Skip banner
HomeHow Do I?Site MapHelp
Return To Search FormFOCUS
Search Terms: patients bill of rights, House or Senate or Joint

Document ListExpanded ListKWICFULL format currently displayed

Previous Document Document 198 of 268. Next Document

More Like This
Copyright 1999 Federal News Service, Inc.  
Federal News Service

MAY 13, 1999, THURSDAY


LENGTH: 3098 words



Mr. Chairman and Members of the Subcommittee: My name is Bobby Harnage, and I am the National President of the American Federation of Government Employees, AFL-CIO (AFGE). On behalf of the more than 600,000 federal and District of Columbia employees our union represents, I thank you for the invitation to testify today regarding our concerns about the Federal Employees Health Benefits Program (FEHBP).
FEHBP is our nation's largest employer-sponsored health insurance plan. It currently covers roughly nine million active and retired federal employees and their dependents. The FEHBP is often touted as a model for Medicare reform, or CHAMPUS reform, or even, at one point, national health care reform.
But from AFGE's long and unpleasant experience with double-digit premium increases, which in many cases have imposed cost increases to workers that have been larger than annual salary increases; the disappearance of popular plans, the unpredictable shifts in benefits from one year to the next, and the lack of meaningful input from our union into what the program should look like, FEHBP seems like anything but a model.
FEHBP has many serious flaws; some are structural, and some are more political in nature. Each of these flaws makes the program more expensive than it should be both for the government and for federal employees andretirees. The reforms AFGE seeks would serve to lower the program costs without reducing available benefits.
This year's average premium increase of 10.2 percent follows a 1998 average premium increase of 8.5 percent. These numbers reflect the average increases of prices charged by plans. The fact that workers are forced to switch into less expensive and less comprehensive plans in response to these sharp premium increases should not be used to obfuscate the facts regarding FEHBP's uncontrolled price inflation. Relief from these skyrocketing FEHBP premiums is an extremely high priority for AFGE.
There are three related problems with FEHBP upon which I would like to focus today. The first is premium inflation. The second is the need to ensure that the Office of Personnel Management (OPM) has the cost accounting information necessary to determine the accuracy of the bills submitted by FEHBP carriers. These accounting standards affect all businesses which sell services to the U.S. government and are an important safeguard which serve to prohibit contractors from over- charging the federal government. The third is the continuing refusal on the part of OPM to permit employee representatives to play a more active role in the annual negotiations with the FEHBP providers over benefits and premiums.Why are FEHBP Premiums Rising So Fast?
In September 1998, when OPM announced the 1 999 premium increases, it exhibited a curious lack of concern regarding the fact that for the second year in a row, federal employees would face enormous increases in their premium costs. Federal employees were simply advised to respond to the higher premiums by switching to lower-cost (and lower- benefit) plans. OPM repeated the health industry's routine bromides and justifications for the increases. The message was essentially that the fault lay with federal employees themselves. Premiums were rising so fast, OPM explained, because we were aging, and using expensive prescription drugs, and using too much mental health care.
Such a line of reasoning raises several questions. Why are prescription drugs so expensive? Why are FEHBP plans charging such high prices for prescription drugs to the largest health care plan in the country? Why do the same drugs cost more here in the U.S. than they do in France and England? Federal employees and others who are forced to pay exorbitant costs for prescription drugs hardly set those prices. Pharmaceutical companies charge what the market will bear, often passing along to American consumers "research costs" which the federal government subsidized in the first place.
In the financial press, we read that Wall Street is putting pressure on health insurance companies and corporate health care providers to bring costsdown and profits up. We read of consolidation in the health care industry which creates the market power for plans to dictate prices. AFGE is forced to ask whether OPM, which is charged by the federal government to negotiate with FEHBP's plans and insurance companies on our behalf, is pressing hard enough to obtain the best benefits at the lowest possible price.
There is ample evidence that when it comes to oversight on government health care spending, the right hand appears not to know what the left hand is doing. A study conducted by the Health and Human Services Department which was publicized in November 1998 found that Medicare spent more than $1 billion per year than it should on prescription drugs. The study compared the prices paid by the Department of Veterans' Affairs and Medicare for 34 often-prescribed drugs. Of course the DVA purchases drugs directly from manufacturers or wholesalers and Medicare has a reimbursement financing system. Nevertheless, the study illustrated that there is no single market price for prescription drugs. Rather, drug prices vary substantially based upon what the seller can force the buyer to pay.
The government is in a good position to negotiate favorable terms for the 38 million Americans who are beneficiaries of Medicare; likewise, it is in a good position to negotiate favorable terms for the more than 9 million Americans who purchase their health insurance through FEHBP.Another reason we have to believe that OPM justification of the health insurance companies' demands with regard to FEHBP premiums are specious is that the very prescription drugs which are blamed for premium inflation are marketed as low cost alternatives to hospitalization and surgery. Many of the most expensive prescription drugs which have been introduced in recent years obviate the need for hospital admissions and minor surgeries, items which have always been at the top of the list of factors driving medical cost' inflation.
The indignities visited upon federal employees and other Americans who were forced into managed care's notoriously restrictive delivery systems appear to have been suffered in vain. The period of cost stability and/or cost reduction as the payoff for fewer choices and less freedom seems to be over, at least for FEHBP. In 1999, the premium increases for several of the largest managed care plans rose much faster, in the case of some local plans in the Washington, D.C. area, at twice the rate of the indemnity plans.
Another specious explanation for rapid and large growth in FEHBP premiums which has been offered by OPM and the insurance companies is that FEHBP is at the mercy of the same forces which have driven up health care costs throughout the country. According to the Health Care Financing Administration (HCFA), real per capita spending on health care has risen by 2.6 percent between 1996 and 1998, and prescription drug spending hasrisen by 6.6 percent. These data reflect prices charged to consumers, not costs borne by pharmaceutical companies or insurance companies. If the claims made to FEHBP's carriers were rising faster than these aggregate rates, there must be an explanation which is unique to FEHBP. Such an explanation has not been forthcoming.

Indeed, in order to purchase health care services for employees on the most favorable terms possible, most large private sector firms do not purchase health insurance the way the federal government does through the FEHBP. Instead, they self-insure and contract with third parties to handle claims administration. It is ironic that the federal government, which runs several of the largest health insurance programs in the nation, including FEHBP, claims all the same problems as those of individual policyholders and small businesses.
Again, it must be remembered that many of the most costly prescription drugs, for example, those which reduce cholesterol, save insurers money by helping patients avoid bypass surgery, heart attacks, and stroke - events which require hospitalization which remains the costliest form of health care.
Studies conducted by the General Accounting Office (GAO) and the Congressional Research Service (CRS) have repeatedly shown that the benefits received by federal employees under FEHBP are inferior to thoseprovided by large private sector employers. Large private employers spend roughly $1,000 more per employee per year on health insurance, and that differential does not represent superior benefits; it represents a superior financing formula.
Federal employees need relief from the skyrocketing premiums charged by FEHBP carriers. The relief can and should come in many forms, but it should include a premium-sharing formula that follows the standards set in large private sector firms, greater scrutiny over the costs allocated to the FEHBP by FEHBP's plans, and an improvement in the terms on which health insurance companies and health plans are allowed to participate in the FEHBP.
Government Cost Accounting Standards (CAS) and FEHBP
Agencies use, or are supposed to use, cost accounting standards to ensure the accuracy of bills submitted by contractors for cost-based and costreimbursement contracts. If cost data supplied by contractors is to be used to negotiate contract prices or reimburse contractors for the costs of their performance, then agencies must be able to verify the accuracy of the cost data through rigorous application of the standards. Estimates about the savings that are generated by the use of cost accounting standards vary. However, some experts use a "rule of thumb"estimate that the government saves 5 percent of applicable expenditures. For example, in an essay which appeared last year in Legal Times, a publication that nobody would ever accuse of spreading union propaganda, Charles Tiefer, a University of Baltimore Law School Professor, and Danielle Brian, executive director of the Project on Government Oversight, wrote that the "5 percent estimate" means that the use of CAS "saves the government at least $7 billion a year."
At the behest of a major FEHBP carrier, a provision was inserted in last year's massive onmibus spending bill that negated for the duration of the fiscal year all cost accounting standards for FEHBP - both those that had been applied to the program as well as those that should have been applied but were not because of administrative indifference. Apparently, carriers contended that complying with cost accounting standards was unduly onerous. It must be pointed out, however, that HCFA and the Department of Defense use cost accounting standards in the administration of Medicare and Tricare/CHAMPUS, often with the compliance of the very same carriers who are protesting the use of cost accounting standards for FEHBP.
This legislative effort short-circuited the normal administrative process for resolving such issues through the Cost Accounting Standards Board, in OMB. Contrary to much misinformation, the Board was not rigidly opposed to any and all changes to the use of CAS by OPM for FEHBP carriers. In fact, theBoard showed great flexibility, granting OPM a last-minute waiver last year for several standards.
As a result of this obscure legislative provision, however, there are now no standards governing the measurement, assignment, and allocation of costs to FEHBP experience-rated contracts. Instead, the government relies on meaningless persuasive tactics to keep contractors' costs down.
The ostensible purpose of this provision was to give OPM and the carriers time to resolve their differences. We understand that very little progress has been made, despite OPM's conciliatory approach, and suspect that the carriers will now seek an additional extension or perhaps even a permanent exemption. We urge the subcommittee to oppose such an effort and instead to encourage OPM and the carriers to seek the assistance of the Board to resolve outstanding issues.
AFGE Seeks a Greater Voice in FEHBP
The current structure of the FEHBP gives federal employees virtually no meaningful voice in the setting of premiums and benefits. This is true despite the fact that FEHBP forces federal employees and retirees to pay on average 28 percent, but at least 25 percent of premiums (and in some cases as much as 45 percent) in addition to substantial out- of-pocket copayments. AFGE would like to work with OPM in the annual negotiation process withFEHBP's health plans so that we can be assured that the terms on which health insurance is made available to federal employees are as favorable as possible.
Working together on ways to keep FEHBP's costs under control seems to us to be natural and appropriate. AFGE has developed an excellent track record working with OPM and other agencies throughout the government as a full partner in implementing new strategies for a "government that works better and costs less. "We believe that AFGE and the federal government have a mutual interest in working together to make certain that the benefits made available to federal employees under FEHBP are of the highest quality at the lowest possible costs.
The annual "Call Letter" from OPM to FEHBP carriers sent out in April 1999 advises plans on the specifics of conforming to the President's Executive Memorandum regarding the Patients' Bill of Rights. Although AFGE is pleased that FEHBP's carriers will be expected to meet these standards, it is significant that neither AFGE nor any other federal union was given the opportunity to express our views and interests regarding what should be included in such a set of quality standards. Interestingly, OPM insisted that the quality standards guaranteed in the Patients' Bill of Rights played no role in causing the enormous rise in FEHBP premiums in the last two years.Indeed, in the current Call Letter, reference is made to a cost of $.25 per enrollee for adherence to the standards.
Quality in health care is notoriously difficult to define. The Call Letter quotes the Institute of Medicine's definition as "the degree to which health services for individuals and populations increase the likelihood of desired health outcomes and are consistent with current professional knowledge." If implementing standards designed to meet these goals cost FEHBP's carriers virtually nothing, are we to conclude that all the plans were already meeting these standards prior to the President's Executive Memorandum? Were all the changes made to comply with the standards cost-neutral?
It seems unlikely that enforceable and meaningful quality standards would cost nothing. Some of the standards include allowing women continuity of care with OB-GYN's through the end of pregnancy and post-partum even if the managed care plan severs its relationship with that provider prior to that time. The referral process for approval for emergency services and access to specialists for chronic conditions are also included in the Patients' Bill of Rights. If FEHBP participants had previously had claims for emergency-room visits denied for lack of adherence to pre-Bill of Rights standards, claims which' would now have to be honored, should this not affect costs?The Call Letter includes OPM's summary of the results of the customer satisfaction surveys it hires the Gallup Organization to conduct each year. Focus Groups conducted by a polling organization are no substitute for meaningful input by federal employees' elected representatives, i.e. unions.
There is no valid rationale for excluding AFGE from negotiations with FEHBP's health insurance carriers on issues ranging from quality assurance to covered benefits to premiums. In the jargon of the health insurance world: We are purchasers, we are consumers, and we are healthcare quality advocates. AFGE has an economic and representational interest in playing a more meaningful partnership role in FEHBP, and we request this Subcommittee's assistance in fulfilling that role.
Recently OPM invited AFGE to a briefing where efforts to establish a plan to make private long term care insurance available to federal employees were described. Representatives from OPM went to great lengths to explain that unions were being included at the very outset of planning. Why? Federal employees would be paying the premiums, they explained, and thus would have an enormous interest in what types of benefits should be made available, what types of restrictions should be included in the contracts with insurance companies, what protections and appeal rights claimants should be guaranteed, among others.If the concerns expressed by OPM are true for long-term care insurance, they are just as true for health insurance under FEHBP. Indeed, AFGE feels that the issue is even more urgent for FEHBP because health insurance is needed by all federal employees, even if at least 25,500 who are currently eligible but do not purchase coverage through FEHBP because they cannot afford it. In contrast, private long-term care insurance is something relatively few federal employees would or should purchase. And even though long term care insurance policies under the President's plan would be paid for entirely by federal workers and thus cannot be considered a "benefit," they would likely cost less than federal workers currently pay for FEHBP.
Far from being a model for others to emulate, FEHBP has several serious flaws. Its financing formula forces federal workers to bear such high costs that 25,500 who are otherwise eligible to participate have no insurance. The government is squandering its own considerable bargaining power by clinging to a structure which forces both it and its employees to pay too much for the benefits we purchase.
The issue of Cost Accounting Standards is but one of many instances where the federal government and its employees, through more rigorous oversight of FEHBP's contractors, could save money without sacrificing needed benefits.Finally, I urge the Members of this Subcommittee to require OPM to grant federal employee unions greater input into the annual negotiations with FEHBP's insurance carriers. AFGE members have a serious interest in making FEHBP the best health insurance plan in the nation, and getting the absolute best quality and most comprehensive coverage for our health care dollars. We stand ready to work in partnership with OPM toward this goal.
This concludes my statement. I will be happy to answer any questions you may have.

LOAD-DATE: May 14, 1999

Previous Document Document 198 of 268. Next Document


Search Terms: patients bill of rights, House or Senate or Joint
To narrow your search, please enter a word or phrase:
About LEXIS-NEXIS® Congressional Universe Terms and Conditions Top of Page
Copyright © 2001, LEXIS-NEXIS®, a division of Reed Elsevier Inc. All Rights Reserved.