<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:79433.wais]
HEALTH CARE INFLATION AND ITS IMPACT ON THE FEDERAL EMPLOYEES HEALTH
BENEFITS PROGRAM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON THE CIVIL SERVICE
AND AGENCY ORGANIZATION
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
OCTOBER 16, 2001
__________
Serial No. 107-63
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
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COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California PATSY T. MINK, Hawaii
JOHN L. MICA, Florida CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania THOMAS H. ALLEN, Maine
DAVE WELDON, Florida JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho ------ ------
EDWARD L. SCHROCK, Virginia ------
JOHN J. DUNCAN, Jr., Tennessee BERNARD SANDERS, Vermont
------ ------ (Independent)
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
James C. Wilson, Chief Counsel
Robert A. Briggs, Chief Clerk
Phil Schiliro, Minority Staff Director
Subcommittee on the Civil Service and Agency Organization
DAVE WELDON, Florida Chairman
CONSTANCE A. MORELLA, Maryland DANNY K. DAVIS, Illinois
JOHN L. MICA, Florida MAJOR R. OWENS, New York
MARK E. SOUDER, Indiana ELEANOR HOLMES NORTON, Washington,
C.L. ``BUTCH'' OTTER, Idaho DC
------ ------ ELIJAH E. CUMMINGS, Maryland
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Garry Ewing, Staff Director
Scott Sadler, Clerk
Tania Shand, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on October 16, 2001................................. 1
Statement of:
Coburn, Dr. Tom A., M.D., a former Representative in Congress
from the State of Oklahoma................................. 41
Flynn, William E., III, Associate Director, Retirement and
Insurance Services, Office of Personnel Management; Stephen
W. Gammarino, senior vice president, Blue Cross Blue Shield
Association; Colleen M. Kelley, president, National
Treasury Employees Union; Lawrence Mirel, commissioner,
District of Columbia, Department of Insurance and
Securities Regulation; and Robert E. Moffitt, director,
domestic policy studies, the Heritage Foundation........... 58
Letters, statements, etc., submitted for the record by:
Coburn, Dr. Tom A., M.D., a former Representative in Congress
from the State of Oklahoma, prepared statement of.......... 45
Flynn, William E., III, Associate Director, Retirement and
Insurance Services, Office of Personnel Management,
prepared statement of...................................... 61
Gammarino, Stephen W., senior vice president, Blue Cross Blue
Shield Association, prepared statement of.................. 67
Mirel, Lawrence, commissioner, District of Columbia,
Department of Insurance and Securities Regulation, prepared
statement of............................................... 79
Moffitt, Robert E., director, domestic policy studies, the
Heritage Foundation, prepared statement of................. 87
Morella, Hon. Constance A., a Representative in Congress from
the State of Maryland, prepared statement of............... 9
Weldon, Hon. Dave, a Representative in Congress from the
State of Florida:
Prepared statement of.................................... 3
Prepared statements of Mr. Atwater and Mr. Harnage....... 11
HEALTH CARE INFLATION AND ITS IMPACT ON THE FEDERAL EMPLOYEES HEALTH
BENEFITS PROGRAM
----------
TUESDAY, OCTOBER 16, 2001
House of Representatives,
Subcommittee on Civil Service and Agency
Organization,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:23 p.m., in
room 2247, Rayburn House Office Building, Hon. Dave Weldon
(chairman of the subcommittee) presiding.
Present: Representatives Weldon, Morella, Souder, Davis of
Illinois, and Norton.
Staff present: Garry Ewing, staff director; Scott Sadler,
clerk; Tania Shand, minority professional staff member; Earley
Green, minority assistant clerk; and Teresa Coufal, minority
staff assistant.
Mr. Weldon. Good afternoon. The meeting will come to order.
We will begin the hearing of the subcommittee.
I certainly want to welcome everyone to this hearing on the
Federal Employees Health Program. The purposes of this hearing
are to examine the causes of the steep rise in health insurance
premiums under the FEHBP program for 2002, to also examine the
continuing exodus of HMOs from the program, and to examine any
limitations in current law or practice that might restrict
competition and innovation in the program.
There have also been other important developments in the
FEHBP that are of interest to the subcommittee. In particular,
the merger of the Blue Cross/Blue Shield High Option and
Standard Option plans and the creation of a new, lower-cost
option is a matter of great interest to many.
For the 5th straight year, premiums in the program will
increase sharply. According to the Office of Personnel
Management, on average those premiums will rise by 13.9
percent. Fortunately, the FEHBP is a market-oriented program.
Employees and retirees have the opportunity to choose among
competing plans during an open season in the fall of each year.
The Office of Personnel Management estimates that consumer
choice will reduce the average increase from 13.9 percent to
13.3 percent.
The FEHBP is one of the most important programs this
subcommittee oversees. As a physician myself and the
Representative of Florida's 15th District, I am keenly aware of
the importance of the FEHBP. Approximately 9 million Federal
employees, retirees, and dependents rely on it for high-quality
health care options at affordable prices.
And I share their concern with the continued escalation of
FEHBP premiums, which have risen by 46 percent since 1997. I
believe that it is imperative that Congress understand the
forces driving up health care premiums in the FEHBP and private
plans. We must, however, avoid legislative actions or other
heavy-handed governmental intervention to satisfy short-term
political goals at the expense of the long-run health of the
program.
I look to our witnesses today for a clear explanation of
the causes of these premium increases. I will also ask them to
recommend ways to address those causes while we work to
preserve competition and consumer choice. These key features
have made the FEHBP a widely admired model employer-sponsored
health care program.
I am also concerned about the continuing decline in the
number of HMOs participating in the program. Since 1996, many
HMOS have left the program or withdrawn from specific service
areas. That trend continues. At the end of this year, 28 HMOs
will leave the program, and HMOs are withdrawing from 20
service areas.
The loss of these HMOs reduces the choices available to
Federal employees and retirees. In some cases, this reduction
is severe. No HMO in Delaware will participate in the FEHBP. In
North Carolina the number of participating HMOS will drop from
five to one, and in West Virginia the number of HMOs will go
from three to one. I will ask our witnesses, particularly the
Office of Personnel Management, to recommend ways to make the
FEHBP more attractive to HMOs.
In addition, I am also concerned that current law and
practices may unduly restrict competition and innovation in the
program. Today, for example, the Office of Personnel Management
has only limited authority to contract with fee-for-service
plans. Plans are also restricted to offering two levels of
benefits only.
Mandates, whether imposed by Congress or the Office of
Personnel Management, also restrict competition and limit
innovation. They drive up costs and reduce the ability of
carriers to design affordable benefit packages that will be
attractive to Federal employees and retirees.
I will ask our witnesses for recommendations that this
subcommittee and the administration should consider to foster
competition and innovation in the FEHBP. I look forward to
hearing the testimony of our distinguished witnesses today, and
I thank them for appearing.
[The prepared statement of Hon. Dave Weldon follows:]
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Mr. Weldon. I would like to now ask unanimous consent that
all members of the subcommittee be permitted to place any
opening statement in the record. Without objection, so ordered.
[The prepared statement of Hon. Constance A. Morella
follows:]
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Mr. Weldon. I ask further unanimous consent that all
witnesses be permitted to include their written statements in
the record. Without objection, so ordered.
We will hear the opening statement from the ranking member
when he arrives. As I understand it, his plane just touched
down a little while ago.
This morning the subcommittee received a letter from Mr.
Charles W. Jarvis, chairman and chief executive officer of the
United Seniors Association, and written statements from Frank
G. Atwater, president and chief executive officer of the
National Association of Retired Federal Employees, and Bobby
Harnage, national president of the American Federation of
Government Employees. I ask unanimous consent that these items
be entered into the record. Without objection, so ordered.
[The information referred to follows:]
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Mr. Weldon. I will introduce our first witness. I would
like to ask our first witness to come forward.
Ms. Norton. Mr. Chairman?
Mr. Weldon. Yes?
Ms. Norton. I would like to offer an opening statement.
Mr. Weldon. Well, go ahead.
Ms. Norton. Thank you, Mr. Chairman. I have been on this
committee for 11 years, and there has never been any reluctance
to allow members to offer an opening statement. This is a very
important hearing, and I appreciate your calling this hearing.
I would like the opportunity to express my own concerns
concerning what has happened to this very important program.
Mr. Weldon. Would the gentlelady yield? Let me just share
with you why I wanted to limit it to Mr. Davis and me.
Ms. Norton. Yes, I would appreciate it.
Mr. Weldon. This is a relatively small committee. You are
the only person here, but I have been in the Congress for 7
years and I have gone to a lot of hearings where Member after
Member makes an opening statement. Frequently, witnesses fly in
from faraway places and sit and listen to Members. I personally
prefer a policy where the chairman and the ranking member make
their statement and the other Members submit them for the
record.
As I said, it is a small group. I would be happy to let you
go ahead and make your opening statement.
Ms. Norton. Yes, I would ask the chairman not to break the
longstanding policy of this very small committee to allow
Members to express their views in opening statements,
particularly since on FEHBP there is usually only one hearing
per year, and I assure you, Mr. Chairman, most of the witnesses
here have flown in from OPM and other far-flung parts of the
District of Columbia.
If I may, I am very concerned and want to have the
opportunity to express that concern because I think only when
those concerns are expressed will there be the kind of response
and pressure that we need when we see the kinds of costs we are
seeing in the FEHBP program. I would not want to hide my
disappointment at what has happened to this program since I
have been a Member of Congress for 11 years.
Today the last thing the Federal workers and other
Americans need now are large increases in health care, but what
FEHBP is offering is not only inflation, but hyperinflation.
This really takes us back to the bad old days that we haven't
seen in years now, where you have an almost 50 percent increase
in FEHBP premiums over a period of 4 years. So that I just want
to say that this Member who has been fond of calling FEHBP a
model program for the country is going to cease doing so,
because I think now FEHBP compares unfavorably to other plans
in the country.
For example, people in the Federal sector and elsewhere
embraced HMOs in order to cut costs, and yet we see in our
program that the HMOs have increased slightly more than the
fee-for-service, 14 percent for HMOs, 13 percent for fee-for-
service. We see HMOs fleeing FEHBP. So, clearly, they don't
consider this a hospitable program.
I am concerned that the usual suspects such as drug costs,
while significant, are not even the main culprit. One of the
things I want to ask the witnesses concerns this category
called utilization technology and medical inflation, which
apparently accounts today for the most important part of the
increase. There is something called medical inflation which
accounts for 60 percent of this category of increase. I will
certainly want to know what in the world that is because it is
undefined.
When I look at what has happened to FEHBP over the years
that I have watched this program, I am inclined to compare what
is promoting increases to the usual suspects. Mandates, for
example, are 1.5 percent of the additional cost. Well, that is
more than I would like, but that doesn't compare to 9.5
percent, which is caused by utilization technology and medical
inflation.
You would think demographics, another of the usual
suspects, would account for a greater part of the cost, of the
increase in cost, because the average employee for the Federal
Government is retiring age, ladies and gentlemen, at 58. That
is why we are going to see an exodus of Federal employees in
very large numbers in the next year or two. But you have a 0.7
percent for the average employee who is 58 and the average
retiree is 71 percent. So that doesn't account for this large
increase.
I just want to say, Mr. Chairman, this is some model--with
the FEHBP premium increase more than the average for all
employers. So we are behind other employers who don't have this
full range of competition in their plans. It is some model when
almost half of all employers in the country pay 100 percent of
the premium, almost half, for health insurance for their
employees, and FEHBP still is stuck at 72 percent. The country
is falling behind, not moving ahead in health care, and FEHBP
is falling behind even further.
A major problem may be that we do not manage administrative
costs in the various health care plans. We simply proliferate
administration. So one plan does costly administration and the
next plan does costly administration, and we get to pay for all
of that.
Medicare administrative costs are 1.7 percent. Medicaid
administrative costs are 4.4 percent. I am not sure what the
average administrative cost is for a plan like Blue Cross/Blue
Shield. That is something I would very much like to know.
FEHBP, we know this, is a model of competition. It would be
hard to find any plan that had 180 carriers. It has many cost-
saving HMOs, so-called cost-saving HMOs, but the results are
not what competition and cost-cutting plans are supposed to
give us.
Mr. Chairman, these annual hearings have had no effect
whatsoever on the same problems. They go up each year. I
believe that the time has come for thinking beyond the
boundaries that Congress and the OPM have brought to the
problem, that we ourselves have to take responsibility for
allowing this to get out of control.
Thank you, Mr. Chairman.
Mr. Souder. Mr. Chairman?
Mr. Weldon. Does the gentleman have an opening statement?
Mr. Souder. I would like to submit my opening statement for
the record and go on record as saying I believe it should be
the chairman and the ranking member that generally do the
statements. That is the way we do most of the Government Reform
committees. There are exceptions that we can do, but that,
combined with the late start, I have two other things I have to
go to. I am not going to now be able to hear more of the
witnesses, and I am frustrated.
Ms. Norton. Because one member gave an opening statement?
Mr. Weldon. No, we were delayed waiting for Mr. Davis. His
plane arrived late.
Mr. Souder. I basically agreed with your points, but I hear
them all the time.
Mr. Weldon. Well, I understand the gentleman's frustration
and we will go ahead and proceed.
I would like to introduce our first witness, Dr. Tom
Coburn. Dr. Coburn is a distinguished former Member of the
House, having represented the 2nd District of Oklahoma from the
104th Congress through the 106th. During that time he was an
active and articulate spokesman on health care issues, and he
is today a practicing physician.
Dr. Coburn, I welcome you to this hearing and I look
forward to hearing your testimony. If you could please stand
and allow me to give you the oath?
[Witness sworn.]
Mr. Weldon. Note for the record that the witness responded
in the affirmative.
Dr. Coburn, you are recognized. If you could please try to
summarize your statement to 5 minutes, we would appreciate it.
STATEMENT OF DR. TOM A. COBURN, M.D., A FORMER REPRESENTATIVE
IN CONGRESS FROM THE STATE OF OKLAHOMA
Dr. Coburn. I would be happy to do that.
First of all, let me thank you and say it is good to see
Ms. Norton and Mr. Souder. I miss my times with you in the
House, but I thoroughly enjoy myself in medical practice today.
I think that it is important that this hearing not just
concern itself with the increases that you are seeing in the
FEHBP arena because it is only one symptom of what is actually
occurring out there, and it is based on multiple factors.
I also think that you ought to have a realistic perspective
of what has happened in medicine. Medicine is no longer an
altruistic, benevolent profession. It has been turned into a
hard-core business, and decisions about people's lives and
their health have more to do with dollars than they have to do
with caring of the individuals, and that is unfortunate in this
country. I think we ought to try to put incentives into place
that would move us back to that of the science that is based on
care of the individual.
I also would say that many of the people who are
participating in the field of medicine are not unbiased, as I
am not myself. I am a purchaser of multiple plans of health
care for businesses that I have. I also am biased in that I am
one of the providers in health care. I tend to bias toward my
own advantage. Therefore, everything that I say, as well as
every other person who is giving testimony here, has a vested
interest in their own perspective that makes their testimony
somewhat suspect.
But I do have the ability of having been in Congress, also
having practiced medicine, also having been a purchaser, a
large purchaser of health care benefits. I have seen what I
think to be are multiple numbers of the problem.
The first thing is it looks like this last year we spent
$1.4 trillion on health care, of which about $400 billion of it
had nothing to do with helping someone get well. That is a
large number. It is somewhere estimated that the paperwork
costs alone with medicine are around 19 percent. That is
atrocious.
When we quote what Medicare and Medicaid is, that has
nothing to do with the real cost of the paperwork because that
has all been shifted to the providers. Medicare and Medicaid
are wonderfully efficient now that they don't have the
responsibility of providing any of the documentation or
paperwork associated with it.
The Federal employees' program is a great program. It is
one of the best in the country. It allows the most choice. It
allows the greatest freedom of opportunity. It allows people to
make decisions about their own lives.
Ms. Norton noted that it is markedly increasing. The reason
the private sector's prices are not increasing as much is
because all the people who are providing those are cutting
benefits to maintain and control costs. The reason that they
are having trouble controlling the cost is because the
government isn't funding the actual cost of Medicare and
Medicaid. It is being tremendously cost-shifted to all the
other sectors.
So we can run around and look for the cost-drivers, and
there's multiple cost-drivers, but one of the most important is
the lack of proper funding for the health care programs that we
provide for the elderly and indigent in this country.
Therefore, we tax everybody else in this country indirectly
through their health care premiums for providing those
services. To deny that is to stick our head in the sand and say
that we are not causing the prices to go up by what is
happening in Washington the way they fund Medicare and Medicaid
and at the States.
The one criticism I would have of the Federal employees,
and one of the reasons that it would tend to go down rather
than go up, is if they had a truly high deductible policy that
would incentivize people to not overutilize the system, I
think, No. 1.
The second real problem with cost-drivers in health care is
perverse incentives. There is no incentive not to overutilize
the system and there is every incentive, especially with low
deductible and managed care plans, to overutilize the system.
There are no strong incentives throughout the country for
preventative care. One of the things that we can do that will
make a tremendous difference in the long run: preventative care
in terms of diabetes, preventative care in terms of
hypertension, preventative care in terms of giving the
deductible to anybody who decides to choose to have a
preventative health care exam so that they can get the benefits
of knowing what they can do to change their life, so that they
won't succumb to an illness in the future that will cost all of
us, including them.
Great examples of that are pneumo-vacs for seniors. We have
less than 50 percent of our seniors immunized against the No. 1
cause of hospitalization, which is pneumococcal pneumonia. Yet
the drug companies that make that and several other people can
show us that would be a cost benefit. Why wouldn't we want to
incentivize the physicians to immunize their seniors, like we
do with flu vaccine?
Vaccine programs for children, we are now shifting all that
to the health departments around the country because the
absolute cost of paperwork alone to administer vaccines to
children is a losing proposition for every pediatrician, family
practice, and internal medicine doctor in this country. We lose
money every time we vaccinate a child. That has to stop.
So what happens is we shift the cost. We send them to the
health department. Consequently, many of them don't get
immunized. We have a program to immunize children, but because
it is not reimbursed to a point where it can be justified, we
lose.
I will wrap up here real quick just by saying I think
another significant thing is pharmaceutical costs. We are the
only Nation I believe in the world that allows direct consumer
advertising. There was recently a study put out by Lancit that
questioned the motivations and the advertising techniques and
the truthfulness of that.
There are significant consequences to that in terms of
doctor/patient relationship, in terms of overutilization. We
now have to re-educate patients when they come to our office
about why they don't need a medicine that the pharmaceutical
company convinced them they did through a TV ad. That takes
time. That increases cost. That increases complexity. $2
billion is going to be spent this year on TV advertising by the
pharmaceutical industry for prescription drugs, without
adequate advertising limitations, which the FDA recognizes and
as does the general medical field.
Finally, one of the most perverse incentives in a study out
of Indiana in 1993 discusses the cost of ordering tests that
aren't necessary. That is all based on a tort system that says
medicine is to be perfect, and it is not. It is an art. We tend
to want to think of it only as a science. It is an art that
utilizes science to affect the medical or scientific result.
Because of that, one-third of all the tests that are
ordered in this country are unnecessary. That has been
documented. So if we decrease that, we could save another $10
billion just by reforming the tort system in this country so
that we order tests--or put the system to a point where it is
arbitration, something that says we won't continue to order the
tests.
Now if you look at that study, it said even the doctors who
said they don't order tests to protect their back side, when
looked at in retrospect, it said they did. So we all do,
because none of us wants to get sued. So we order tests to
justify and defend our positions for the future that has
nothing to do with the care of the individual.
Finally, Medicare has designed a system that is designed to
be defrauded. It is easy to defraud Medicare. If you look at
what HCFA, which has now changed its name, said about
echocardiograms by cardiologists in this country, and that
about 500,000 are done each year that don't need to be done,
and yet we have not seen any decrease in that number since that
statement was made, there have to be some questions as to
whether or not the system is designed to be overutilized and
defrauded.
The last thing the government needs to do is to make more
regulations in the health care industry that will require more
bureaucrats chasing more paperwork. What I believe that the
government needs to do, and for Federal employees as well, is
create a program that incentivizes preventative care and
incentivizes against overutilization.
With that, I will end my testimony.
[The prepared statement of Dr. Coburn follows:]
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Mr. Weldon. I thank the gentleman for his testimony, and I
recognize myself for 5 minutes for questioning.
Were you recommending, as you got to the conclusion of your
statement there, that FEHBP offer a high deductible option for
employers kind of like a medical savings account? Do you have
any experience--you said you have been an employer for many
years--either as a provider with medical savings accounts or as
an employer with medical savings accounts?
Dr. Coburn. I have two separate plans, Congressman, that
have over 40 employees in them and we now utilize medical
savings accounts. We have saved the first year $87,000; the
second year, about $60,000, in terms of cost to my businesses
for their health care. With that, we put $100 a month into a
medical savings account. We cover the entire family, which none
of our competitors do. Our employees don't contribute anything.
For their first hospitalization, until their medical savings
account meets the deductible, we pay the deductible. So they
have a no-cost program that has, in essence, saved us a
tremendous amount of money. It would have saved us money if we
would have had a 20 percent utilization rate at the hospital.
So the idea of a high deductible policy that incentivizes
people not to overutilize and incentivizes people to have
preventative care is something that lowers cost, improves
health care, and decreases internal costs in terms of health
care providers. There is no paperwork to shuffle.
Mr. Weldon. Could you elaborate a little more on the plan
that you are using in your business in terms of the premium
structure, how it works? Then you have commented a little bit
on preventative health care. Have you monitored that at all
within your medical savings account plan?
Dr. Coburn. We have I think it's a $3,800 deductible this
year. Last year the maximum we could have was set by Congress,
and it was something lower than that. We are raising the
deductible every year as we go, but we are also increasing the
amount of money that we are putting monthly into their medical
savings accounts, which they have an option to go use on dental
or drugs or anything related to health care that they can or
they can leave it there and earn tax-free earnings on it.
But our monthly premiums were cut by two-thirds as we
converted to that system over where we were in an indemnity
fee-for-service plan or a PPO plan that we were in. So we have
effected great savings for us, and we have increased the care
for our employees and their families and actually cut their
costs. It is because of the incentives to not overutilize it.
Every day in my practice, Congressman, I have 10 people who
are in my office who don't need to be there. They have no need
to be there.
Just one point on that: The No. 1 reason----
Mr. Weldon. By the way, I practiced medicine.
Dr. Coburn. I understand.
Mr. Weldon. I saw the same thing.
Dr. Coburn. The No. 1 reason that I have seniors in my
office--and my practice is about 65 percent Medicaid, about 15
percent Medicare, and the rest private practice. So I have a
large Medicaid/Medicare practice. The No. 1 reason that seniors
are in my office, and this is my summation of why I believe
they are there, is they are lonely. The last time they heard
from their son or their daughter or their brother or their
sister--they are isolated and lonely. They need someone.
So, consequently, what is a better deal? Get $30--you pay
20 percent; if you have met your co-pay, you can go and talk to
your doctors. It is a great way. So there are all sorts of
social motivations that we have that impact our utilization
rates. It is not just as simple as economics. There are other
issues as well.
Mr. Weldon. In the remaining time I have, let me ask you
explicitly: We are dealing with FEHBP right now. That is the
committee's jurisdiction. Is there one thing that you could
recommend for us to do as we look at FEHBP in the future,
making changes in the program? Is it offering this high
deductible medical savings account option? Are there other
structural changes that you think we can or should be making?
Dr. Coburn. I think it would be interesting to offer a high
deductible. I think you would be surprised at the number of
people who would take the difference in what they pay and put
it into a checking account and save it for whatever emergency
they might have or borrow against some other method for a
hospitalization.
The real thing that I believe we have to get to for not
only Federal employees is we have to have catastrophic health
insurance in this country for everybody. We have enough waste
in the present system to cover everybody out there that is not
presently covered with health insurance. There is $250 billion
worth of waste in the present system, in my estimation. If we
had a system that was properly incentivized, that cared for
those who couldn't care for themselves, made sure we kept our
commitments to the seniors, did not underfund the cost of that,
then we could, in fact, improve everybody's care and control
some of the cost.
The American public knows how to purchase everything except
what we think they can't purchase, which is health insurance.
They don't have enough knowledge, savvy to do that. That has
been our estimation through the years, and we have never
decided we were going to let them do that. I believe they would
do just as well at that as they do every other aspect of
purchasing, whether it is autos, homes, or clothes.
Mr. Weldon. Thank you. The Chair recognizes the gentlelady
from the District of Columbia for a question.
Ms. Norton. Thank you, Mr. Chairman, and I appreciate very
much your testimony, Dr. Coburn, given your experience both in
the Congress and in the practice of medicine.
By the way, I will be interested, in light of what you said
about the way in which high deductibles are disincentivized,
overuse, I will be interested to hear from our OPM witnesses
about whether or not people are in fact being driven more and
more to higher deductible plans, because I would imagine that
would be one way of saving the cost of the premium.
I note that two of the things that you mentioned, shifting
of costs of Medicare and Medicaid, as a factor in the
increasing cost to all the rest of us is important to note. You
also testified that we need incentives for preventative care.
It seems to me that both of those would add cost to somebody. I
take it the cost would be added to the Federal Government.
For example, if Medicare and Medicaid costs are not shifted
to younger people and insurance plans, then somebody would have
to pay the cost. Who do you imagine should pay those costs
then?
Dr. Coburn. They are paying them already, Congresswoman.
Ms. Norton. Well, we are paying them, you said.
Dr. Coburn. No, no. We are paying them. The private sector
is paying those costs today through inflated premiums because
the Federal Government does not cover the cost of care for
those people who they have committed----
Ms. Norton. See, that is your point. I take your point, and
I am saying, suppose that this cost-shifting was not going on.
Would that not mean that the Federal Government would be paying
billions more? Is that what you are saying should occur, that
we should just step up to the plate and pay for the cost of
Medicare and Medicaid instead of shifting the cost to private
parties such as those in the FEHBP plan?
Dr. Coburn. I believe it would help you better manage the
programs. Today you are making decisions on false assumptions
of what the costs are. If the Federal Government assumes the
cost, that means we all assume the cost. So we are going to pay
for it either way, but the goal ought to be to effectively
manage it.
I think we have a culture that has developed while I have
been a doctor. It is, how do you stay ahead of the game? I
think this is a real important point. We are out there figuring
out--I am budgeting for next year in my practice of five
doctors. How do we stay ahead of the game? How do we stay even
as our revenues are declining from the private sector, what
they are willing to pay us for delivering a baby or caring for
a family, and we are getting a small increase from Medicare and
no increase from Medicaid. Our costs of doing business are
going up. How do we manage to stay even?
Ms. Norton. You don't. You don't because people----
Dr. Coburn. Oh, yes, we are figuring it out. Here is what
you are seeing: You are seeing increased utilization of testing
and resources and overutilization because that is a human
response in this market. You will never control the costs in
health care until you reconnect the purchaser with some of the
money coming out of their pocket. That is my whole point with
high deductibles. That is why you see a decreased utilization,
and it is not an underutilization. You are bringing it back
down to the level it should be.
The number of young mothers who now don't come into my
office because their deductible is high, they make a phone
call: ``Should I watch my child with this fever?'' We have
children overutilizing primary care facilities like crazy
simply because we have raised a generation that has been taught
to do so because there has been no financial cost to utilize
that resource.
All I am saying is we have to reconnect the cost with the
utilization of the resource. If we do, we can still have great
medicine, and we can still take care of all those--actually, we
can do a better job of taking care of those who have no
insurance today, if we would do that.
Ms. Norton. By paying providers, by the government paying
providers what it cost the government, one point I take from
your testimony is that, instead of spreading the cost to albeit
a large number, but, nevertheless, other insured people, we
spread it to an even wider base because you spread it to the
entire country through the tax system. I agree, I think that
makes better sense. We had just as well face it, somebody's
paying for it.
Dr. Coburn. Right.
Ms. Norton. And the real question is, does somebody who is
a Federal worker who can hardly afford insurance payments as it
is, is that who the cost should be shifted to?
Let me ask you about your really interesting point, one
that has struck me as I look at these ads on TV that, as you
indicate, invite us all to try to get whatever is advertised.
Would you make the cost of those ads less deductible than
ordinary costs? I mean, how would you go at that, understanding
that censorship and the like is not, of course, allowed in our
country?
Dr. Coburn. Oh, it is.
Ms. Norton. Would you just say you don't get the same rate
off for that?
Dr. Coburn. No, it is. The FDA has the power today to
withdraw those ads.
Ms. Norton. And you think they should?
Dr. Coburn. Absolutely. They are a wasted resource in terms
of improving the quality of health care in this country.
Mr. Weldon. The gentlelady's time has expired.
Ms. Norton. Thank you, Mr. Chairman.
Mr. Weldon. The Chair recognizes the gentleman from
Indiana, Mr. Souder, for 5 minutes.
Mr. Souder. Thank you. I first want to say I am glad to see
you still have your passion and your idealism and haven't gone
all soft and flabby now that you are gone from the Congress.
Dr. Coburn. Thank you, Congressman.
Mr. Souder. I have a couple of questions I want to ask you
for the record. You have testified about the danger of
rationing associated with government-imposed price controls on
health insurance premiums. Are you aware of any evidence that
some government workers would rather have health insurance
plans that they think are less likely to deny them needed care
even if they have to pay for it?
Dr. Coburn. I think the opposite is true. I think you have
probably seen through the experience of the Federal employees,
and I think it is the standard family policy where you have
seen, even though premiums have gone up, you have seen a marked
increase in utilization of that plan.
I believe the American consumer is a smart consumer, and
they will make the best choices. Unfortunately, in this country
we have manipulated the system to not give them every choice
that they should be able to have, which one thing that is
missing is a high deductible policy for everybody, so that they
can once again be responsible for their health care.
Mr. Souder. In other words, you are saying some will at
least pay more to get more?
Dr. Coburn. Absolutely.
Mr. Souder. Because some of us are concerned that, in fact,
those choices may deprive individuals. One of the arguments is,
some people argue that it is unfair to let some Federal workers
who would pay more for a program that, for example, is less
likely to ration health care because it would be unfair to
those Federal workers who can't afford to pay for it. What is
your argument?
Dr. Coburn. Well, you are just going to shift costs away,
so they are going to end up having to pay more. They are going
to end up getting less care. So all that is going to do is
accentuate the cost-shifting that we have going on right now.
So they are less likely to get care if you limit that because
you will shift more cost.
Mr. Souder. Well, it is a model plan and I hope we can
continue to have that model.
I want to ask you one other basic type of question. As a
former Member, your idealism was there on the catastrophic, but
I think it is important for the record to show that you said,
and I would like to ask you to kind of rethink that in this
context: You said you believe catastrophic should be covered if
we could eliminate the waste, could control the Medicare and
Medicaid, presumably have tort reform, and a number of other
things.
For example, having been a Member of this body and banged
our heads against a body that is two-thirds attorneys, do you
really think we can get tort reform? Do you really think we are
going to pay for Medicare and Medicaid? Do you really think
Chairman Burton and I are going to vote against Eli Lilly being
able to advertise? Do you really think that we are ever going
to get a hold of the waste? In other words, that is an
idealistic goal, but is it a realistic goal?
Dr. Coburn. I don't know how to answer that, Congressman,
without offending you.
Mr. Souder. You do all the time. [Laughter.]
Dr. Coburn. I believe if the Members of Congress will
search their hearts to do what is in the best interest of the
country, not what is in the best interest of their region, that
in fact all of us would be better off. To do less than that
penalizes us every day.
Eli Lilly was making lots of money before they started
advertising on television. What we have now is the money that
they are making is causing an inflated cost elsewhere in the
health care industry because we are spending time and charging
Medicare more money now because we have a much more complex
visit that is covering several other things that you are paying
for. So it is wonderful to support our constituency, but the
No. 1 oath that we take when we come up here is to defend the
Constitution, not our constituents.
Mr. Souder. I could make a pretty good argument on behalf
of advertising, as somebody in marketing, that in fact that is
one way the market sorts through. But rather than do that, let
me rephrase my question, and it is my last question.
Would you favor instituting catastrophic health insurance
coverage if these other things don't occur?
Dr. Coburn. We would not have to have catastrophic health
insurance if some of the other things would occur. If you have
$1.4 trillion, and if I am right, which I honestly believe, and
all my staff, we researched this all the time I was in
Congress, almost 30 percent of that goes nowhere to help
somebody get well--just silly rules that Medicare imposes on a
hospital that ends up creating bureaucracies that have nothing
to do with quality of care and have everything to do with
pushing paperwork, so somebody in a position of power at a
Medicare payer can have higher control. Then, yes, we could
save a ton of money in health care.
My whole point is: Incentivize the proper utilization of
this scarce resource. If you allow people a choice to do that,
and allow the market to work within a framework that gives
preventative care the No. 1 priority that it should be, which
will save us dollars down the road, then I think you can save a
ton of money. You can lower the cost of Medicare. You can lower
the cost of Medicaid. You can get a whole lot more for the
dollars that you spend.
Tort reform in the states, it has happened; we are seeing
the tests go down. So we know it works. The question is--in my
State it is one of the worst.
Mr. Weldon. The gentleman's time has expired. The Chair now
recognizes the ranking member, Mr. Davis, who will make his
opening statement and then proceed to questions.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
Let me, first of all, apologize for being late at your
first hearing, but let me also congratulate you on being named
chairman of this subcommittee and indicate that I look forward
to working with you.
I was intrigued by the dialog that has taken place. I would
like to just make a brief opening statement, and then I do have
a question, too, that I would like to ask.
Mr. Chairman, over the last several years the subcommittee
has held hearings on the dramatic increase in premiums in the
Federal Employees Health Benefits Program. Next year these
premiums are expected to rise an average of 13.9 percent. This
follows a 10.5 percent increase in 2001 and a 9.3 percent
increase in 2000.
The Office of Personnel Management has cited increased use
in prescription drugs and medical services, advances in medical
technology, and an aging Federal work force as reasons for the
dramatic hike in 2002 premiums. Health care inflation, Federal
mandates, and increased prescription drug costs have also been
cited as reasons for increased premiums.
Regardless of the causes, Federal employees are bearing the
brunt of these increases. The question we must ask is, how do
we address increased premiums in the Federal Employees Health
Benefits Program?
Last year OPM established, and was forced to cancel, a
pharmaceutical pilot project for the Special Agents Mutual
Benefit Association [SAMBA]. SAMBA is a small health plan in
the FEHBP that provides coverage for 16,000 active and retired
Federal law enforcement employees.
Under the pilot, SAMBA would have purchased mail order
pharmaceuticals off the Federal Supply Schedule, generating
savings to the government, SAMBA, and enrollees in the health
plan. However, the three companies that dominate the
pharmaceuticals market, Pfizer, Merck, and Parke-Davis, refused
to supply their products to SAMBA from FSS. This I think was
unfortunate because the pilot program would have provided
useful information about alternative methods for controlling
the escalating costs of prescription drugs.
Alternatively, Representative Steny Hoyer introduced H.R.
1307, a bill that would increase the government contribution
for Federal employee health insurance. Currently, the Federal
Government and enrollees jointly pay FEHBP premium costs
according to a statutory formula. The government contributes 72
percent of the FEHBP premiums. H.R. 1307 would increase the
government's contribution to 80 percent of these premiums.
Federal employees are feeling the effects of these
increased costs every day. Therefore, the subcommittee should
hold bipartisan hearings on these and other proposals that
specifically address how we can stabilize, if not decrease,
premium rates for the approximately 9 million enrollees in the
FEHBP program.
I thank you, Mr. Chairman, and certainly would like to
engage in questions with Dr. Coburn.
Mr. Weldon. The gentleman is recognized.
Mr. Davis of Illinois. Thank you very much. Doctor, I
certainly want to welcome you and indicate that I have always
been intrigued listening to your positions relative to health
care delivery, coverage, and how we might be able to shape our
system in such a way that we get the most benefit for the money
that is being paid or the greatest bang for the buck.
Let me ask you, do you think that there is a way to
actualize cost in such a manner that whoever is receiving the
service actually pays that cost? I am saying, whatever payment
mechanism that is used is actually paying that cost, saying it
is not being shifted any place other than right there.
Dr. Coburn. I think it is reasonable to assume that such a
market would do that, but you have to have a true market, I
believe, to allocate that cost to the individual consumer. What
you see in a free market is that costs end up reflecting supply
and demand. What we have not done, and the worst thing we can
do, is put more price controls on the health care industry.
You did not see health care inflation prior to the
imposition of Medicare. You did not see significant health care
inflation prior to the imposition of Medicare price controls.
When Medicare became a price-controlled system and out of the
fee-for-service, totally controlled, that is when you saw
health care inflation take off everywhere else in this country.
It simply reflects a disruption in the market and shifting of
the cost.
So the only way I believe that you could actually see that
is go back to actually a free market system. I am not sure we
could do that. I am not sure we could go back to a free market
system. We have tremendous moral problems in health care in
terms of billings, overutilization. And I am talking about my
own profession. I am not talking about just patients, and I am
not talking about just doctors. I am talking about every aspect
of the system sees a pot of gold out there and grabs in and
puts its hand in.
That is why the first part of my statement I said this has
become a business; it is no longer an altruistic profession to
care for somebody's health. It is driven by business concerns,
not health concerns. We need to get back to health concerns.
Mr. Davis of Illinois. Since that is the case, since you
cannot orchestrate market conditions--I mean, the market is the
market, and this isn't to suggest by any stretch of anybody's
imagination that you would be in favor of what I am going to
ask you. Could a national health plan, where everybody is in,
the costs have been determined, and everybody gets service
based upon whatever their needs are--obviously, some of the
incentive will be gone in terms of certain kinds of practice
and certain kinds of practice conditions and all, but would
that even in any kind of way the playing field?
Dr. Coburn. No, I don't think it would. Even though it
might change some of the cost pressures, what it does is ration
care. What you are going to see is end-of-life issues. You are
going to see that the elderly have no value under that system.
That is ultimately where we will go. The value of life, once
somebody becomes dependent on the health care system, will no
longer have value because the cost associated with that value
will be so high.
You cannot put a system together like that. Just look at
Canada. They ration care now. We have three orthopedists in my
home town now who moved to my home town from Canada simply
because they couldn't do the things that people needed to have
done for them. Now that is not to say that people in Canada
don't get adequate care, but there is rationing going on.
I would tell you that my own organization, the American
Academy of Family Physicians, has endorsed a national payor
system because the physicians are fed up trying to chase this
monkey. But it is not in the best interest--I would go back and
here would be my statement: I believe that in every area in our
country, of all resources, that if we allow a true market to
work, the most people will get the best benefit if we allow
that to happen. We have nothing close to that now in health
care, and that is why you have the cost inflation that you
have.
Mr. Davis of Illinois. Of course, as long as we have
advertising as a part of our society the way that we do, of
course, that would never exist either. I mean, because people
will be influenced and certainly influenced to the extent----
Dr. Coburn. But they are not the payors today, Congressman.
We have advertising right now, but they are not the payors. So
you get it utilized without it costing you anything. It costs
your employer or it costs the Federal Government, but there is
no cost to you personally for utilizing it. So you don't have a
market. So, yes, you could have that, if there was a
reconnection to your billfold when you overutilized the system.
We don't have any of that. So there are these perverse
incentives: Since it cost me nothing, I am going to utilize the
system. That is the problem where we are today in health care,
and that is one of the reasons, one of the main reasons besides
greed among all in this system, of driving the cost up.
Mr. Davis of Illinois. Tom, let me thank you very much. You
do remind me, when we start talking about payment of something,
what Frederick Douglass was supposed to have said one time, and
that is: He knew one thing if he didn't know anything else, and
that is in this world we may not get everything that we pay
for, but we most certainly will pay for everything that we get.
[Laughter.]
If we don't pay one way, we will pay the other.
Dr. Coburn. Well said.
Mr. Davis of Illinois. Thank you.
Dr. Coburn. Thank you.
Mr. Weldon. The gentleman's time has expired.
I want to thank Dr. Coburn for coming here from Oklahoma.
Your testimony was very informative, and we certainly look
forward to hearing from you again in the future on these
issues. Thank you very much.
I would like to now call up the second panel. This will
include our first witness, Mr. Ed Flynn. He is the Associate
Director of Retirement and Insurance Services at the Office of
Personnel Management. He has appeared frequently before this
subcommittee to discuss FEHBP.
The second witness is Steve Gammarino, senior vice
president of the Blue Cross/Blue Shield Association. Mr.
Gammarino has also testified a number of times before this
subcommittee on FEHBP.
Colleen Kelley, our third witness, is president of the
National Treasury Employees Union and represents many Federal
employees who rely on FEHBP.
Our fourth witness is Lawrence Mirel, the commissioner of
the District of Columbia's Department of Insurance and
Securities Regulation. Commissioner Mirel is an expert on
insurance, including health insurance. He has thought carefully
about some of the problems affecting health insurance today.
Bob Moffitt is our final witness on this panel. Mr. Moffitt
is the director of domestic policy studies at the Heritage
Foundation. He has studied the FEHBP for years and has
developed a real expertise in this area.
I thank all of our witnesses for participating and I am
looking forward to hearing your testimony. I see you know the
drill. You remain standing.
[Witnesses sworn.]
Mr. Weldon. Note for the record that the witnesses
responded in the affirmative.
I would like to go ahead and recognize Mr. Flynn for 5
minutes.
STATEMENTS OF WILLIAM E. FLYNN III, ASSOCIATE DIRECTOR,
RETIREMENT AND INSURANCE SERVICES, OFFICE OF PERSONNEL
MANAGEMENT; STEPHEN W. GAMMARINO, SENIOR VICE PRESIDENT, BLUE
CROSS BLUE SHIELD ASSOCIATION; COLLEEN M. KELLEY, PRESIDENT,
NATIONAL TREASURY EMPLOYEES UNION; LAWRENCE MIREL,
COMMISSIONER, DISTRICT OF COLUMBIA, DEPARTMENT OF INSURANCE AND
SECURITIES REGULATION; AND ROBERT E. MOFFITT, DIRECTOR,
DOMESTIC POLICY STUDIES, THE HERITAGE FOUNDATION
Mr. Flynn. Good afternoon, Mr. Chairman and members of the
subcommittee. Thank you very much for your invitation.
You have already entered my prepared remarks, and I will
just summarize from those, with your approval, Mr. Chairman.
I would like to focus my remarks on this year's average
premium increase in the Federal Employees Health Benefits
Program, the changes that will occur in the Blue Cross and Blue
Shield Plan, and the need to do something about the continuing
withdrawal of health maintenance organizations.
At OPM we run the Nation's largest employer-sponsored
health insurance program. Since its inception, it has provided
high-quality, affordable health care to almost 9 million
Federal employees, retirees, and family members. The program is
part of the government's overall compensation package and it
helps government attract and retain its share of the talent
needed to carry out critical public work.
Almost 85 percent of employees sign up for the program, and
our surveys indicate a high degree of satisfaction with
participating health plans, satisfaction levels that have
remained stable even with the premium increases of the last
several years.
The average increase next year will be just over 13
percent. No one is happy about that, least of all the Director
of OPM and all of us who work on this program. There are,
however, three key points I want to make about next year's
increase.
First, market competition, consumer choice, and intensive
negotiations with health plans do work to provide comprehensive
benefits at an affordable cost. At the same time we are
operating in a market where, according to USA Today, and I
might just mention according to the New York Times of today,
health insurance prices nationally are soaring and will range
from 13 to 50 percent next year. Other surveys and some
announcements by major public and private employers bear this
out.
Second, we bargained hard for what we were able to get this
year. Shortly after being sworn in, we briefed Director James
on the key aspects of the program. Her charge to us was clear.
She wanted us to get the best deal possible for participants
without cutting benefits across the board or making major
changes, and we did just that.
Initial proposals from health plans would have led to a
premium increase of almost 16 percent. Through intensive
bargaining, we shaved 2 points off that number and project an
overall average of just over 13 percent at the end of open
season.
Finally, there are trends we can identify that do affect
the cost of this program. As has been the case in past years,
the rising utilization and cost of prescription drugs tops the
list, accounting for over one-third of the total. Other factors
include overall utilization, technology advances, medical
inflation, and a covered population that gets older on average
each year.
Responding to our guidance and the same trends we were
seeing in health care generally, the Blue Cross and Blue Shield
Plan will introduce several major changes next year. They will
merge their High Option Plan into the Standard Option and
create new, lower-cost Basic Option which provides benefits
essentially for in-network providers only. Had Blue Cross and
Blue Shield not made this proposal, about 125,000 elderly
participants in the High Option Plan would have faced a premium
increase in the 30 to 35 percent range.
I might also add at this point that it is not unusual for
health plans to merge, add, or drop options. That has always
been a part of this program, reflecting its market orientation.
We carefully consider proposals like these and we paid special
attention to the Blue Cross/Blue Shield proposal because of its
scope and the importance of the program overall.
In addition, throughout the spring and summer several
participating health plans learned of the outline of the Blue
Cross proposal and expressed concerns about its impact. We met
with the Coalition to Preserve Choice and others to ensure we
understood and addressed their concerns as we negotiated with
Blue Cross and Blue Shield. While we are confident we made the
right decision in accepting the Blue Cross proposal, we will
carefully monitor both its implementation and its effects to
ensure the continued strength of the program.
Next year approximately 30 health maintenance organizations
will leave the program. Because of that, almost 150,000
participants will have to select new plans. This continues a
trend we have seen over the past several years. While we know
that plans are leaving for business reasons unrelated to our
administration of the program, it is, nonetheless, an area of
concern to us. We have taken a number of concrete steps in the
last several years to increase the number of health plans,
albeit with limited success.
The President's budget reflects, among other things, a
commitment to consider options to ensure that the program
offers quality and cost-effective health plans not only now,
but for the future. We are exploring ways to increase the
health care options available to Federal employees, thereby
increasing competition within the program. We look forward to
working with you and the members of the subcommittee and others
on this issue.
Mr. Chairman, that concludes my statement. I will be happy
to answer any questions you may have.
[The prepared statement of Mr. Flynn follows:]
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Mr. Weldon. Thank you, Mr. Flynn. Now, Mr. Gammarino, you
are recognized for 5 minutes.
Mr. Gammarino. Good afternoon. I am Steve Gammarino, senior
vice president at the Blue Cross/Blue Shield Association. On
behalf of the Blue Cross/Blue Shield plans, I thank you for the
opportunity to appear before you today.
With your permission, Mr. Chairman, I would like to submit
my written statement for the record.
Mr. Weldon. Without objection.
Mr. Gammarino. In your letter of invitation you requested
that I address several questions on health care trends and
efforts by Blue Cross/Blue Shield to manage the rising cost of
health insurance premiums. In addition, you requested that we
discuss the new Basic Option Plan and any other issues that are
important to the continued viability and stability of the
Service Benefit Plan.
For 2002, overall health insurance premiums for the Blue
Cross/Blue Shield Standard Option Plan will rise 15 percent.
The premium increases we are experiencing are similar to
industrywide trends. To gain insight into the trends in health
care, it is useful to explain what we are experiencing in the
marketplace. I call them the three ``C's'': cost, consumerism,
and coverage.
First, premiums are being driven today by increased costs
in all areas of health care. Prescription health costs continue
to be driven by the rapid development of new, more expensive
therapies which often substitute for less costly, existing
therapies; rising prices for existing drugs and heightened
demand and use of prescription drugs, fueled by the ever-
increasing direct-to-consumer advertising.
Under Blue Cross/Blue Shield's Standard Option Plan, drug
costs today represent almost 30 percent of our benefit cost. In
addition, over the past couple of years we have begun to see an
increase in cost for provider services which is due to rising
prices in the use of hospital and physician services.
It is also important to realize that the FEHBP is dealing
with an aging population. For example, the average Blue Cross/
Blue Shield Service Benefit Plan enrollee today is 60 years
old, and the average FEHBP member is 54. This is a much older
population and a higher-risk group than most health plans in
the private sector.
The second ``C'' is consumerism. In today's marketplace,
especially in a competitive and individual choice market such
as FEHBP, the consumer drives decisions. With the combined
forces of the backlash against managed care restrictions on
access and direct consumer advertising on prescription drugs,
the consumer has become a key force in health care
decisionmaking today.
The third category of health care trends is the changing
perception of health coverage. Over the years expectations of
what health insurance should cover have shifted. The original
intent of insurance was to protect against catastrophic or
acute situations while consumers paid for day-to-day expenses,
similar to how car insurance works today.
However, today health care covers both catastrophic needs
and routine care. Consumers have come to expect and demand from
their State and Federal legislatures that health insurance
plans cover a wide range of treatment that includes
preventative care, care that is experimental, and even care
that is yet to be proven scientifically.
As the Service Benefit Plan continues to face increasing
cost trends and an aging population, we are constantly
exploring ways to manage those costs. While we are concerned
about the trends and keeping overall costs contained, we are
equally, if not more, concerned about the overall health
outcomes and ensuring that our members receive quality care. To
that end, we have also focused resources on strategies and
programs that will improve patient safety and quality outcomes.
In your letter of invitation, you asked me to address our
2002 benefit changes; in particular, the rationale for merging
High Option and introducing a new Basic Option. As you are
aware, Blue Cross and Blue Shield currently offers two options:
High and Standard. Each year we take a close look at our
products to ensure that they provide value to our customers.
Our research consistently shows that the Federal employees and
retirees are very concerned about the cost of health care and
that they want the best value when selecting a health plan.
Blue Cross/Blue Shield decided to merge High Option into
Standard Option because High Option is no longer a viable
product. Due to exceedingly high benefit costs, it has become a
tremendous challenge to keep the product affordable.
In response to the demand for cost-effective health care
coverage, we are introducing a new option for Federal employees
and retirees. This new option, called Basic Option, is a
preferred provider-only benefit package that includes co-
payments for many services, no deductibles, and preventative
dental coverage. It is designed to provide Federal employees
and their families with a premium that is lower in cost than
the majority of health plans in the FEHBP. We believe it is a
ground-breaking product and offers what most individuals look
for in a health care plan; that is, choice, access, and
simplicity.
With regard to your inquiry on ways in which FEHBP can be
improved, in our experience there has to be an appropriate
balance between incentives and risk. With the reduction in the
number of health plans participating today, we would suggest
that the subcommittee might want to further examine the
financial incentives and the significant underwriting and
compliance risk required by a carrier participating in the
program.
Finally, your letter of invitation expressed an interest in
any matters beyond the specific focus of this hearing. One that
is critical to Blue Cross/Blue Shield's continuing
participation in the FEHBP is the exemption from the
inappropriate application of the cost accounting standards. For
the past 3 years, Congress has passed an appropriations act, a
full statutory waiver requirement related to these
requirements, and we urge the subcommittee to seek final
resolution of this matter.
The Blue Cross and Blue Shield Association is proud of its
role it has played in the Federal employee marketplace. I hope
my remarks will help you in your deliberations and discussions.
We look
forward to working with you to find ways to preserve and
improve the strength and stability of this program. Again,
thank you for the opportunity to appear before you today. I
will be pleased to answer any questions you may have.
[The prepared statement of Mr. Gammarino follows:]
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Mr. Weldon. Thank you. Ms. Kelley, you are recognized for 5
minutes.
Ms. Kelley. Thank you, Chairman Weldon. As the national
president of the National Treasury Employees Union and the
150,000 Federal employees who we represent, I would like to
congratulate you on your chairmanship of this subcommittee and
look forward to working with you in the future on these
important issues.
Mr. Weldon. Thank you very much.
Ms. Kelley. The Federal Government faces a human capital
crisis today with inadequate pay and benefits being the primary
obstacles to both attracting and retaining highly qualified
employees by the Federal Government. The FEHBP used to be
considered a crown jewel in the Federal employee benefit
package, but today it has become prohibitively too expensive
for lower-paid employees and unattractive to prospective
employees.
More than 9 million Federal employees, retirees, and their
families depend on the FEHBP for coverage, and they are alarmed
over the recent dramatic premium increases. OPM's announcement
of over 13 percent on the average rate increases for 2002
follow premium hikes the past 3 years of 10.5 percent, 9.3
percent, and 9.5 percent in 1999.
Since 1997, FEHBP premiums on the average have increased a
total of more than 46 percent. To put this in perspective,
during the same timeframe from 1997 through 2001, Federal
employees' salaries increased an average of 17 percent.
Mr. Chairman, Florida's 15th Congressional District is the
home to more than 23,000 Federal employees and retirees. An
employee in the district saw their FEHBP premiums consume 8.6
percent of their take-home pay in 1998. By 2001, that amount
has increased to over 11 percent.
For these reasons, it is critical that the FEHBP receive
careful scrutiny. NTEU does not believe that occurred this
year. Earlier this year NTEU raised concerns about Blue Cross's
proposal to merge its High and Standard Option programs. To
date, we do not know the impact of that merger on future rates
or on the stability of the FEHBP or even whether there is a
need for the new Blue Cross plan. We do know that this will
result in increased premiums for those in the Blue Cross
Standard Option and the need for a major education campaign of
both employees and retirees, so that they know and understand
the changes in the Blue Cross plans.
We all agree that the government needs to better use the
size of the FEHBP pool to obtain better rates from insurance
carriers and from health care providers. According to the
Kaiser Family Foundation's Employer Health Benefits Annual
Survey for 2001, FEHBP premiums increased at a rate higher than
many other large employers: over 13 percent for FEHBP and an
average of only 10.8 percent in 2001 for firms and companies
with 5,000 or more employees. The numbers were similar in the
year 2000, when the Kaiser Survey reported an average premium
increase of 7.1 percent and the FEHBP premiums increased 10.5
percent.
But the differences the Annual Kaiser Survey reveals do not
stop here. As an employer and as Ranking Member Davis has
noted, the government pays an average of 72 percent of the
premium. Employees pay the other 28 percent. As the chart
attached to my testimony shows, the average employee in
employer-sponsored health insurance pays 15 percent of the
premium for single coverage and 27 percent for family coverage.
Not surprisingly, when asked by Kaiser, employers cited
recruitment and retention of employees as one of the main
reasons that they absorbed most of the health insurance
premiums for their employees. Most State and local government
employers today pay at least 80 percent of the premium.
To help address the effect that health insurance premiums
have had on the human capital crisis for the Federal
Government, NTEU worked with Congressman Steny Hoyer on
bipartisan legislation, H.R. 1307, that would increase the
employer's share of the FEHBP premiums to the most common
industry standard of 80 percent. Without competitive pay and
benefits, the Federal Government will be unable to compete for
the talent that it needs. NTEU asks that you hold hearings on
this important legislation.
Nothing is driving premiums increases as rapidly as
prescription drug costs. We have heard that already from a
number of speakers. In the year 2000 OPM stated that
prescription drugs represented $1 of every $4 in FEHBP costs,
and when announcing the 2001 premium increases OPM stated that
40 percent of the premium increase was the result of the drug
costs.
NTEU thinks that OPM should negotiate discount prescription
drug rates for the FEHBP similar to those that are available
under the Federal Supply Schedule. Ranking Member Davis
described in great detail the SAMBA pilot that was canceled in
1999. This was a lost opportunity for a potential solution to
the prescription cost at least of the FEHBP. But lost, too,
were the taxpayer savings that were inherent in negotiating the
discount prescription drug rates. The SAMBA pilot was estimated
to save $2.4 million a year, savings that would have flowed to
both Federal employees and to taxpayers.
Reducing drug costs programwide in the FEHBP holds the
potential to save much more. This idea continues to merit
exploration, and NTEU asks that this subcommittee pursue this
issue.
This concludes my remarks. Thank you very much, and I would
be glad to answer any questions you have.
Mr. Weldon. Thank you very much for your testimony. We will
now hear from Mr. Mirel. Did I pronounce your name correctly?
Mr. Mirel. Yes, you did, thank you. Most people don't.
Mr. Weldon. OK.
Mr. Mirel. I appreciate that.
Mr. Weldon. You are recognized for 5 minutes.
Mr. Mirel. Chairman Weldon, members of the subcommittee,
Delegate Norton in particular, my Representative in the
Congress, I am Larry Mirel, commissioner of insurance for the
District of Columbia. The agency that I head was created
originally in 1901 by Congress to regulate the business of
insurance in the District of Columbia. It is now part of the
home rule government that was created in 1974. Although I am a
member of that government, I am testifying here today on my own
behalf and not on behalf of the Williams administration.
Our Department regulates all lines of insurance, including
health insurance. But I have to tell you that I have not seen
the kind of anger with any other line of insurance that we see
regularly with health insurance. I can't tell you how many
people call my office or come in and complain that items that
they thought were covered in their insurance it turns out were
not covered. I hear from doctors all the time furious with the
kinds of hoops they have to go through to get themselves paid
for services that they have provided; hospitals who come in and
complain that they are facing bankruptcy because they cannot
get reimbursed for services that they have actually provided.
And the insurance companies are not happy either. They
don't like the mandates that are enacted that throw off their
calculations, and the system in general, it seems to me, could
not be designed to be worse, to create that kind of anger. I
don't think I am alone in that view. I think many Americans
share that view of our health payment system.
I have thought a lot about the reasons why this should be
the case. I think really there are two fundamental flaws with
the current system of health insurance in this country, paying
for health care.
The first is that a large portion of what is paid for is
just not insurable and should not be covered by insurance. I
take the point that Mr. Flynn, I guess it was, made before,
which is that originally you bought insurance to protect
yourself against catastrophic loss; that is, the loss from
serious illness or injury. But over the years the concept has
been expanded and now covers what used to be considered routine
health care costs that you paid out of your pocket.
The problem with that is that we have left the entire
system in the hands of insurers. Insurers are just the wrong
people to run a system like that. It is the wrong mindset for
routine health care. Insurers are very cognizant of
utilization. A good insurance company is one that limits the
number of claims that are filed. The essence of insurance is
underwriting.
The idea of limiting claims is a good one if you are
talking about major illness or injury. To give just one
example, Workers Compensation insurers spend a lot of time and
money and energy trying to make the workplace safer, so that
there will be fewer claims. They do it for the noblest of
reasons, which is they earn more money when there are fewer
claims. That is how insurance companies think.
The problem is you can't apply that same kind of thinking
to routine health care. You want people to go to the doctor.
You want them to get inoculated. You want them to do the kinds
of preventative things that they should to take care of their
health.
When you put it in the hands of insurance companies, what
they do is they start managing it the way they would any other
kind of claims to reduce the number of claims. So you get the
kind of paperwork that you have, and you have the kinds of
managed care issues that you have--all of which adds enormous
costs as well as frustration to the system. That is the first
problem.
The second problem, in my view, is that health insurance is
a contract; that is, it doesn't cover anything that goes wrong
with you in a health context. It covers only the things that
are specified in the contract and are not excluded.
The contract, however, is negotiated between the employer,
who pays for it, and the insurance company that provides the
coverage, the health plan that provides the coverage. The
people who are mostly affected by that contract, however, are
the employees, the ones who are covered, and the providers,
those who provide that coverage. Neither of them are part of
the negotiating process. This, in my view, is a very bad way to
do business.
It is bad in another way, too, and that is that insurance
is a very competitive business. Employers are always looking
for ways to save money. They, therefore, look to cheaper
insurance plans. The insurers know this. So they vie with each
other to provide cheaper plans, so that they will be able to
pick up a larger share of the market.
There are really only two ways to reduce the cost of
insurance, in my view. One is to reduce the benefits that are
provided, and the other is to pay the providers less. Insurance
companies are doing both. They are dropping coverages that they
used to routinely cover, and they are continually squeezing the
providers to do more for less money--to the point where the
providers are finding themselves strapped and unable to provide
what they think of as good medical costs.
Are there solutions to this kind of a situation? I believe
that there are, and I believe that the solution lies in
something that Dr. Coburn talked about before, which is a high
deductible policy that covers catastrophic loss of illness and
injury, and then covering the rest by a medical savings
account; that is, taking the money that is saved by buying a
high deductible policy which is cheaper and putting it in
individual medical accounts for the employees. The employees
would then be able to control their own medical care, pay for
the things they want to pay for, and have more direct
connection with the doctors and the providers that they deal
with.
I will stop at this point. My entire statement I believe is
in the record. I would be glad to answer questions.
[The prepared statement of Mr. Mirel follows:]
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Mr. Weldon. Thank you very much, and we will conclude with
our witness from the Heritage Foundation, Mr. Moffitt.
Mr. Moffitt. Thank you very much, Mr. Chairman and members
of the subcommittee. My name is Robert Moffitt. I am the
director of domestic policy studies at the Heritage Foundation.
In that capacity, I oversee the Foundation's analytical work in
the area of health care policy, including the financing and
delivery of health care services and government programs. It is
an honor and a privilege to appear before the subcommittee
today to discuss the current status and the future of the
Federal Employees Health Benefits Program. It should be
understood that the views I express here today are my own and
do not necessarily represent those of the Heritage Foundation.
I ask that my written statement be submitted for the
record, Mr. Chairman.
Mr. Weldon. Without objection.
Mr. Moffitt. The Federal Employees Health Benefits Program
is, as Mr. Flynn pointed out, the largest group health
insurance program in the world. It provides health care
coverage to all members of the Federal Government, including
Congress, the White House, the Federal judiciary, as well as
approximately 9 million Federal and Postal workers and retirees
and their families.
This is an unusual program. It is run largely on the free
market principles of consumer choice and market competition. No
other insurance-based system of financing and delivery in the
United States provides patients with such a broad range of
choice of plans and benefits.
It is virtually the only system in the country in which
individuals and families can choose from a broad range of
health care plans, picking the kinds of benefits and treatments
they want at prices they wish to pay, while pocketing the
savings of wise choices. In that key respect, Mr. Chairman, it
is virtually the only health care delivery system that even
vaguely resembles anything that looks like a normal market in
the area of health insurance.
The Office of Personnel Management, the Federal agency that
administers the FEHBP, has broad authority, repeatedly upheld
in Federal courts, to negotiate premium rates and benefits on
behalf of Federal employees. As the Congressional Research
Service observed in 1989 in the most comprehensive analysis
ever published on this program, the basic structure of the
FEHBP is ``sound'' despite changes in administration and the
health care sector of the economy.
While the FEHBP retains a sound structure and a superior
performance as a health care delivery system for its enrollees,
it is, nevertheless, in 2001 a troubled program. Its problems
are rooted in shortsighted government policies that are
incompatible with its structure. The structure is the structure
of consumer choice and competition, and the solutions to those
problems are likewise rooted in government policies that are
not only compatible with its structural advantages, but also
would enhance consumer choice and competition.
For the next year, OPM projects an average premium increase
of 13.3 percent among FEHBP plans. This does continue a painful
pattern of significant premium increases over the past several
years. While these premium increases have been less than those
commonly found in the private sector, they are, nonetheless,
worrisome to Federal employees and retirees and their families.
As Mr. Flynn pointed out and Mr. Gammarino, these cost
increases surely reflect the broader changes that are taking
place in the health care system, particularly the growing
patient demand for high-quality prescription drugs delivered
through the mechanism of health insurance. But there are also
other factors which are peculiar to the program that are
driving the cost increases in the FEHBP and these factors are
not inherent in the structure of the program.
The first, of course--Mr. Flynn had mentioned it, so did
Mr. Gammarino--is the artificially skewed demographics of the
Federal work force, which is significantly older than the
private sector work force and is rapidly aging. Health care
costs of older workers are, of course, significantly higher
than those of younger workers. Related to the aging of the work
force is the disproportionately large number of Federal
employee health policyholders, roughly 40 percent, who are
retirees. In contrast, many private sector companies have
ceased or limited coverage for retirees.
A second reason for recent cost increases is the recent
tendency of OPM to break with what the Congressional Research
Service once described as its passive management of the program
and adopt a much more aggressive regulatory approach to program
management. Between 1990 and 2001, the executive branch, either
independently or sometimes at the urging of Congress, made 44
specific benefit decisions relating to different aspects of
health care benefits. If understood as ancillary to the basic
statutory benefit requirements established clearly in Chapter
89 of Title V, these additions would have the equivalent
economic impact of health care benefit mandates that are a
prominent feature of State health insurance laws.
While it is true that any one of these benefit additions
taken alone could be justified as fulfilling some particular
need or desire, and while the degree of the impact of these
benefit decisions on cost is a matter of some dispute, there is
no debate that they add to premium cost. Whatever the merits of
any particular intervention, mandates impose higher costs. The
more mandates, the higher the costs.
My colleagues have pointed out that Members of Congress
should maintain some perspective on the FEHBP increase, and
they are right. Even with the 13.3 percent projected increase,
when all is said and done, when the numbers are over and
submitted in the year 2002, FEHBP is still likely to outperform
private sector health insurance, particularly the corporate
health insurance. Note that FEHBP benefits have, in fact, been
increasing in value over the past 15 years; that is to say, the
number and the quality of the benefits. Second, the annual
projected increases in the FEHBP do not automatically translate
into actual premium increases.
I have a number of suggestions, Mr. Chairman, to improve
the program, which I have submitted in my testimony, but let me
just make two fundamental points. One, FEHBP needs fresh blood.
You have to get a change in the actuarial pool of this system
or you are going to see greater and greater demographically
driven price increases that are not reflective of what is going
on in the general economy.
The second point is that you must start to examine the
impact, the economic impact, of the mandate system or the
regulatory initiatives that have been taken over the past 10 or
15 years to get a clearer idea of how that is affecting the
cost. You should also change the underwriting system in the
FEHBP and do what Mr. Mirel suggests: Allow people to pay for
health care services directly without imposing any kind of a
tax penalty for doing so. Flexible spending accounts that are
very common in the private sector for millions of Americans are
one way to do it. Another option, of course, is medical savings
accounts. But, in either case, make the health insurance system
in the FEHBP operate more rationally, in accordance with and
make it compatible with the basic structure of the program
which, as the Congressional Research Service said, is
structurally sound.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Moffitt follows:]
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Mr. Weldon. Thank you, Mr. Moffitt. I want to thank all of
our witnesses. This has been very informative and certainly
stimulates a lot of areas for questioning.
I recognize myself for 5 minutes. The one I want to touch
on first is the issue of the mandates. I am a little bit
uncertain as to the full impact of the cost of the mandates. I
have seen some data out of OPM that these mandates have had a
negligible impact. I am curious if you, Mr. Moffitt, agree with
that analysis, if you feel that we should get an independent
analysis of that through an entity like GAO. There are a lot of
mandates coming down from States on health plans, and how much
the collective impact of these mandates is having on premiums I
think needs to be explored in more detail.
Mr. Moffitt. Exactly. Mr. Chairman, let me respond. I said
in my testimony, borrowing a line from my old boss, Ronald
Reagan, trust but verify. I trust OPM. I think they do a great
job. I used to work at the Office of Personnel Management. I
have profound respect for the staff.
The point that I made in my testimony is simply this: If
you look at their analysis of the overall impact of 44 changes
in benefits over the past 10 years and you look at the
professional literature, the peer-reviewed journals of
econometric analysis of benefit mandates at the State level,
what you are finding is a significant difference.
The General Accounting Office did, indeed, do an analysis
of the impact of mandates at the State level in 1996. In fact,
I mentioned this to Congresswoman Morella's staff. I cited this
in my testimony. The GAO estimated that State-mandated benefit
laws accounted for 12 percent of the claims cost in Virginia,
which had then 29 benefit and managed care mandates, and 22
percent in Maryland, which in 1996 had 36 mandates. This covers
everything from mandatory chiropractor coverage to substance
abuse, in vitro fertilization, you name it, psychological
counseling. In Maryland today I think it is well over 50, maybe
54 or 55 mandates.
My point is that I think that you need, in the interest of
Federal employees and the families who are paying these
premiums, you have got to be clear in your own minds that the
Office of Personnel Management is absolutely right. Because my
point is that study after study shows that mandated benefits
do, in fact, increase cost significantly. But two widely
respected economists have indicated that one out of four of the
people in the United States who are uninsured are uninsured
because they have been priced out of the market by State-
mandated benefits.
So my point is that you have a discrepancy here. I am not
saying that OPM is wrong. I am saying it is our responsibility
and the responsibility of the Bush administration to make sure
that our understanding of the economic impact of these mandates
is correct.
Mr. Weldon. Mr. Flynn, did you want to counter to that or
add to that at all?
Mr. Flynn. Mr. Chairman, I would simply say that we would
welcome verification. I think the list of 44 mandates that Mr.
Moffitt talks about is the same list that we prepared that I
believe you and members of the subcommittee have seen. It
covers a period over the course of the past 10 years. The net
effect of those changes at the Federal level was about 1.5
percent.
Even if you put aside for the moment the effect of mandates
that decrease costs in the program, over that same 10-year
period we have seen premiums rise in the program approximately
72 percent, and the mandates that increase cost amount to a
little bit less than 4 percent. So I think in the context,
while it is true that every time you add a benefit, you tend to
add cost, I think it is important to look at it in the context
of what has been going on in the program overall.
The other one quick thing that I would just simply say is
that there is a lot of discussion in health care today about
mandates, particularly those that are imposed at the State
level. In the Federal Employees Health Benefits Program we have
what is known as a preemption provision, where with the single
exception of health maintenance organizations that are
domiciled and operate solely within a State, we preempt State-
mandated benefits.
For example, we don't have the Blue Cross and Blue Shield
plan providing State-mandated benefits in California,
Pennsylvania, West Virginia, New York, and what have you. It is
a standard benefit package across the United States because of
the preemption authority that we have in the FEHBP law. So the
effect of mandates at the State and local level is very, very
minor, we estimate about one-quarter of 1 percent of the total
cost of the program. But those that have occurred at the
Federal level, whether imposed by Congress or as part of the
administration, we think, setting aside those that have
actually reduced costs, amount to about 4 percent of that 72
percent increase in premiums over the same period.
But we would welcome GAO, anybody, to come in and look at
our numbers. We think we have pretty good data.
Mr. Weldon. My time has expired. I would like to now
recognize the ranking member, Mr. Davis, for 5 minutes.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
I listened rather intently to the discussion, and I must
confess that I really appreciate the testimony that each one of
you has provided. It seemed to me that, as I was listening,
that there are, in fact, ways, based upon experiences that I
have seen, to reduce cost, but of course oftentimes those are
unacceptable to the users or it decreases users' satisfaction.
My question is a rather generic one. The more options and
choices that consumers have, the more likely they are to use
those. I am saying, if there are more choices, there are more
options, the greater the use of those, which has a tendency to
drive up costs. So my question is: Is there a way to provide
the consumers what they need and at the same time get the cost
down for what they would find satisfactory?
Mr. Mirel. Mr. Davis, let me take a crack at that. The
alternative that I was talking about, which I think is the same
thing that Dr. Coburn talked about in his testimony, is, first
of all, a voluntary choice. We are talking about offering a
choice that is not now offered through the Federal Employees
Health Benefits Plan. That is a high deductible choice. With
that would come additional nontaxable compensation, payment, in
the form of additional untaxed salary that would be put into
the individual employee's medical savings account. The
individual employee then could spend that money any way he saw
fit, knowing that once the deductible had been met, $3,800 or
whatever it is at the moment, the backup plan would kick in.
That means that you don't have to go through the difficult
task of deciding what should be in the plan and what shouldn't
be in the plan. It is up to the employee. If the employee wants
to spend it on eyeglasses, he can spend it on eyeglasses. If he
wants to spend it on dentistry, he can spend it on dentistry.
It is his choice.
What it does is it cuts out an enormous amount of the
transactional cost that now exists in the plans. What I would
like to see happen is to have this offered as an option and see
what happens, if people will take it and if they will like it,
and if it will, in fact, reduce costs. I think it will have all
of those effects.
Mr. Davis of Illinois. Why don't I just ask Ms. Kelley,
would the unions be up in arms about such a plan, the high
deductible choice?
Ms. Kelley. We have a lot of concerns about the high
deductibles and the medical savings accounts, most of which we
are on record for. Would we be up in arms? I don't know. But we
have concerns, and they are based around a number of things.
First of all, the choices that you described that Federal
employees have today, in fact, have been one of the hallmarks
of the FEHBP, that employees have had those choices. Yet, what
we have seen every year is choices have decreased and yet
premiums have increased. So decreasing the choices has not had
the impact on the premiums that some would have hoped.
I think there are a number of issues around the high
deductibles and the fear that employees would enroll in a
program that wouldn't meet their needs, and they would find
themselves later in a situation where they needed to move back
into a traditional plan in the FEHBP. There is that movement
every year now where employees have that choice, and they make
a lot of use it. We know that.
So there are a lot of concerns that we would have and that
employees would have. The fear is that they would be losing
benefits, and that once those deductibles kicked in, where
would the coverage come from? Maybe if there was a formal plan
out there, we would be more than willing to look at it and to
provide specific comments, but as a general rule, yes, we have
a lot of concerns about the high deductibles and the medical
savings accounts.
We would much rather see something that we had started to
work on and have seen the beginning of, the pre-tax flexible
spending accounts that were mentioned by Mr. Moffitt, which now
are available to Federal employees for their premiums only, not
for their out-of-pocket expenses. Expanding that to Federal
employees for their out-of-pocket expenses would be something
that would be very much supported, and Federal employees have
asked for this for years because the rest of the country has
access to that, and yet Federal employees don't.
Mr. Davis of Illinois. Thank you.
Mr. Weldon. The gentleman's time has expired. The Chair now
recognizes the gentlelady from the State of Maryland, the great
State of Maryland.
Mrs. Morella. Thank you. The great State of Maryland. Thank
you, Chairman Weldon.
I want to congratulate us and to congratulate you on your
chairmanship of this important committee. It is one that I have
been on during my 15 years because I think that, if you have a
thriving democracy and a good democracy, you have a good civil
service. I am pleased that you take over the chairmanship at a
time when confidence in public service has been elevated. So
this is a good time for us to move forward with recognition and
encouragement of our public service.
OK, I am going to start off. This is a good panel. I am
going to start off with Mr. Flynn. Nice to see you, and I think
the panel was excellent.
The Center for Studying Health System Change has released a
new study that shows employees nationwide pay lower premiums on
average than those in the FEHBP program. I know that the FEHBP
program has an older age population, as has been mentioned, but
that increases premiums by less than 1 percent, according to
your own data. I wondered if you might comment on that
disparity?
Mr. Flynn. Thank you, Mrs. Morella. It is good to see you
again as well.
We actually have looked at that report. I think the first
thing that I would do is comment on the year-to-year changes
going back over the past 4 years that report comments on. If I
recall it correctly, if you go back over the past 4 years, not
counting the rate increase for 2002, it indicates that Federal
premiums are 8.7 percent higher than private sector premiums.
I might just point to testimony from several of the
witnesses, but actually go back 10 years and say to you that
Federal premiums have increased 72 percent while private sector
premiums have increased 87 percent. So a lot of times it
depends on the time period you are looking at, the particular
methodological assumptions that you make, whether they are pre-
or post-negotiation increases, and so on and so forth.
I think, Mrs. Morella, the point that I would make is
actually whether you looked at 4 years or whether you looked at
10 years, and I've seen actually studies that go even further
which show that the differences are actually narrower, I am
amazed that the figures are as close as they are when you
consider all of the numbers and, as I say, some of the
methodological differences that go into this.
I think what either set of numbers would reflect is a
health care system at large, not just the FEHBP, which has seen
increases over the past 4 years, over the past 10 years, that
are well above the rate of inflation and that, for one reason
or another, we have been largely unable to contain. In that
respect, the FEHBP is no different.
Mrs. Morella. You present the broad-brush looking back. I
guess there is some validity to that. But let me ask you about
an offshoot of that. For the last several months I have been
looking into different ways to try to alleviate the high cost
of the FEHBP plan premiums and to lower costs. One approach was
to lower prescription drug costs by taking advantage of the
number of FEHBP participants. The idea was to create a
programwide drug benefit incorporated into each FEHBP that
employs pharmaceutical benefit managers--I noticed that Mr.
Gammarino had mentioned that--to leverage the Federal
community's large economy of scale. I know that OPM has looked
into this because we have discussed this before. I am
interested if there is any new information that you might offer
about this concept.
Actually, maybe I could just also throw in the idea that
Mr. Gammarino would note that the Blue Cross switched to a
pharmacy benefit manager in its prescription drug benefit and
received significant cost savings. Maybe you could, if I have
time, Mr. Gammarino, comment on whether or not FEHBP should
look at that.
Mr. Flynn. I will try to do this very quickly to give Mr.
Gammarino some time to respond to that as well. You are
absolutely correct, Mrs. Morella, we have had discussions with
you, your staff, and others about the possibility of doing
something like this.
The first thing I would say is that, whether it is the mail
order benefit or prescription drug benefits in general, they
are already largely managed by the 180 health plans that
participate in the Federal Employees Health Benefits Program.
Mr. Gammarino can talk about that design in the Blue Cross/Blue
Shield program.
So the first thing that I want to make sure we are all
clear on is that it is not a situation where we have completely
undiscounted drugs being made available to Federal participants
today versus moving to prescription drugs being purchased in
the aggregate and getting those discounts. It is a question of
the marginal difference between the discounts that are
currently being achieved under pharmacy benefit management
programs versus those that might be achieved through the
aggregation and use of the entire Federal Employees Health
Benefits Program population as one purchasing pool.
It has been discussed already, the experience that we had
with the SAMBA program last year. I think, had that program
moved forward, we would have demonstrated modest savings, but
savings, nonetheless, for those program participants. I think
this is an area that continues to be worth analyzing,
discussing with all the stakeholders. But it does come up
against some of the arguments that you have heard from Mr.
Moffitt having to do with large numbers of health plans
competing with one another through informed consumer choice and
the impact that has on the market as well. It is an area that
we need to continue to explore, but I can't provide you with a
definitive outcome.
Mrs. Morella. OK.
Mr. Gammarino. Yes, I could give you a couple of
observations.
Mrs. Morella. I know my time has expired though.
Mr. Weldon. Go ahead and answer the question.
Mr. Gammarino. Congresswoman Morella, we would not support
a government carveout of the prescription drug program and do
direct contracting. One, philosophically, it is not consistent
with the FEHBP, which is built on a private individual choice
market with individual underwriting.
Two, as a manager of a health plan, I guess my question
would be: Who's managing the shop? Am I doing it or the
government? Clearly, the intent of the FEHBP is that the
private sector manage this.
Third, you are getting at probably a marginal issue. If
price of the products were the only thing driving the trends
that you are seeing, maybe we would all jump on board, but it
would make a marginal difference in the rates you are seeing.
Drug costs today are driven not as much by price as it is by
use and the introduction of new drugs which provide a new
pricing platform in which to start.
Mrs. Morella. Thank you. Thank you, Mr. Chairman.
Mr. Weldon. The gentlelady from the District of Columbia is
recognized for 5 minutes.
Ms. Norton. Thank you, Mr. Chairman.
Mr. Flynn, I note that you say in your testimony--well,
first, let me say that, as you may remember from the time that
President Clinton tried to get us into a national health care
program, there were many of us who thought that the FEHBP might
lead the whole Nation. I don't think a lot of us think that way
anymore, frankly. We are not sure how to lead the whole Nation.
You say in your testimony that the fact that 85 percent of
the eligible work force participate in the Federal Employees
Health Benefits Program attests to its popularity. I wouldn't
take that to the bank. I think people participate because they
are intelligent people, they need health care, and they don't
have any alternative.
I would rather go to the part of your testimony which is
more explorative of ways to make that popularity more than
something that people would almost have to do for their own
sake, rather than risk being here without any health insurance.
That is on page 10, where you say you are exploring ways to
increase health care options available to Federal employees,
thereby increasing competition within the program. This is, of
course, the great savior that we all are looking for.
Of course, we see the opposite trend, for reasons, frankly,
far beyond your control. When it is 245, there were 245, now
180, I know full well that has almost nothing to do with FEHBP,
but with structural problems in health care in our country.
But what some of us were leery of, the notion of opening of
FEHBP to kind of the great unwashed herd out there because we
weren't sure that it wouldn't do anything but drive up rather
than keep what was then fairly stable costs. It is as if the
insurers were afraid that there was going to be some real
government mandate to deal with health care for all the
American people, and it was almost, ``Let us keep these costs
down,'' because the moment that went away, health care began to
rise again. We had a few years of extraordinary stability. I
think it was absolutely artificial.
If we look now at FEHBP, even though, according to your own
records, the demographics don't account for very much of this
hyperinflation, one can't help but look at this average age of
48, for God's sake, for the FEHBP, and 71, the average age for
the retirees, and wonder how much longer you can keep a viable
plan going that way.
I lay that predicate to ask this question, noting what Blue
Cross/Blue Shield has done: Here Blue Cross/Blue Shield has
collapsed its High Option, and if it hadn't, according to the
testimony, then it would have become untenable. It collapsed
probably because the High Option people were people who used
health care most often. So they mixed up their pool.
Is there any way to--and here I am not advising spreading
FEHBP the way we in our wild imaginations thought might be
possible just a few years ago--but is there any way to think
about selective opening of FEHBP to sectors that might have
some incentive to come into such a plan, which in many other
ways may be very efficient, so that we could mix the pool up a
bit and begin to reduce costs the old-fashioned way, by having
a broader pool of those who are insured?
Mr. Flynn. Ms. Norton, that is an extremely interesting
question. Let me preface my comments about it by just simply
mentioning, you mentioned the stable premiums in the FEHBP and
how that was seen as a model or something to sort of move
toward during the debate on health care reform. It has not
always been the case that premiums in this program have been
stable. We were seeing a period of increases that are of great
concern to us now in the late 1980's; 1987, 1988, 1989,
premiums were going up close to 20 percent a year; then in the
late 1970's/early 1980's a similar period of premium increases.
Ms. Norton. So why did it stabilize for those few years?
Mr. Flynn. Well, you know, I guess I should say I am not an
expert in health care policy. I think I am reasonably expert in
acting as a purchaser of health insurance for an employer that
wants to sponsor that as part of its compensation program. That
is actually the avenue of my answer to your question, which is
I would be very concerned about opening this program up to
groups of people who have something other than an employment
relationship with the Federal Government.
This is part of the compensation program. It is in that
respect the same thing that General Electric and General Motors
and other employers offer their employees, and in some cases
retirees, although, as Mr. Moffitt says, retiree health
benefits in this program actually stand unique from what other
employers tend to do. So I would be very concerned about that.
I do think, however, that while I would be very concerned
about opening this up to new groups of participants, I am less
concerned about looking for ways in which we could perhaps open
this up to new groups of health care delivery mechanisms. We
have talked about the exodus of HMOs. We have done specific
things to try to get health plans into the program over the
past several years, but we are limited by the Federal Employees
Health Benefits statute in terms of admitting plans other than
health maintenance organizations.
I think that is an area where, working with the committee,
working with other stakeholders and others who have an interest
in this program, we may very well be able to come to some
consensus about bringing in, for lack of a better term, other
health insurers or health care delivery mechanisms to increase
the level of competition in the program and have the kind of
salutary effect that has been talked about by many of the
people who have given testimony today.
Ms. Norton. Thank you, Mr. Chairman.
Mr. Weldon. The gentlelady's time has expired.
I would like to thank all of our witnesses. It has been
very informative.
None of you really commented on the exodus of HMOs
directly. Am I to interpret that to mean good riddance? Is that
what you are all saying? [Laughter.]
Mr. Flynn. Mr. Chairman?
Mr. Weldon. Yes?
Mr. Flynn. I would be happy to offer just a quick comment
on that. Going back to Mr. Moffitt's earlier testimony, this is
an area where actually GAO came in and did verify that health
maintenance organizations were leaving the program largely
because of business reasons unrelated to the administration of
the Federal Employees Health Benefits Program itself.
Congresswoman Norton mentioned the fact she was not
surprised by the reduction in HMOs because it is largely what
is going on in the national economy. So from that standpoint,
it is something that we can live with, but at the same time it
is something we need to think seriously about in terms of
looking at ways we can enhance competition and give people more
choices as we go forward, because I think that is one of the
strengths of the program.
Mr. Weldon. Again, I want to thank all the witnesses. It
has been a very informative hearing. This hearing is now
adjourned.
Mrs. Morella. Could I ask another question or would you
prefer that I submit the question?
Mr. Weldon. Is the lady asking for a second round of
questioning?
Mrs. Morella. Only if it is amenable to you, because if
not, I will submit it in writing.
Mr. Weldon. OK, well, why don't we just have a second round
of questioning. I think I already took about a minute asking
one question. So let me give myself another 4 minutes.
Under the plan, as I understand it, you have to offer two
plans, correct? If you are in the FEHBP, is that true?
Mr. Flynn. In the Blue Cross/Blue Shield Service Benefit
Plan there are two options required by law, but not all plans
are required to offer two options.
Mr. Weldon. OK. So they can have three options, four
options? There is no limitation on the number of options?
Mr. Flynn. No, I am sorry, I believe the issue is not more
than two options.
Mr. Weldon. Not more than two?
Mr. Flynn. Though the Service Benefit Plan is required to
have two options. This is an area where it might be worthwhile
to discuss whether or not additional options on the part of
participating plans might be warranted. It is another area to
think about, Mr. Chairman.
Mr. Weldon. Would that require a change in statute?
Mr. Flynn. Yes, sir, it would.
Mr. Weldon. OK. If you had that kind of flexibility, would
that have changed how you dealt with the situation you were in
this year, Mr. Gammarino?
Mr. Gammarino. It certainly would have given us more
flexibility. However, the High Option was in trouble.
Mr. Weldon. Now when you say ``High Option was in
trouble,'' the demand was just not there?
Mr. Gammarino. Well, yes, but we haven't mentioned this
word, and that is ``adverse selection.'' That is, you had a
group of enrollees that had significant health care needs. The
pooling of insurance where you have users and non-users really
didn't work too well with High Option. You primarily had high
users and they needed medical care. So the issue of cost for
that group was really not an issue at all. They needed care and
they needed somebody to pay for it.
Mr. Weldon. And that is why the premium, if you had kept
that in place, would have gone up 30-50 percent?
Mr. Gammarino. It was based upon the experience of that
group. In order to continue to underwrite that group and have
the revenues to pay the expenses, you would have had to
increase our rates. Just a reminder that plans like ours are
experience-rated. Our premiums reflect the actual experience of
the group.
So getting back to your question, would we have done
something, we probably would have considered a third option. It
would have been easier. It would have been easier to do. But
the fact remained that the High Option product in terms of
long-term viability had significant issues.
Mr. Weldon. Mr. Flynn, as I understand it, within FEHBP you
can only charge individual or family, and you cannot prorate or
adjust the family rate based on the number of dependents?
Mr. Flynn. Right.
Mr. Weldon. Is that correct? What is going on in the
private sector in that arena? Is that the standard in the
private sector? It is either individual or family, or do they
tend to adjust premiums based on the size of the family and the
number of dependents?
Mr. Flynn. Mr. Chairman, if you would allow me, I would
like to do some confirming back at the office, but there is no
sort of standard out there, but I would say that there are more
health plans that center on the sort of self-plus-family, which
is the family enrollment, without distinguishing in terms of
one spouse, one spouse/one dependent, one spouse/two
dependents, and things like that.
We have actually done some studies of what the effects of
that might be on premiums, and they are sort of
counterintuitive, but I think the dominant practice is still
individual coverage, family coverage.
Mr. Weldon. Mr. Gammarino, in the private sector is that
basically the way it is handled as well?
Mr. Gammarino. Yes, I would agree. I mean, there are
exceptions to that, but primarily the major employers pretty
much have the same type of health plans in terms of family and
single coverage.
Mr. Flynn. Where you do see some differences, Mr. Chairman,
is that there is a larger proportion of employers, private
employers, who will typically pay 100 percent of the self-only
coverage and then ask the individual being covered to pick up
the difference between that and family coverage. Again, that is
not a predominant practice, but you see that more frequently in
the private sector than you do in the public sector.
Mr. Weldon. My time has expired. Mr. Davis, did you have a
question for the second round?
Mr. Davis of Illinois. Yes, thank you, Mr. Chairman.
Mr. Moffitt, I believe you mentioned the fact that we need
to get some new blood or we needed to mix the demographics,
that we needed a different composition. Then I noted that
Delegate Norton mentioned the fact that 58 is an average age.
Mr. Moffitt. Right.
Mr. Davis of Illinois. Are you suggesting in any way that
we need to place more emphasis on factoring in the age of the
population group that we are dealing with or that we need to do
something to shift part of that age group out of the program?
Mr. Moffitt. No. Congressman, what I am saying is basically
expand the program. I think Mrs. Norton actually put her finger
on it. We want to be careful how we do this. A suggestion that
I made in my formal testimony is to expand it to people who do
have a direct relationship with the Federal Government. That
group are young military families who are enrolled right now in
the military health care system. You are talking about between
5 and 6 million people.
Young military families are healthy. Their national
representatives have testified before Congress that they would
like to be in the Federal Employees Health Benefits Program.
But the central value of it would be that it would improve the
actuarial profile of the pool. As a result, it would stabilize
and possibly even bring down premiums and give young military
families access to what is clearly a superior health care
delivery system than what they have got today.
So that is my view, Congressman. I think that there is an
opportunity here and I think we ought to take advantage of it
because we have a large number of people who would, in fact,
benefit directly by having the opportunity to enroll in the
best group health insurance program in the world, despite its
minor flaws.
Mr. Weldon. Would the gentleman yield?
Mr. Davis of Illinois. Yes.
Mr. Weldon. Are you saying dependents----
Mr. Moffitt. Yes.
Mr. Weldon [continuing]. Only?
Mr. Moffitt. I'm not talking about--no, the military health
care system is divided. You have a military health care system
which is designed for military combat, and that is covering
military personnel. I am talking about the program that covers
dependents, which is a different program.
Very frankly, Mr. Chairman, this debate has been going on
for some time internally within the Department of Defense, and
certainly I am sure it is going to go on within this
administration. But Department of Defense officials have
recognized that there is an inherent tension between providing
military services for basically civilians who are dependents of
military personnel and the demands of a combat-ready medical
system.
My argument is that we have a 9 million pool right now that
is rapidly aging, which has an unusually large number of
retirees compared to any other group health insurance system in
the country. We can actually improve that pool by allowing
young military families to take advantage of it.
What I said in my testimony is we can do this in a budget-
neutral fashion. That is to say, let them come in on the terms
and conditions that apply to Federal employees, but allow them
to keep any of the benefits that they would reap by entering
the FEHBP with either pay increases or rebates directly to
those families.
Mr. Davis of Illinois. Well, let me ask Mr. Flynn. Mr.
Flynn, how would you respond, OPM respond to that suggestion?
Mr. Flynn. Mr. Davis, as Mr. Moffitt has indicated, this is
an issue that has been discussed over a number of years and
under a number of different administrations. There are views on
the matter within the Defense Department and within the
administration. I am going to express the view that we have
always expressed when it comes to this program and how it might
serve as a model.
We stand ready at any time and at any place to help people,
employers and others, satisfy the health care needs of their
employees, populations, what have you. But when it comes to
fundamental changes to the nature of the FEHBP, we want to make
sure that we understand exactly what it is we are being asked
to do and what the pros and cons of any such step might be.
I will admit to you that at first blush there are some
attractive notions associated with bringing military dependents
into this program, but I also know, given the discussions that
have gone on for as long as I have been in this job and before,
that there are some very serious issues that need to be
considered, not the least of which is the adequacy of the
military health care system to serve its combat role on an
ongoing basis under such a structure.
So I would simply say that is something else that clearly
should be discussed. I am somewhat fine when we talk about new
blood. I was saying to Director James that if we just hired
500,000 new Federal employees, we would bring premiums down in
a heartbeat. [Laughter.]
But she keeps reminding me that I shouldn't be talking like
that. [Laughter.]
But fresh blood, however it would be characterized, would
have that type of effect on premiums in the long run.
Mr. Weldon. The gentleman's time has expired. The
gentlelady from Maryland is recognized for 5 minutes.
Mrs. Morella. Mr. Chairman, thank you for allowing this
second round.
Mr. Weldon. Yes.
Mrs. Morella. I did want to ask our two gentlemen, Mr.
Mirel and Mr. Moffitt, about MSAs. You both have commented on
being supporters of them, but I just wondered if you are aware
that there was a 1998 CBO report that stated that imposing MSAs
in the FEHBP Program would result in nearly $1 billion in new
costs to the taxpayers and enrollees, and it would siphon off
relatively healthy enrollees. Although it sounds good on the
surface, I think that is a really pertinent point to consider
with regard to MSAs.
I might add another part to the question, too. Is there
anything that you think would stop an individual from so-called
``gaming the system'' by switching to a comprehensive plan
during the FEHBP annual open season in any year that they know
that their health expenses, health care expenses are going to
be higher?
So I put these two points out because I think that it
seemed to us there were problems.
Mr. Moffitt. Congresswoman, they are excellent questions. I
will go first, and Mr. Mirel is chomping at the bit, but he
will have patience, I'm sure. [Laughter.]
The CBO did make that analysis, and I am, frankly, only
superficially familiar with it. So I don't want to comment on
something that I am not thoroughly familiar with.
I think that this is one of those areas where either the
committee or the Congress or the administration should make an
effort to run some kind of a demonstration program in the
Federal Employees Health Benefits Program to find out exactly
what the effect would be of introducing a medical savings
account option, the standard medical savings account option,
like a high deductible plan with a catastrophic piece.
The CBO has said that this will cost money and that there
will be significant adverse selection. The Rand Co. did a study
in 1996; the subject of it was, ``Can Medical Savings Accounts
for the Non-Elderly Reduce Health Care Costs?'' The Rand
researchers predicted that, if all insured non-elderly
Americans switched to MSAs, their health care expenditures
would decline by as much as 13 percent.
You've got a competition here in terms of analysis. I think
we have to study that further. But I would say one way to do
this would be to run a demonstration project of maybe 100,000
or 200,000 Federal employees. Run it for a couple of years and
see how it works.
With regard to the other question you are talking about,
which is the gaming of the system, that goes on now. That goes
on now because neither OPM nor the Congress has yet to address
the issue of adverse selection in the Federal Employees Health
Benefits Program, even though this has been going on, this
debate has been going on as long as I can recall.
I have made a suggestion in my testimony to deal with that,
and that is to vary the contributions among enrollees based on
their age. That is to say, allow underwriting on the basis of
risk, and at the same time vary the contributions of the
government on the basis of that risk, in order to protect high-
cost elderly or high-risk employees against substantial premium
increases. That is an old idea actually. It has been kicked
around by economists, who are familiar with the FEHBP, for many
years, but nobody has ever acted on it.
But what you have got now is an irrational system. You have
a system where, if you are an 88-year-old smoker, as I said in
my testimony, or a 22-year-old jogger, you pay the exact same
premium. So that means that every single time you have an
elderly person enroll in a health care plan and that drives up
utilization or the cost, it is an incentive for younger people
to leave the program. If you would vary the contributions and
allow a rational adjustment for risk, you would actually
improve dramatically the functioning of the program. You would
still have cross-subsidization, but you would be doing it
through the government contribution system rather than trying
to do it through the insurance market.
Mrs. Morella. If I could comment on the demonstration
project, the National Association of Retired Federal Employees
did submit separately a testimony. In looking it over, it
indicates the fact that ``adverse selection and subsequent
premium increases in comprehensive plans occurred when the
plans were offered to public employees in Ada County, ID and
Jersey City, NJ. As a result, the county and city stopped
offering MSAs to their employees.'' So we have had an example
or demonstration program in that regard.
I guess I don't have more time. I will submit another
question to you later.
Mr. Weldon. The gentlelady's time has expired.
Mrs. Morella. Thank you.
Mr. Weldon. The gentlelady from the District of Columbia is
recognized for 5 minutes.
Ms. Norton. This question is to Mr. Flynn, and it is based
on the assumption that the further we get from the present
system in our recommendations, the less likely it is that those
changes will be made by Congresses as diverse as this one. So,
Mr. Flynn, for example, whether we are talking about MSAs or--I
mean, Mr. Souder made this point--whether you are talking about
MSAs or whether you are talking about the government paying the
full cost of Medicare and Medicaid, if it is not within the
pattern, it is not likely to happen.
That is why I am a little disappointed, Mr. Flynn, in your
response to Mr. Moffitt's suggestion because your response was
very much in the box: ``We are a health care plan like GM. We
are an employer. We are set to offer a plan the way employers
do''--even given the fact that you have a very atypical work
force in many ways because it is older and getting older. It is
likely to get older before it gets younger because of what is
happening. Young people are certainly not coming to the Federal
Government. They are going to the dot.coms or wherever else
they go.
I would like to follow Mr. Moffitt's suggestion with even
suggestion on top of Mr. Moffitt's suggestion. Mr. Moffitt's
suggestion talks about young families. I mean, I have gone just
since September 11th to send off young men and women from our
National Guard who are leaving people at home without health
benefits. I think that is a disgrace. Yet, it seems to me this
Congress in a bipartisan way would be more likely to accept
dependents of people going off to fight as a result of our
country being attacked than it is to do some of the other
things that some of us have suggested.
I was going to suggest I like Mr. Moffitt's suggestion,
particularly coming as it does, which drives home the inequity
of leaving people here to take care of themselves with no often
major person who earns the funds. But I would like to go even
further.
What is increasingly happening to the government is that we
contract out much of our business. So I would like to ask,
especially since some of those contractors are virtually
permanent employees, whether you would count at least those
people--at least those people--as Federal employees, since for
all intents and purposes those are Federal employees and are
likely to be far younger than the average Federal employee or
the increasing rise in our work force. Would you accept those
as people that we might look to, even though it might make it
bureaucratically a little more difficult for you to run? Don't
worry, we will study it first. But would you be willing to look
at that as a pool that might bring down the age, diversify the
actuarial pool, and help cut costs?
Mr. Flynn. Ms. Norton, if I conveyed from my earlier
response that we don't want to talk about dependents of
military members at all----
Ms. Norton. That is what I got, sir. I didn't hear you say,
yes, that is something we ought to look at.
Mr. Flynn. Let me quickly correct that. All I simply meant
to say was that there is a long history of discussions of that
we need to take into account. We certainly can continue
discussions within the Defense Department and the
administration on the desirability of doing that.
Similarly, with respect to----
Ms. Norton. See, that is exactly what I am after. I am
asking whether or not somebody is willing to fish or cut bait
on, one, taking care of finding a way to expand health care
benefits and, two, diversifying the actuarial pool of the
Federal Government. What you are telling me is something we
should continue to discuss. That is what we have been doing
every year since I have been on this committee, with inflation
taking away whatever there used to be for FEHBP.
I am asking, is OPM willing to take some initiative in
trying to diversify the work pool by moving this discussion
beyond the discussion phase and seeing if we can come back to
this committee with a proposal?
Mr. Flynn. Ms. Norton, I am willing to take that back and
to get the appropriate people around the table to talk about
it----
Ms. Norton. Thank you.
Mr. Flynn [continuing]. Without question.
The one quick point I wanted to make was the point you made
about Reservists leaving and leaving their dependents behind
without health care coverage. There is a law that affects most
employers. I don't know exactly the title of it, but it is
called USARA. It affects the Federal Government and it affects
private employers.
If individuals are called to Reserve duty and ship out with
their units, employers generally are maintaining health
insurance for dependents. So if they had health insurance when
the call-up occurred, I think generally you are finding that is
going to be continued at least for some period of time.
Ms. Norton. Suppose they didn't. Many of my constituents
did not. If, in fact, the person who earned the income is going
off, it does seem to me that you are going to cover him now
because he is going to be in the Persian Gulf, but his family
is left here with nobody to cover them.
Mr. Flynn. Yes, I don't know--you know, I am not
technically expert in that. If they didn't have it to begin
with, I doubt that the protections of that law would come into
play. But I think for most people who did have it, there are
significant protections for health insurance and other benefits
under that law.
Mr. Weldon. The gentlelady's time has expired.
I want to again thank all of the witnesses for your very
informative testimony.
The hearing is now adjourned.
[Whereupon, at 3:45 p.m., the subcommittee adjourned, to
reconvene at the call of the Chair.]
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