FEHBP modernization plan receives cautious optimism from Hill

Lawmakers are far from satisfied with the White House’s proposals to change the Federal Employees Health Benefits Program.

House Oversight and Government Reform Committee members Thursday wanted more details and data from the Office of Personnel Management before committing to any of the ideas.

Still, committee members expressed the belief that the 50-year-old law creating the FEHBP is in need of a major update.

“The proposal itself is inherently good. Let’s open up the process, let’s recognize that artificial, historic definitions need to be gone,” said Rep. Darrell Issa (R-Calif.), chairman of the full committee, during a hearing of the subcommittee on the Federal Workforce, Postal Service and the Census. “I do believe, although I’m willing to support a law change that would create a regional opportunity and certainly a law change that would create a greater opportunity for nationals [insurance companies] to come in, I believe, as you go back today with your proposals from us, are you willing to go through a process that says, ‘You can only do any of these if there is a finding scored by CBO or found by GAO to be an actual savings?'”

Issa said he’s concerned about false estimates by OPM and that the changes could actually cost the government more in the long-run.

As part of the fiscal 2014 budget request sent to Congress Wednesday, the administration offered up three major changes.

The administration wants to:

  • Open the plan up to regional insurers instead of just national ones;
  • Give OPM the ability to negotiate prescription drug prices through Pharmacy Benefit Managers to take advantage of the bulk buying;
  • Offer domestic partner coverage, called the self-plus-one option;
  • Let employees who are healthier pay lower premiums.

Jonathan Foley, the director of planning and policy analysis for OPM, said the law creating the FEHBP in 1959 has not kept pace with the times.

“Missing from the current mix are regional plans that are widely available in the commercial market,” he said. “If these regional plans were available, FEHBP enrollees would benefit from having greater choices that represent best practices in the private sector, and more closely resemble product combinations to private employees in state and local governments.”

Foley said he wouldn’t open the program up nor contract with every regional carrier. The proposed update just gives them the option if the agency determines it’s in the best interest of the government, the employees and the retirees.

Foley said OPM estimates that, for example, changes to the prescription drug program could save $1.6 billion over 10 years, and the self-plus-one option would save another $5.2 billion over the next decade.

Trust, but verify

But Issa was not satisfied with those estimates alone. He said history has shown that trusting the word of the agency or administration that there are savings isn’t good enough.

He said he would like to see a pilot program demonstrating how the regional preferred provider organizations (PPOs) or self-plus-one or prescription drug changes would work first.

Issa also said he would like to see an independent review from a third party in terms of how much money the government would save.

Other committee members wanted more clarification from OPM on how these proposals would work.

Del. Eleanor Holmes-Norton (D-D.C.) said she’s concerned that OPM is heading into two different directions with these proposals.

Under the prescription drug plan, OPM is trying to take advantage of their large number of members to get better prices. But with the self-plus-one option and the regional PPOs option, it seems as if the agency is losing the value of having a large pool of customers.

Foley said OPM is not creating regional pools, but regional carriers whose prices would be based on the entire federal membership. He said, for example, if a regional carrier just wanted to work in Oregon and Washington states, OPM could require they also offer services in Alaska to ensure carriers are not “cherry-picking” only high premium or low-cost states.

Blue Cross-Blue Shield and the American Federation of Government Employees also questioned the administration’s proposals.

Support from insurance companies mixed

Blue Cross-Blue Shield didn’t support the regional PPOs or prescription drug ideas.

William Breskin, the vice president of government programs for the Blue Cross and Blue Shield Association, said OPM has underestimated the costs of the program and the regional PPOs. He said federal employees and the government would end up paying more — as much as $5.7 billion over 10 years.

He said regional PPOs would make the playing field unfair to national carriers because regional carriers would charge different prices in different states. But the reason Blue Cross-Blue Shield may not have liked the plan is because they would face more competition from companies such as United HealthCare, which supported the regional option.

Thomas Coate, chief growth officer at United HealthCare, said one plan — Blue Cross-Blue Shield — doubled market share to 62 percent from 30 percent of federal workers, while the second largest plan has 7 percent of the market share. He says a 55 percent differential in this market is not a market where real competition exists.

Jacqueline Simon, AFGE’s public policy director, said the problem with the proposals is less about the changes per se and more about OPM’s lack of information or discussion with the union.

“For many, many years, as long as I’ve been involved with advocating for federal employees regarding FEHBP, OPM’s actuaries have told us self-plus-one would actually be more expensive than families with more than two persons. And now, suddenly we are getting different numbers, but we are only getting the bottom line,” she said. “We have not been able to see what kinds of assumptions OPM has used for its calculations for saying, ‘This will cost this, or this will cost that, or this will save this amount of money.’ We really do want to know how they arrived at their estimates for changes in premiums to family coverage, what the premiums would be for self-plus-one and we have been denied that information. We really can’t say one way or another whether this would be good, who would be the winners and who would be the losers until we see how those numbers were constructed.”

AFGE also suggested OPM create an insurance advisory council similar to the salary advisory board to provide feedback and make recommendations on these types of issues.

But despite these concerns, many of the committee members expressed support to change the law.

Rep. Tim Walberg (R-Mich.) said the FEHBP program is seriously hampered in responding to the needs in the marketplace.

“Due to the lack of authority for OPM to entertain scores of new and different insurance products, the program has stagnated. Roughly there are 50 percent fewer carriers participating in the program today than in 1990. Many federal employees and retirees, depending on where they live, have limited options to choose from,” he said. “Many of the latest plan designs and innovations in health care management are not available to OPM as administrator of the plan or federal employees and retirees as participants in the plan. For all these reasons, opening up the FEHBP to greater competition and therefore greater choice will serve the federal government, federal employees, retirees and taxpayers well.”

Walberg said most reforms outlined in the budget request can give FEHBP the necessary tools to increase competition and lower costs.


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