THE FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM

6/13/2000

House Committee on Government Reform Subcommittee on Civil Service

Chairman Scarborough, Ranking Member Cummings, Members of the Subcommittee, my name is Colleen Kelley and I am the President of the National Treasury Employees Union (NTEU). As you may know, NTEU represents more than l55,000 federal employees across the federal government.

NTEU very much appreciates your holding this oversight hearing today on the Federal Employee Health Benefit Program (FEHBP). Like you, NTEU's goal is to insure that the FEHBP provides the nine million federal employees, retirees and their families who rely on the FEHBP for their health insurance needs with the best coverage at the best rates.

The most critical compensation elements of federal employment - pay, retirement and health benefits - have each faced setbacks in recent years that have limited their ability to be competitive with private sector benefits. Attracting - and then retaining - employees with the best skills is a challenge for all employers. If the federal government is going to remain an employer of choice, adequate salaries, stable retirement benefits and affordable health insurance coverage are key components that Congress must address.

As you know, for the year 2000, FEHBP health insurance premiums increased dramatically, rising an average of 9.3%. The year 2000 also marked the largest federal employee pay raise in a decade, an average of 4.8%. Unfortunately, the additional money that ended up in our members' pockets as a result of this pay raise was, in many cases, eaten up entirely by their health insurance premium increases.

And the 2000 FEHBP premium increase was preceded by increases of 9.5% and 7.2% in l999 and l998. NTEU has urged the Office of Personnel Management (OPM) to take steps to stem these increases and to insure the continued viability and affordability of the program. There is little question that the federal government needs to better utilize the size of the FEHBP to obtain a better rate from insurance carriers and health care providers. If premiums continue to rise, we run the very real risk that people will be forced to make the hard choice not to have FEHBP coverage at all. With this in mind, there are several specific issues I would like to discuss further with the Subcommittee.

Prescription Drug Coverage

One of the fastest growing components of FEHBP premiums is prescription drug coverage. While rising prescription drug costs are responsible for health insurance premium increases in the private sector as well, NTEU believes that the FEHBP - the largest employer-sponsored health insurance plan in the Nation - should use its buying power to negotiate discount rates and bring down costs in this area. The resulting savings would be dramatic for both federal employees and the government as employer.

In a positive move in this direction, this year the Special Agents Mutual Benefit Association (SAMBA) FEHBP plan proposed to OPM that it be permitted to purchase discounted drugs from the Federal Supply Schedule for its mail order drug program and pass the resulting savings along to both the federal government and its health plan enrollees. Although FEHBP providers have been permitted to purchase other goods from the Federal Supply Schedule for use in operating their federal health plans, until now, no participating health plan has asked to purchase its prescription drugs from the Supply Schedule.

To OPM's credit, it decided after thoroughly reviewing SAMBA's request, that SAMBA did, in fact meet the guidelines for purchasing discounted drugs from the Federal Supply Schedule. Unfortunately, SAMBA's proposal has met with opposition from the Department of Veterans Affairs, the primary purchaser of prescription drugs from this schedule for use in its hospitals. The VA has expressed concern that the more entities that purchase drugs from the schedule, the likelier it becomes that the pharmaceutical industry will raise its rates in order to recoup lost profits!

Despite the fact that both SAMBA and OPM have estimated that this one move alone will lower SAMBA's premiums by 3 percent - l/3 of this year's average premium increase - the Office of Management and Budget (OMB) has not yet agreed to allow SAMBA to purchase prescription drugs from the Federal Supply Schedule.

NTEU believes that not only should SAMBA's request be granted without further delay, we see no reason why all FEHBP providers who meet the guidelines for purchasing off the Federal Supply Schedule should not be permitted to do so as soon as possible. The potential for cost savings across the FEHBP, both for enrollees and for the federal government, is enormous.

Members of this Committee have repeatedly echoed NTEU's own views that the FEHBP must better utilize its buying power to negotiate discount rates and bring down costs. This could be the golden opportunity we have been looking for. I look forward to discussing this matter further with the Chairman in an effort to eventually permit all eligible FEHBP providers to purchase drugs at these discounted rates.

Direct Contracting for Benefits

It has been suggested that OPM could better use the FEHBP's buying power by negotiating separately for certain benefits with one nationwide carrier. Dental benefits are an example of a benefit that has been mentioned in this regard.

OPM's annual Call Letter to FEHBP carriers points to its interest in further pursuing this avenue as one way to better achieve efficiencies in the program. NTEU wholeheartedly supports efforts to capture the buying power of the FEHBP by contracting directly for certain benefits where that process allows the employee to receive more comprehensive benefits at lower rates.

However, I also want to be clear that NTEU's position has not changed with regard to the employer contribution toward any benefit that may be offered separately from the core FEHB program. It is imperative that benefits currently provided under the FEHB continue to be offered with an adequate government contribution towards those benefits. Exploring the possibility of carving out benefits such as dental insurance can, and should be done, however, NTEU urges OPM as well as Congress to move cautiously in this area. It is possible a move such as this can save both the employee and employer premium dollars, however, NTEU will strongly oppose any efforts to carve out any current FEHB benefit and deny the employee a government contribution toward that benefit. Such a move would not only be an abdication of the government's responsibility toward its employees, it would be counterproductive to current efforts aimed at attracting and retaining the best employees for the federal government.

Medical Savings Accounts

NTEU also wants to bring to this Subcommittee's attention a proposal pending before Congress that has the potential to add dramatic costs to the FEHBP. The Senate version of Managed Care legislation includes a provision requiring Medical Savings Accounts (MSAs) within the FEHBP. NTEU is extremely concerned that the addition of MSAs to the FEHBP could undermine the continued stability of the federal health program.

The hallmark of the current FEHBP is the choice it offers its participants. Annual open seasons permit enrollees to switch plans and options. Combining MSAs with an annual open season would place a serious strain on the program. Enrollees would be tempted to join traditional health plans in years they anticipated high health care needs, allowing their health providers to pick up the costs. Once completed, these same individuals would have an incentive to opt for an MSA during the following year's open season. Once enrolled in the MSA, these same individuals would have an incentive to postpone any necessary medical treatment until the following year when, once again, they could reenroll in a traditional health plan and seek necessary health services.

NTEU is concerned that in a short time frame, premiums for those remaining in FEHBP's traditional plans - primarily the elderly and less healthy - could skyrocket. As a result of increased usage by this group of older and less healthy individuals remaining in traditional health plans and younger and healthier individuals opting for MSAs, premiums could climb out of reach for many lower income federal employees and retirees.

Indeed, the Congressional Budget Office (CBO) has estimated that adding MSAs to the FEHBP would result in approximately $l billion dollars in new costs to the program - costs that will be borne by federal employees as well as the government.

Those who support adding an MSA option to the FEHB program claim that it will expand the choices available to FEHBP participants. What they don't say, however, is that it will surely destabilize the program and insure that premiums can only go in one direction - up. On behalf of all federal employees, NTEU urges you to voice your opposition to this proposal in the strongest possible terms.

Premium Conversion Plans

NTEU is extremely pleased that Premium Conversion Plans (PCPs) will be made available to more of the federal workforce, effective October l of this year. As the Chairman knows, a Premium Conversion Plan permits an employer to set up a mechanism under the Tax Code where an employee's health insurance premiums are paid with pre-tax dollars. Ninety percent of large private employers (those with l0,000 or more employees) and all but one state make pre-tax accounts available to their workforces.

Because FEHBP premiums are already withheld from employee's salaries, extending the Premium Conversion Plan to those portions of the federal workforce not yet participating in this benefit is relatively simple to establish. Moreover, this move puts the federal government on equal footing with other large employers and is another step toward improving the government's ability to compete in the current tight labor market.

Perhaps most important, Premium Conversion Plans will help reduce the out-of-pocket cost of health insurance for federal employees. It may even make it possible for those federal employees currently without FEHBP health coverage, especially lower graded employees, to be better able to afford coverage.

Mr. Chairman, in conclusion, affordable, quality health care is one of the most important issues for NTEU members. We will continue to fight to make sure that the FEHBP is the best it can be and we look forward to working with you toward that end.