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Copyright 1999 Federal News Service, Inc.  
Federal News Service

MAY 13, 1999, THURSDAY


LENGTH: 663 words



Good morning. I thank all of our witnesses for participating in this important hearing. You all are experts on the Federal Employees Health Benefits Program (FEHB). I am sure the subcommittee will benefit greatly from your insights on the impact that OPM's policy guidance for the year 2000 will have on the FEHB and those who rely on it for their health care coverage.
The FEHB is the largest employer-sponsored health benefits program in the nation. Approximately 9 million individuals - federal employees, retirees, and their families - obtain their health care insurance through the FEHB. In the eyes of federal employees and annuitants both, it is one of the most important benefits the federal government provides for active and retired civil servants. Over the years, the FEHB has earned a widespread reputation as a model employer-sponsored health benefits program. Even now, many experts consider the FEHB a model for reforming Medicare.
Nevertheless, we have seen some disturbing developments in the direction of the FEHB in recent years. The development most visible, I am sure, to individual enrollees is the dramatic premium increases in the last two years. During that period, FEHB premiums have increased, on average, by 8.5% in 1998 and 10.2% in 1999. The President's budget appears to anticipate another double-digit increase again in 2000.
We have also seen a trend toward more mandated benefits and increased standardization in the FEHB. This development is a real threat to the FEHB. The key to the program's success has been its market.orientation. Consumers may choose the health plan that best meets their needs from among many competing offerings. That framework has made it possible for both employees and annuitants to receive highquality health coverage at reasonable premiums. Mandates and standardization are incompatible with this approach. Experts have warned this subcommittee thatmandates and overregulation of the FEHB market add costs to the program and reduce consumer choice.
Mandates have both visible and hidden costs. The visible cost, of course, is the added cost of providing the mandated benefit. The hidden cost results from the loss of flexibility that carriers should have to design innovative benefit packages that will be both attractive to consumers and cost effective. When viewed in isolation, however, the cost of providing a single benefit often appears very reasonable. But it is much harder to calculate the hidden, but very real, cost of the loss of flexibility and consumer choice. Each mandate creates its own cost spiral, which in the aggregate is an engine driving up premiums.
As the administrator of the FEHB, OPM also affects premiums and the quality of health care available to employees and retirees through administrative directives other than mandates. For example, directives drawn from the President's so-called Patient's Bill of Rights, such as information disclosure requirements and the right to demand amendments to one's medical records, could well increase costs without providing a commensurate benefit to enrollees. On the other hand, if OPM provides carriers with sufficient flexibility to implement such instructions, their costs may at least be contained.
For these reasons, this subcommittee has a duty to carefully examine the directives promulgated in the call letter. In conducting this examination, I believe the following questions are critical:
1. Does the policy directive address a real problem in the FEHB?
2. Will the directive increase premiums or lower the quality of health care for federal employees and retirees?
3. Will the directive be implemented in a reasonable manner?. The answers to these questions are important to each person who relies on the FEHB, for the carders who participate in the program, and for the taxpayers who shoulder the burden of paying for 72% of FEHB premiums. I look forward to exploring these issues with each of our witnesses.

LOAD-DATE: May 14, 1999

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