ISSUE: FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM (FEHBP)

For 41 years the FEHBP has minimized costs and provided a wide choice of comprehensive health insurance plans to nearly nine million federal employees, retirees and their families. Most health care policy experts say that the FEHBP is the best group health insurance plan in America today and should serve as a model for others.

Since its inception in 1960, the government/employer and the enrollees have shared the cost of FEHBP premiums and thus have shared the cost of health care inflation, unlike other large private sector plans where the employers commonly pay 100 percent of premiums and, therefore, bear the full cost of health care inflation.

LEGISLATIVE HISTORY

NARFE will oppose any proposal that shifts the shared burden of premium costs in FEHBP from the employer to the enrollees. For example, in the fiscal year 1999 Budget Resolution, the House Budget Committee sought to limit annual growth in the government’s share of FEHBP premiums to the consumer price index (CPI). According to a Congressional Budget Office (CBO) estimate prepared in 1997, the federal government would have cost-shifted $400 in added annual cost to federal annuitants and employees in 2002 and more in later years if this artificial limitation had become law. Indeed, federal employees and annuitants would have paid an ever-increasing percentage of premium costs each year FEHBP rate hikes exceeded general inflation as measured by the CPI. The CBO continues to list this indexing proposal in its annual "options book" which receives consideration by key executive and legislative policy and budget staff.

Members of Congress from both sides of the aisle have proposed opening the FEHBP to individuals other than federal workers and retirees. While NARFE does not object to this concept in general, we insist that any proposal to open the FEHBP to the public must include separate risk pools. Separate risk pools are necessary for assessing and adjusting the insurance risk of a new enrollment community. Without the opportunity to study non-federal enrollees in a separate FEHBP risk pool, the introduction of any new community into the FEHBP could result in unanticipated premium increases.

Up to 66,000 Medicare-eligible military retirees were eligible to enroll into FEHBP on January 1, 2000 under a three-year demonstration program included in the fiscal year (FY) 1999 Defense Authorization (P.L. 105-261). NARFE did not oppose the pilot project because military retirees who enrolled were placed in a separate risk pool. Interest in expanding this pilot project is unlikely since military retirees age 65 and older were made eligible for the Pentagon’s Tricare program under the FY 2001 Defense Authorization (P.L. 106-398).

Rep. David Dreier (R-CA) has introduced a bill, H.R. 55, that would allow any individual age 55 to 64 to enroll into FEHBP without separate risk pools. NARFE opposes this legislation.

H.R. 579, a bill introduced by Rep. Elliot Engel (D-NY), would provide FEHBP coverage to dependent parents of federal employees who are not eligible for Medicare or adequate health benefits under another health plan. Although NARFE is sympathetic to this proposal, we are concerned about the added taxpayer costs incurred by extending FEHBP coverage. As a result of such costs, H.R. 579 is unlikely to received serious consideration in the current Congress.

ISSUE: MEDICAL SAVINGS ACCOUNTS (MSAs)

MSAs are plans that combine a high deductible catastrophic insurance policy with a tax-exempt savings account dedicated for health care expenses.

Healthier enrollees tend to gravitate to MSAs because low health care users are rewarded with unspent MSA balances at the end of each year. Less healthy enrollees avoid MSAs because they are liable to pay out-of-pocket costs in the thousands of dollars. As a result, higher health care users congregate in traditional comprehensive plans. This phenomenon is called adverse selection and it forces insurance carriers to raise premiums, cut benefits or both. MSA-inspired adverse selection occurred when the plans were offered to public employees in Ada County, Idaho and Jersey City, New Jersey. As a result, the county and city stopped offering MSAs to their employees.

Others fear MSA participants would delay preventive and necessary care because the plans reward low utilization of health care with cash balances. The medical problem could get worse and result in higher health care utilization than if the patient sought assistance at the first sign of trouble.

In sum, MSAs would fail to save money because of adverse selection and incentives to delay preventive and necessary care. According to the nonpartisan Congressional Budget Office, MSA-inspired adverse selection in the Federal Employees Health Benefits Program (FEHBP) would result in nearly $1 billion increased taxpayer costs over five years. Enrollee costs would also rise. This new billion-dollar cost would be in addition to recent FEHBP rate hikes caused by skyrocketing prescription drug prices and an aging federal workforce.

NARFE opposes the introduction of MSAs in FEHBP.

LEGISLATIVE HISTORY

In 1999, the Senate approved their "Patients’ Bill of Rights," S. 1344, which would require MSAs in FEHBP. With the assistance of Reps. Tom Davis (R-VA), Connie Morella (R-MD) and Frank Wolf (R-VA), the FEHBP-MSA proposal was not included in either the managed care reform or the health access bills, passed by the House in October 1999. Such managed care reform legislation died in the 106^th Congress (1999-2000) because a House-Senate conference committee failed to resolve whether individuals should have the right to sue their health plans, or if patient protections should be extended to plans regulated by state law. NARFE had hoped to embrace proposals to enhance managed care consumer protections. However, we could not support this legislation because it threatened the stability of the FEHBP through the imposition of MSAs.

In the current 107^th Congress, the Senate approved S. 1052, "Bipartisan Patients' Protection Act", on June 29, 2001. The House approved its version of the managed care reform legislation (H.R. 2563), which included President Bush and Rep. Charles Norwood's compromise on HMO liability, on August 2, 2001. Neither bill would require MSAs in FEHBP.

Adding an FEHBP-MSA mandate to the "conference agreement" or final version of the Patients' Bill of Rights would violate congressional rules since neither the House nor Senate-approved legislation would require the costly plans in the federal employee program. However, if House-Senate conferees agreed to waive or ignore such rules, an FEHBP-MSA provision could be inserted in the conference agreement. In addition, while the President’s 2003 fiscal year budget proposes to expand MSAs, it did not specifically suggest that the ill-conceived plans be offered in FEHBP. NARFE will oppose any Patient’s Bill of Rights or other legislation if it mandates MSAs in the FEHBP.

ISSUE: USE OF PRE-TAX ANNUITIES FOR HEALTH PREMIUMS

Federal employees and annuitants pay an average share of 29 percent for FEHBP premiums and the federal government contributes 71 percent. Federal annuitants pay for their share of FEHBP premiums with after-tax funds withheld from their annuities. "After tax annuities" are defined as annuities received after annuitant income taxes are paid.

Section 125 of the Internal Revenue Code presently allows employers in the public and private sectors to permit their employees to pay for health insurance with wages excluded from both income and social security payroll taxes. President Clinton offered this "premium conversion" benefit to federal employees in October 2000 through Section 125. Under this benefit, if a federal employee’s annual share of a FEHBP premium is $1,700, then her reported gross income would be lowered by that amount for purposes of paying personal income and social security taxes. According to the Office of Personnel Management (OPM), the average federal worker will save about $434 a year by lowering their taxable income by the amount of an employee’s health care premium. These so-called "premium conversion plans" are available to most employees of large private-sector companies.

However, federal annuitants were excluded from the program since tax code authority for employers to make premium conversion benefits available to their retirees is not clear. As a result, neither public nor private-sector retired employees participate in Section 125 plans. NARFE believes it is crucial for federal annuitants to receive such relief since they also shoulder the burden of increasingly high health insurance and prescription drug costs. And retirees are particularly hard hit because they live on fixed incomes.

LEGISLATIVE HISTORY

NARFE supported H.R. 4277, legislation introduced in the 106^th Congress (1999-2000) by Representative Tom Davis (R-VA), to allow federal annuitants, and members and retirees of the uniformed services to pay their share health insurance premiums with pre-tax earnings.

Davis reintroduced this legislation as H.R. 2125, in the present 107th Congress and Senator John Warner (R-VA) has sponsored a companion bill, S. 1022.

ISSUE: MANAGED CARE CONSUMER PROTECTION

An increasing number of Americans have entrusted their lives to health maintenance organizations (HMOs), preferred provider organizations (PPOs), provider service networks (PSN) and other managed care plans. Some private and public sectors employers are discouraging enrollment in traditional fee-for-service policies while encouraging the growth of managed care plans. Managed care proponents say that HMOs, PPOs and PSNs are critical to reducing out-of-control health care expenses. In most instances, these plans receive a lump sum or "capitated" payment from enrollees, employers, Medicare or Medicaid to pay for all health care needs of each plan enrollee. As a result, managed care plans make and/or save more money if they provide less care.

Managed care plans that intentionally under-serve their participants have sometimes imposed "gag rules" on health providers used by the plan. Gag rules restrict the ability of plan physicians to provide full disclosure of all relevant information to patients making health care decisions. To reduce services further, plans have been known to offer incentives to doctors who minimize patient hospital stays, restrict emergency room use or limit referrals to specialists. Additionally, the definition of "experimental" treatments has been manipulated by some plans to limit their responsibility to pay for such treatments. Many plans have inadequate grievance procedures in situations where patients appeal the care decisions made by primary care physicians (also known as "gatekeepers"). In sum, some managed care plans take deliberate steps to deny specific health care options in situations where such care is medically necessary and appropriate.

NARFE supports legislation that would provide comprehensive patient protections to consumers enrolled in health plans regulated by federal and state law and would also allow such individuals to sue their plans for wrongful denials of care.

LEGISLATIVE HISTORY

Managed care consumer protections for Federal Employees Health Benefits Program (FEHBP) plans were implemented as a result of an executive order issued by President Clinton on February 20, 1998. Under the executive order, FEHBP plans are required to provide access to specialists and emergency room care, disclose financial incentives and provide continuity of care. An internal and external appeals process for consumers who have grievances with health providers or plans has been developed. And, FEHBP plans are prohibited from imposing gag rules on participating physicians.

Beyond FEHBP, NARFE supports comprehensive consumer protections for the full range of health care plans, including Medicare, Medicaid and employer-sponsored health insurance. The 106^th Congress (1999-2000) failed to approve a "Patients’ Bill of Rights" because of disagreements over such issues as the right to sue health plans and whether consumer protections would be extended to health plans regulated by state law. The Senate-approved managed care reform bill would have required medical savings accounts (MSAs) in FEHBP, but the House bill did not. NARFE opposes the imposition of MSAs in FEHBP.

In the current 107^th Congress, the Senate approved S 1052, "Bipartisan Patients' Protection Act", on June 29, 2001. The House approved its version of the managed care reform legislation, which included President Bush and Rep. Charles Norwood's compromise on HMO liability, on August 2, 2001. Neither bill would require MSAs in FEHBP.

NARFE also favors language in S 1052 tha applies the bill's liability provisions to FEHBP because federal employees and annuitants should receive the same accountable and enforceable protections that other Americans will acquire through the Patients' Bill of Rights and because new costs are likely to be nominal.

ISSUE: MEDICARE REFORM

Medicare "Part A" -- the portion of the program that pays for inpatient hospital costs -- is financed from payroll taxes withheld from current wage earners, converted into government securities and held in the Hospital Insurance (HI) trust fund. Some public policy makers are concerned that the doubling of the elderly population in 35 years and the drop in the number of workers paying taxes to the HI trust fund will place financial strains on Medicare.

Medicare trustees estimated in March 2001 that the HI trust fund would have sufficient funds to pay benefits until 2029. Lawmakers seeking to contain Medicare spending have proposed using the Federal Employees Health Benefits Program (FEHBP) as a model for reform. Under the "competitive premium system" proposed by Senators John Breaux (D-LA) and Bill Frist (R-TN) in the 106^th Congress (1999-2000), Medicare beneficiaries would receive a voucher — or government contribution -- to purchase private health insurance during an annual open season. Beneficiaries could remain in the traditional Medicare fee-for-service program. However, the original program would be required to compete alongside private plans under this proposal.

The dollar amount paid by the government under the competitive premium plan would be determined by a calculation similar to the "Fair Share" formula used to set the employer contribution for FEHBP plans. However, the competitive premium system differs from FEHBP since it does not limit the government contribution to 75 percent. Under FEHBP, enrollees always have to pay at least 25 percent of their health plan premiums. Absent this cap in the competitive premium system, the beneficiary share of Medicare premiums could be zero if enrollees select the lowest cost plans. As a result, the proposed formula could act as a powerful incentive for beneficiaries to enroll in the lowest cost and most basic managed care plans. Since the government contribution formula is weighed to the number of enrollees, a low cost plan that attracts a large share of beneficiaries would reduce the overall dollar amount of the maximum government contribution under the competitive premium system. Consequently, such costs would be shifted to beneficiaries.

Healthy beneficiaries are the most likely to choose the most basic managed care plans because they have the least to fear from such a choice since they are low utilizers of health care. Such individuals trade quality of care and physician choice for lower premiums since they are less dependent on doctors and hospitals. Because these plans are designed to enlist healthier seniors, sicker beneficiaries would tend to remain in traditional Medicare. Absent healthier beneficiaries, costs for the traditional program could increase and Congress might react by reducing or dropping Medicare’s most popular coverage option.

As a single insurance pool, the traditional Medicare fee-for-service plan is affordable and predictable for all beneficiaries because it spreads individual beneficiary health expenses across the full population. NARFE believes that the proposed financing scheme of the competitive premium system could compromise this fundamental principle of group health insurance. Moreover, NARFE is concerned that the creation of a Medicare voucher system could open the program to the cost-shifting proposal that has been repeatedly suggested for FEHBP (see FEHBP fact sheet).

LEGISLATIVE HISTORY

In the current 107^th Congress (2001-2002), Breaux and Frist have introduced a Medicare competitive premium system bill, S. 357. NARFE opposes this legislation because it could undermine the present Medicare fee-for-service program and shift new costs to beneficiaries.

ISSUE: MEDICARE PRESCRIPTION DRUG BENEFIT

The Medicare fee-for-service program does not include prescription drug coverage and nearly 16 million beneficiaries currently must pay out-of-pocket for increasingly expensive drug costs.

While NARFE supports the addition of a Medicare drug benefit, the Association has repeatedly expressed concerns to the White House and Capitol Hill about who would pay for the new coverage (estimated annual cost: $12 to $40 billion). The employer-sponsored health insurance that many older Americans receive --- including the Federal Employees Health Benefits Program (FEHBP) --- sometimes includes prescription drug coverage. Adding the benefit to Medicare could mean that some enrollees would have to pay for the drug coverage twice; first, through their share of employer-sponsored health insurance premiums, and second, through Medicare.

NARFE is also concerned that the creation of a Medicare drug benefit might encourage lawmakers to reduce or eliminate FEHBP drug coverage for Medicare-eligible annuitants.

LEGISLATIVE HISTORY

In the current 107^th Congress (2001-2002), $300 billion (to be spent over ten years) was set aside in the fiscal year 2002 budget resolution for new drug coverage. At that level, a new benefit would only cover about 23 percent of drug costs. Beneficiaries would assume the remaining 77 percent of the program’s expenses by paying premiums, deductibles, copayment and other out-of-pocket costs.

For example, a modified version of a drug benefit, proposed by Senators John Breaux (D-LA) and Bill Frist (R-TN), would require beneficiaries to pay an annual $100 deductible and Medicare would pay 50 percent of drug costs up to a $2,500 annual coverage limit. The modified plan would cap out-of-pocket drug costs at $6,000 a year. Breaux and Frist would further subsidize the coverage of low and moderate-income beneficiaries. The Congressional Budget Office (CBO) estimates that the modified Breaux-Frist proposal would cost $290 billion over 10 years.

The new Medicare drug benefit also falls short when compared to employer sponsored retiree health plan coverage. For instance, it would cost taxpayers $520 billion over ten years if Medicare offered beneficiaries the same level of drug coverage provided under most Federal Employees Health Benefits Program (FEHBP) plans

Most health care policy analysts believe Congress is unlikely to add more money to the current $300 billion set aside for Medicare drug coverage, particularly when a sagging economy, federal spending and the large tax cut are expected to erode the present budget surplus. What’s more, use of the $300 billion allocated in the FY 2002 budget resolution was not set aside exclusively for a new drug benefit. The amount can also be used for other Medicare reforms.

There is also controversy over whether a Medicare drug benefit would be administered by the Centers for Medicare and Medicaid Services (CMS) (formerly the Health Care Financing Administration-HCFA) or private insurance carriers. House Ways and Means Committee Chairman Bill Thomas (R-CA) supports offering the drug benefit through private insurance while Senate Finance Committee Chairman Max Baucus (D-MT), his Senate counterpart, favors a CMS administered program that would be operated by pharmaceutical benefit managers (PBMs).

ISSUE: MEDICARE PART B PENALTY

When Medicare began in 1966, Congress wanted everyone eligible to sign up for Part B so that the premium income would help pay for the program. A penalty of 10 percent per year was mandated for late filing to encourage people to buy Part B coverage at age 65. The monthly premium in 1966 was $3, and the penalty for filing one year late was only 30 cents.

In 2001, the monthly Part B premium is $50, and the penalty for delaying enrollment for one year is $5, nearly 17 times the original penalty. If a person files 10 years late, the penalty is 100 percent, or $50.00 per month, for a total monthly premium of $100.00.

LEGISLATIVE HISTORY

For some time now, Rep. Barney Frank (D-MA) has sponsored legislation that would limit the delayed enrollment penalty to 10 percent, paid only for twice the number of years a person delayed filing for Part B. Under those terms, the current penalty for a 5 year delay would be $5 per month (10% of $50 premium), payable for ten years (twice the 5 year delay).

Congressman Frank (D-MA) introduced H.R. 1177 in the 107^th Congress, with 28 original co-sponsors. The bill amends title XVIII of the Social Security Act to limit the penalty for late enrollment under the Medicare program to 10% and twice the period of no enrollment.

ISSUE: LONG-TERM CARE

Half of all women and a third of all men who are now 65 are likely to spend some time in their later years in a nursing home at a cost in excess of $50,000 year. In a survey of NARFE members 11 years ago, only 12 percent said they would be able to afford nursing home expenses above $30,000 per year. Although this survey is now dated, it remains a fact that absent adequate income or insurance, individuals who need long term care are frequently required to impoverish themselves to qualify for Medicaid nursing home benefits.

Members of the federal civilian and military communities will have a viable alternative to Medicaid beginning in 2002 when NARFE-led legislation, enacted in September 2000, requires that they have access to group long-term care insurance. While premiums for such policies are expected to be 15 to 20 percent below the private market rate, plans could be made even more affordable if policyholders were given an above the line tax deduction for long-term care insurance premiums.

Persons with an immediate or probable need for long-term care insurance are unlikely to meet medical underwriting standards to be written for the new program. Without some medical underwriting, individuals with an immediate or likely need for long-term care could buy such insurance with the intention of collecting benefits shortly after becoming a policyholder. As a result, premiums could become too expensive for the majority of potential subscribers, and carriers would be less likely to participate in the program. Keeping premiums lower than those offered on the private market is key to ensuring adequate participation in the federal/uniformed services program and is essential to its success.

Admittedly, this insurance will not be helpful to individuals who have an immediate or current need for long-term care. For that reason, NARFE supports proposals that would help persons who cannot afford long-term care insurance or have an immediate or likely need for long-term care to receive such services without impoverishing themselves. In addition, NARFE favors proposals that would provide tax relief for family caregiving and other long-term care expenses.

LEGISLATIVE HISTORY

Proposals to provided tax relief for family caregiving and the purchase of long-term care insurance were included in tax legislation that Congress and the White House failed to resolve in the 106^th Congress (1999-2000). Long-term care insurance and caregiving tax relief will be considered by the current 107^th Congress as it deliberates the Bush Administration’s comprehensive income tax proposal.

Legislation enacted in November 2000 to reauthorize the Older Americans Act (P.L. 106-501) created a family caregivers program that will provide respite, home care services, counseling, support, information and referral services to families nationwide.

The Consolidated Appropriations Act of 2001 (P.L. 106-554), signed into law in December 2000, included $125 million in fiscal year (FY) 2001 for the family caregivers program. NARFE supports a 10 percent increase in this and other Older Americans Act programs for FY 2002.

NARFE endorsed a provision in President Clinton’s Health Security Act of 1994 that would have provided home and community-based care to most Americans with an immediate long-term care need. That proposal died when the 103^rd Congress rejected the administration’s health care legislation in 1994. Since then, large-scale long-term care legislation has not received serious consideration on Capitol Hill.

ISSUE: SOCIAL SECURITY GOVERNMENT PENSION OFFSET (GPO)

Legislation was enacted in 1977 to prevent government retirees from collecting both a government annuity based on their own work and social security benefits based on their spouse’s work record. The new law became effective with government employees who were first eligible to retire in December 1982 and later. The law provides that two-thirds of the government annuity offsets whatever social security benefits would be payable to the retired government worker as a spouse (wife, husband, widow, widower). For example, a spouse who receives a civil service benefit of $900 a month based on his/her own earnings applies for a social security widow (er)’s benefit. The widow (er)’s benefit is $500. Two-thirds of his/her annuity, or $600, totally offsets the social security widow (er)’s benefit. He/She, therefore, receives no widow (er)’s benefit from social security.

• There are approximately 305,000 beneficiaries currently affected by the GPO and that number grows by about 15,000 annually.
• The GPO does not apply to survivor annuitants who are not government retirees themselves. There are other exceptions. They are as follows:
• Anyone eligible for a government annuity before December 1982, and who meets the 1977 law requirements (a divorced woman’s marriage must have lasted 20 years; a husband or widower must have been receiving one-half support from the wife).
• Anyone who is a federal survivor annuitant (not a federal retiree). Neither the survivor annuitant’s own Social Security nor the widow’s benefit from the husband’s Social Security is affected.
• Anyone eligible for a government annuity before July 1, 1983, and who received one-half support from the male or female spouse.
• Federal Employees Retirement System (FERS) employees and annuitants, and Civil Service Retirement System (CSRS) or annuitants who transferred to FERS.
• Former CSRS employees rehired beginning January 1, 1984, following a separation of one year or more, are also exempt.
• Effective January 1, 1995, the GPO does not apply to military reserve pensions.
• Anyone over the age of 65, still working for the federal government. The GPO will not become effective until the person retires and begins to receive an annuity.

 

LEGISLATIVE HISTORY

There have been Social Security Government Pension Offset (GPO) bills introduced by various Representatives in Congress for more than ten years. The 106^th Congress attracted 263 bipartisan cosponsors for Congressman William J. Jefferson’s GPO bill (previously H.R. 1217) and 21 bipartisan cosponsors for Senator Barbara Mikulski’s companion bill (previously S.717). This provided significant increase in bipartisan support for reforming the GPO. On June 27, 2000, Congressman E. Clay Shaw (R-FL), Chairman of the Social Security Subcommittee of the Committee on Ways and Means, held a hearing to consider ways of resolving the GPO. At that time, Chairman Shaw committed to revisiting the GPO issue and the need for social security reform when the new Congress convened in 2001.

Congressman Jefferson (D-LA) reintroduced his GPO bill, H.R. 664, on Valentine’s Day, February 14, 2001 with bipartisan cosponsorship of 110 Representatives. It proposes that the two-thirds offset not be applied unless the total of both the Social Security spousal benefit and the government pension exceed $1,200 per month. Senator Mikulski (D-MD) reintroduced her companion GPO bill in the Senate, S. 611, on March 26, 2001, with cosponsorship from 10 original Representatives. Congressman Howard "Buck" McKeon (R-CA) introduced a bill that would repeal the Government Pension Offset and the Windfall Elimination Provision, H.R. 2638, on July 25, 2001, with 27 original bipartisan Representatives. Senator Dianne Feinstein (D-CA) introduced her companion GPO and WEP repeal bill in the Senate, S. 1523, on October 10, 2001, with no original cosponsors. This is the first time that a combination GPO and WEP repeal bill has been introduced in either house of Congress. Congressmen E. Clay Shaw (R-FL) introduced, as part of his "Social Security Reform" bill, H.R.3497, on December 13, 2001 with three original cosponsors. He proposes reducing the Government Pension Offset from the current two-thirds offset to a one-third offset.

Social Security actuaries have determined that the enactment of the Jefferson/Mikulski proposal would increase the OASDI long-range actuarial deficit by an amount that is estimated to be negligible (i.e. – less than 0.005 percent of taxable payroll). Social Security actuaries have determined that the enactment of the Shaw proposal would increase the OASDI long-range actuarial deficit by approximately 0.02 percent of taxable payroll.