
are we comparing apples and oranges here?
Mr. Gammarino. Well, I think from my perspective we are
comparing apples to oranges. As my testimony indicates, the
agency has been quite reasonable in terms of how they
interpret, I guess, the overall design of the patient's bill of
rights. And we do not see that reasonableness necessarily in
some of the legislation up on Capitol Hill today relative to
the President's proposal.
So I would be very cautious about using any figures in
terms of cost effectiveness relative to this program and
transferring that over to the national scene.
Mr. Mica. Well, there are two major differences between
most of the pending Federal legislation, I guess, external
review and the right to sue----
Mr. Gammarino. Right.
Mr. Mica [continuing]. If they were instituted in the
patient's bill of rights as it affects your program. Would we
see another round of increases in cost?
Mr. Gammarino. I'm sure we would, Mr. Mica. But I don't
have any figures to that effect.
Mr. Mica. OK. Thank you, Mr. Chairman.
Mr. Scarborough. All right. Thank you, Mr. Mica.
I would like to now turn it over to the ranking member, Mr.
Cummings. And again, Mr. Harnage, any time you need to leave we
certainly understand.
Mr. Cummings. What time is your plane, Mr. Harnage?
Mr. Harnage. 1 o'clock.
Mr. Cummings. You actually fly out at 1 o'clock? Let me ask
you some quick questions, and then I think you need to go. I
don't know where you're flying out of--BWI, the greatest
airport known.
Mr. Harnage. Thank goodness it's out of National and I
thought 3 hours would be enough. But I have some important
business with the subcommittee. You can't always start on time,
and I understand that.
Mr. Cummings. Let me just get to--my questions are pretty
simple. You said you want to be a player at the table, and I
understand that. It makes a lot of sense. I'm trying to figure
out--I mean I'm sitting here thinking--and I was listening to
Mr. Mica and trying to figure out what it is that you think you
all could bring to the table that would reduce benefits, and at
the same time--I mean, not reduce benefits but reduce premiums,
and at the same time have the kind of benefits that your
members want and need.
And I guess I'm trying to figure out what--because I kind
of get the feeling from Mr. Flynn, I can't speak for him, but I
got the feeling, I wonder whether--as I listened to him,
whether they even think you all have something to bring to the
table that deals with those two situations. And I'm just
curious as to what you see yourself and your organization
bringing.
Mr. Harnage. Well, one thing we would bring is the
employees' perspective. You know, what we see is not
necessarily the dealing with one party at the table. We may
very well be able to work with the providers and helping them
reduce some restrictions that provide them a better way of
delivery of service or less costly way of doing it, where they
can't get past OPM.
Maybe the two of us can come in here and convince Congress
where they need to make some changes legislatively in order to
make the system work better, you know. So we would not always
or necessarily be in opposition to what the providers want to
do, and at the same time, would not necessarily be always
opposed to what OPM is trying to do.
The problem is that we are not at the table, and it clearly
appears to us that somebody is not doing all that can be done;
and until we are convinced of that, we're always going to be
critical of the program.
AFGE is not a stranger to the health benefit program. We
were in the business at one time. We got out of it because of
OPM playing their role in it. We decided it was better for us
to get out of the business and try to make the program better,
rather than stay in the business.
And to give you an example, we tried to come up with a
Cadillac plan, but because our costs increased so much with the
Cadillac plan, OPM turned it down on costs, even though our
benefit was better than any other carrier and our cost was less
than any other carrier.
It was turned down simply because the premium increase was
too much, not that it costs more or that it wasn't, you know,
worth the money.
So I know the bureaucracy of the government. It sometimes
makes no sense in trying to provide services to its employees
and to the taxpayers. And I think we can bring some common
sense to the table.
Mr. Cummings. I think it was you that said a little bit
earlier ago a poll was taken by OPM trying to figure out
satisfaction or whatever. What are you hearing from your
employees, your members, with regard to the benefit package and
where it stands right now, the benefits side of it?
Mr. Harnage. Well, the benefit side of it is fairly good,
but the problem is that our people every year don't go shopping
for the best benefits; they go shopping for what they can
afford.
Mr. Cummings. No doubt about that.
Mr. Harnage. No doubt about that. And the statistics show
there's lots, thousands, of Federal employees who don't have
any insurance because they can't afford it. So they're talking
more about premium increases and they tell me about, yes, I did
get a small pay increase, but my taxes went up and my health
insurance premium went up; and I actually took $2 less home
than what I had before I got the pay increase. You know, there
are numerous examples of that.
Mr. Cummings. Now Mr. Gammarino talked about one of the
things that he would like to see is flexibility with regard to
benefits. Am I right, Mr. Gammarino?
Mr. Gammarino. Yes, sir.
Mr. Cummings. I mean, do you see that as something that
would be helpful to you? I mean, is that something that you
like?
Mr. Harnage. Well, again, we're talking about the provider
to be able to market shop rather than the employee being
provided a particular benefit. I think that's one of the
problems in the Federal Government. Look how many participants,
how many carriers we have in the Federal Government, that look
for segments of the market where they can be successful and
make a good profit.
We're not looking at what the Federal employee needs in
health benefits and who wants to provide it and at what costs.
We don't hesitate to study Federal employee jobs for
privatization, for contracting out, supposedly because it saves
money.
But we don't even think about that in the health industry.
Why don't we have over 100 carriers? Why don't we come up with
4 or 5, maybe 6, plans so that Federal employees can choose
what best benefits them and put that out there to the industry
and say, OK, you guys, which one of you can provide this at the
least cost?
How come we're not thinking about that in--privatization
saves money. It works both ways.
Mr. Cummings. Last question. You said in your statement
that as far as long-term care insurance is concerned few
Federal employees would or should have it. Can you just comment
on that, since that's----
Mr. Harnage. Say that again.
Mr. Cummings. Long-term care insurance.
Mr. Harnage. Long-term care insurance. And I really admire
those that are trying to, you know, address this subject. I
know you are, and you've been working with some of my staff and
Mrs. Morella, as well, but it's hard for me to get enthused
about the long-term care. I don't like to leave anybody behind.
And when we have Federal employees that can't even afford
the basic health care, long-term care isn't going to help them
at all because they can't afford that either.
And this is not a benefit to the Federal employee except
for the fact it's a group-rated plan. They're still going to
foot the entire plan, but it will be a group-rated plan and,
therefore, supposedly lesser costs.
But with OPM's record in the other area, I, again, can't
get too enthused that it is going to be done right.
One of the problems with the administration and one of the
positive things about yourself and Mrs. Morella--the
administration did not talk to us about the inclusion of long-
term care and the Federal sector. They should have--if they
really are partners they should have, you know, got us involved
in the beginning, which you did and Mrs. Morella has done.
We're going to work with you. We think it's a good idea. We
think it can work, but there are some things that we have to
work out.
Mr. Cummings. Thank you, Mr. Chairman.
Mr. Scarborough. Thank you, Mr. Cummings.
Mr. Harnage, before you leave, is there anything you would
like to comment on, other than what you've commented on,
regarding the testimony either of OPM or the testimony of the
gentleman sitting to your right?
Mr. Harnage. I will hasten to get out of here, I'm getting
a little nervous about that flight. But I do want to say I
really appreciate this opportunity and finally having the
opportunity to meet you, Mr. Chairman. I look forward to us
meeting again and having some in-depth conversations about
where you want to go and where we can help.
Mr. Scarborough. That's great. I appreciate you being here
and certainly apologize for the delay in starting this and ask
next time you're back up here if you will come by my office.
Mr. Harnage. We will do. Thank you, Mr. Chairman.
Mr. Scarborough. Thanks a lot. Ms. Norton.
Ms. Norton. Thank you, Mr. Chairman.
I would like to ask Dr. Braun and Mr. Gammarino what their
view is of why health care costs or premium costs arose at such
a slower rate in the early 1990's than they are rising at
today?
Mr. Gammarino. If I can take a first shot at that Mrs.
Norton. In the early 1990's, all of the indices related to
health care were relatively low. On the provider side we saw
many of us, including Blue Cross and Blue Shield, get
significant discounts from those providers, and we were able to
pass those along to the consumer.
What has happened starting in the late 1990's is we've had
a significant spike relative to prescription drugs. It's really
that simple, and it's that localized. You can see it, OPM has
seen it, I think every health plan has witnessed the same
thing.
Ms. Norton. Dr. Braun.
Dr. Braun. Yes, ma'am. I would like to echo Mr. Gammarino's
comments about that. The early days of managed care were days
when the major vehicle employed to lower costs was that of
contracting; and most of the decrease in inflation was due to
discounts and the elaborate patterns of contracting by the
managed-care organizations.
Now, what we've seen is over the last 10 years, the
increasing pressure on medical costs due to increased
technology were able to do a lot, the fact that the population
in general is aging.
And, finally, what I would say is a change in the
definition of perception of what we consider to be health
nowadays, we're doing a lot of things. We're covering a lot of
things that we couldn't consider to be health--health in that
sense.
The real challenge for managed care at this point lies in
the fact that where the opportunities were to improve costs----
Ms. Norton. Wouldn't consider to be health. What do you
mean?
Dr. Braun. Things like Viagra, for one thing. There are a
lot of things that are out there, that kind of life-style
enhancing treatments. And these are things not only
pharmaceutical but also in terms of mental health benefits and
things like that. There's an old saying in the managed-care or,
actually, in the medical profession that America is the only
country that seems to believe that death is a preventable
disease.
I mean, we really do spend an awful lot of time trying to
take and not only improve, like we did in the past, the state
of disease, but improve the state of health. And--by the same
time, I mean we're seeing the companies coming along with
things to improve appearance. I mean, you know, Retina A,
things like Propecia, and things like that.
So there really is a lot of things out there that are
really changing the perception of what we mean by health.
Again, the true challenge for managed care nowadays is the fact
that we are in a situation where there's variation, a lot of
variation in managed--or medical care practices in the United
States.
And Jack Lynnberg's work on the fact that, you know, you've
got pneumonia in two towns in New England that are 15 miles
apart and it costs four times as much in one town than it does
in the other to treat this. You know, that's where the true
savings lie. Those savings are harder.
Contracting was easy, because you were dealing with large
entities, large groups of doctors, large hospital systems.
Nowadays what we're having to do is go out and, in effect,
change the way that physicians actually practice. And, I mean,
this is a much harder thing for managed care to do.
Ms. Norton. Do you agree with Mr. Gammarino that
prescription costs are the No. 1 factor in driving up health
care costs?
Dr. Braun. They are certainly a large part. I've got to
tell you I got my pharmacy results from the first quarter, and
I almost fell over. I mean this is really going to be a very,
very expensive year for that.
Ms. Norton. Dr. Braun, let me just ask you. At one point--
one can understand and nobody here is going to be soft on the
pharmaceuticals--but at what point are we going to see what is
surely the case that some of these drugs are a tradeoff for the
kinds of procedures physicians were doing, which are themselves
far more costly than putting somebody on medicine.
Dr. Braun. Well, yes, ma'am.
Ms. Norton. As long as you can say it's them, not us, then,
of course, we can expect that there's just no tradeoff there,
but that also defies common sense.
Dr. Braun. I've got to say that the pharmaceutical
companies have brought along some miraculous new classes of
drugs. I remember when I first started practicing medicine, the
treatment for ulcers was mostly surgery. You would go in and do
a very invasive procedure. Nowadays we have medications that it
is very unusual to have to do a procedure for ulcers and we now
treat pharmacologically.
Another example would be some of the newer generation of
antibiotics that come along. There are medications like Proscar
that can be used as an alternative to prostate surgery.
I mean, we've done a lot of pharmaceuticals. There's a lot
more out there that is going to happen. I mean, there's some
wonderful new technologies that are going to be coming along in
genetics.
The medicines that we have nowadays certainly do more. It
has been miraculous, what's happened.
Ms. Norton. Don't they ultimately cost less than doing
invasive procedures?
Dr. Braun. The medications, you mean?
Ms. Norton. Yes.
Dr. Braun. Sometimes, yes, on a time-related average, they
do. The fact is, though, as there is a pressure in the fact
that the aging population there are more chronic diseases out
there, too.
One of the big pushes by the pharmaceutical industry
recently have been medications and things like arthritis. We
are doing a really good job of keeping people alive, but as
they get older unfortunately a disease changes from a pattern
of acute diseases to one of chronic diseases. You start getting
things like heart failure problems, arthritis, diseases that
require constant maintenance, constant medications.
These are things that are not very amenable to surgery,
unfortunately, at least at this point. So they do require
expenditures of the medications and, you know, for many people,
some of these medications really are lifestyle changing
medications because it allows them to go back to work, you
know, do their activities of daily living where they couldn't
do them before because of the disease.
Ms. Norton. Thank you very much.
I see my time is up.
Mrs. Morella. Thank you, Congresswoman Norton.
I hope you haven't answered this before; and if you have,
just tell me. The patient's bill of rights that we had before
us in the last Congress, right now there are probably three
bills that are pending on the House side. There has been an
attempt to try to change some of the patient's bill of rights
the last time and to put it into something else.
I know Mr. Ganske has got a bill and Mr. Norwood and
probably Mr. Dingell. I wonder if you had a chance to look at
those versions to tell whether there is one that stands out as
being the most effective and workable recognizing the fact that
we are moving toward reform.
Maybe Mr. Braun feels stronger about it. You can be
somewhat objective as you look at it, Mr. Gammarino. I wonder
if there is one of them that you think stands out or certain
elements within a measure.
Mr. Gammarino. I haven't read each one individually so I
can't comment on that.
I did address Mr. Mica's question. I don't know if you were
in the room then in terms of the difference between what OPM
was trying to do and what was up on the Hill. I did caution
that in our estimation, we do have to be very careful between
what is up on the Hill and the very soft way OPM has
implemented these so-called patient bill of rights, at least
the framework of it.
That is my primary observation. In terms of which one is
better than the other, I think generally we should be very
cautious that we don't have unintended consequences that would
actually reduce access for enrollees, which none of us wants.
Dr. Braun. Again, I have to echo Mr. Gammarino's comments.
I have read them to some degree, but my concern with all of
them is the same and this has been alluded to by many of the
witnesses here and also members of the panel.
When you add administrative costs to a program, there is
only a certain amount of money that goes around them. When you
start spending things on administrative things, my concern is
that there won't be enough money that will actually reach down
and help treat the patient.
I mean, as we have talked about before, there are
increasing pressures from things like pharmaceuticals and
technology and like that. There is more demand for the health-
care dollar. We want to be spending that on the patients and
not on the administrative things.
Ms. Norton. Would the gentlelady yield for a question on
that?
Mrs. Morella. Yes.
Ms. Norton. Mr. Braun, haven't some of your health plan
plans voluntarily adopted----
Dr. Braun. Yes, ma'am. Many of the provisions we totally
agree with.
Ms. Norton. Haven't some of them been adopted in total, the
patient's bills of rights?
Dr. Braun. I don't know if in total. I know many of the
provisions have been voluntarily adopted. Most of the health
care plans nowadays--I worked for some of the big ones. I
worked for NYLCare which is now Aetna. I worked for Pacific
care. I worked for United.
I came up to George Washington University because it is a
not-for-profit health plan. I feel that there is really a great
deal to be done with managed care. Where simply a way points
along the way as this product evolves, and I certainly hope we
have the freedom to evolve this into a program where there
really is active medical consumers. I mean, one of the things I
pride myself at GW is we try to get the individual members
involved. I would say that even the bigger companies are trying
to do that more and more, get the health care consumer involved
in understanding what the costs are.
This has been one of the problems. We have isolated the
consumer basically from what the true costs of medical care are
for years, and they need to have a better understanding and
participate in that and be active in it.
Mrs. Morella. Thank you.
Mr. Allen, I will defer to you, and I will get back to
questioning.
Mr. Allen. Thank you, Madam Chair.
Mr. Gammarino, you testified in response to a question from
Mr. Mica that flexibility of benefit design, especially with
regard to prescription drugs would help lower costs. I would
like to ask you about that but first a preliminary question.
Can you tell me whether or not Blue Cross gets a system-wide
price for the various drugs that it orders or buys from the
manufacturers?
Mr. Gammarino. No, it does not. Blue Cross Blue Shield is
made up of individual corporations. They negotiate separately.
However, for the Blue Cross Blue Shield Federal Employee
Program, which I manage for all the Blue Cross Blue Shield
plans, we do negotiate on behalf of the plans for this
particular program. So we do get specific discounts that are
passed on to the program that we are allowed to negotiate.
Mr. Allen. Now, I suspect in trying to think about
flexibility of benefit design and how it operates that you have
got at least three factors, correct me if I am wrong, that
relate to this issue. First, there is a cost. How much you pay
the manufacturer for particular drugs. Second, there is a level
of premium. How much you are being paid overall and a certain
percentage of that is going to obviously go for prescription
drug coverage and third, the need of the plan beneficiaries. I
mean, how many drugs and what kinds of drugs do they need.
I know that is not technical. That is not a technical
analysis but correct that if that is wrong but then my question
is--the fundamental question is how would flexibility of
benefit design lower the cost of prescription drugs and for
whom? Members of the plan, others or so forth?
Mr. Gammarino. That is a good question. It would lower the
costs in a number of ways. As I have testified before this
committee many times, one of our problematic areas is that we
have free drugs for a segment of our population. And with the
new drugs coming on-line, the price increases and the demand-
induced utilization we have through direct consumer advertising
from the pharmaceutical industry, the demand for these drugs is
quite high.
There is no incentive for the enrollee to be a partner with
their physician, their pharmacist to ask the question not only
what is best for me but what are the costs relative to what I
need. And absent that, we feel there is significant wastage
and, in many cases, overutilization without the patient having
some financial incentive to be part of the decisionmaking
process.
So that is one area of savings that we think would occur.
Drugs that are unnecessarily being prescribed would not be or a
different drug would be prescribed that could do the same
thing, but it is less expensive, like a generic drug.
What are the other savings? Some of them would flow
directly to the program in terms of it would cost the
subscriber more out of his or her pocket to participate and get
that particular drug. Now, why would you want that? Well, we
just talked about it. But for years we had an artificial
benefit design relative to what consumers paid.
When drugs were--when drugs were on no one's radar screen,
when they were 5, 6, 7 percent of our premium dollar, we all
had low copays or no copays. Why not provide that level of
care? It has changed. And just as we have co-insurance on the
physician side, we need ample co-insurance on this side too to
make the consumer aware of the real costs associated with this.
Mr. Allen. If I could just followup with that. There are
lots of plans out there, Medicare, Medigap coverage plans for
people on Medicare which are not widely utilized precisely
because they have a 50 percent copay, $250 deductible and
sometimes a $1,500 or $1,200 cap.
I understand what you are saying basically, if you have a
copay, then maybe that will help. I would be inclined to add,
maybe a little. But in terms of annual 15 percent increases in
costs for pharmaceuticals, it seems to me that there has to be
another route. And I am just wondering if there is anything
else about benefit design that would help?
Mr. Gammarino. Mr. Allen, you are very observant in that
regard. What I am saying is the benefit design allows us what
we need to start to get back into the game of having the
subscriber involved. Is it going to significantly reduce that
trend line to a single digit? No, it will not.
And so you are right in that respect. Everybody is fighting
the same battle and nobody has figured it out in terms of
trying to break that trend line. I am not sure it is going to
be broken any time soon. The industry is very innovative. They
are producing drugs that people want and, in many cases, need;
and there is a significant demand from the American population
for that product.
Mr. Allen. Just in conclusion, the problem is that, but for
a huge number of seniors that cannot afford to take the drugs
that their doctors tell them they have to take--and there is a
great reluctance in this Congress to do the simplest thing,
which is to allow the Federal Government to negotiate on behalf
of those seniors, reduce prices for Medicare beneficiaries and
that is a simple step that could be taken.
I thank you for your testimony.
Mr. Gammarino. You are welcome.
Mr. Scarborough [presiding]. Mrs. Morella, do you have a
followup?
Mrs. Morella. Yes, I do. Thank you.
I am going to, later on this afternoon, go to a press
conference where Erik Davis the baseball player is going to be
and, as you guess, is on colorectal cancer.
I know if you have the colonoscopy every 10 years before
the age of 50, that is beneficial in detection, and the
screening may be every year after the age of 50.
I wondered if under the FEHB program your plans, Blue Cross
and Blue Shield and the GW plan, do you cover that now?
Dr. Braun. Ma'am, we take and cover preventive services. We
use the standards of the President's National Task Force on
Preventive Services.
You know, we have a very active program trying to use
screening tests in the most cost efficacious way. When one
comes along, we are very quick to take and respond to it and to
add it if it does, in fact, show that it is going to be a
benefit.
You know, the colon--colorectal thing has come on the
screen quite a bit. There is a number of tests that can be
done. The hemocults, things like that, that are actually self-
participatory by the members themselves. One of the things that
we really try to encourage members to do is both preventive and
screening, preventive in the sense of making sure they eat a
proper diet.
As we know diet is very important but the second part of it
is to also engage in conversation with their doctor to make
sure they are getting the screening procedures they need,
especially if they have a family history.
Mrs. Morella. Assuming you would pay for the screening
certainly?
Dr. Braun. Certainly.
Mrs. Morella. And Blue Cross Blue Shield?
Mr. Gammarino. Mrs. Morella, we do cover what we call
routine physicals and related screenings every 3 years for our
enrolled population if they so choose. That specific service, I
would have to research that and get back to you.
I would be more than happy to do that.
Mrs. Morella. I would be very interested to have that
response. I might add that to comments.
Dr. Braun. May I say, oftentimes it is not the problem with
us covering it or not. It is the reluctance of the patient
oftentimes to be involved in this process. I would say again
here this is a great place where consumerism and getting the
patient involved in a discussion with the physician would be
very important.
I mean, you don't see too many people saying, gee, you
know, I just turned 50, and I got a birthday present, a
colonoscopy. We have to start getting people thinking about
this.
Mrs. Morella. Right. I think this is something we all can
fulfill. You can fulfill. We can too and that is the education
part of it, PSAs, public service announcements all working
together to let them realize what this can do to help the
quality of life, to save money in all ways.
On another issue that deals with a different facet,
coverage for hearing aids. Do either of you have coverage for
hearing aids? I say that because I had my open season for
Federal employees health benefits and I was amazed.
I had so many people there who were all talking about
hearing aid coverage and I have all the statistics, you know,
26 million hard-of-hearing adults under the age of 65, the
average cost of a hearing aid, and I am wondering do you cover
it? Or do you think about exploring that further? Do you think
it would have an impact beneficially, adversely? You want to
offer any comments on that?
Mr. Gammarino. Mrs. Morella, we, today, do not cover
hearing aids. We are evaluating whether or not, with our
purchasing power, we could; and it wouldn't be part of our
normal benefit design. It would be outside of it, but those
people that participate in the FEHBP could enjoy a significant
discount that they could have relative to our purchasing power
with one or two major vendors in that area. It is not part of
our benefit design today.
Dr. Braun. Basically that is the same with us. It is kind
of in the same category as the vision and the dental. We do
have programs where we can get discounts, but at this point it
is not designed or it is not in the benefit design that we have
given OPM.
Mrs. Morella. Mr. Chairman, I would like to, with your
permission and permission of the subcommittee, to be able to
submit some further questions to our panelists as well as to
OPM.
Mr. Scarborough. Great. Thank you. Hearing no objection, it
is so ordered.
And gentlemen, I thank you for coming and testifying with
us today. You certainly have been very helpful as we continue
to dig into how to best improve our health care system for our
Federal employees. For the Members, we are going to take a very
brief break, and then we are going to mark up H.R. 457 and H.R.
206. This hearing is adjourned.
[Whereupon, at 12:38 p.m., the subcommittee was adjourned.]