FEDERAL EMPLOYEE HEALTH BENEFITS: OPM PROGRAM GUIDANCE FOR 1999 HEARING BEFORE THE SUBCOMMITTEE ON THE CIVIL SERVICE OF THE COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTH CONGRESS SECOND SESSION MARCH 17, 1998 Serial No. 105-132 Printed for the use of the Committee on Government Reform and Oversight a U.S. GOVERNMENT PRINTING OFFICE 9.513 WASHINGTON : 1998 For sale by the US. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 ISBN 0-16-057278-9 PZCOMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT DAN BURTON, Indiana, Chairman BENJAMIN A. GILMAN, New York J. DENNIS HASTERT, Ilinois CONSTANCE A. MORELLA, Maryland CHRISTOPHER SHAYS, Connecticut STEVEN SCHIFF, New Mexico CHRISTOPHER COX, California ILEANA ROS-LEHTINEN, Florida JOHN M. McHUGH, New York STEPHEN HORN, California JOHN L. MICA, Florida THOMAS M. DAVIS, Virginia DAVID M. MCINTOSH, Indiana MARK E. SOUDER, Indian JOE SCARBOROUGH, Florida JOHN B. SHADEGG, Arizona STEVEN C. LATOURETTE, Ohio MARSHALL “MARK” SANFORD, South Carolina JOHN EB. SUNUNU, New Hampshire PETE SESSIONS, Texas MICHAEL PAPPAS, New Jersey VINCE SNOWBARGER, Kans BOB BARR, Georgia DAN MILLER, Florida HENRY A. WAXMAN, California TOM LANTOS, California ROBERT E. WISE, Jn., West Virginia MAJOR R. OWENS, New York EDOLPHUS TOWNS, New York PAUL E. KANJORSKI, Pennsylvania GARY A. CONDIT, California CAROLYN B. MALONEY, New York THOMAS M. BARRETT, Wisconsin ELEANOR HOLMES NORTON, Washington, De CHAKA FATTAH, Pennsylvania ELIJAH E. CUMMINGS, Maryland DENNIS J. KUCINICH, Ohio ROD R. BLAGOJEVICH, Mlinois DANNY K. DAVIS, Illinois JOHN F. TIERNEY, Massachusetts JIM TURNER, Texas THOMAS H. ALLEN, Maine HAROLD E. FORD, Jr., Tennessee BERNARD SANDERS, Vermont (Independent) KEVIN BInceR, Staff Director DaniEL R. Mout, Deputy Staff Director WILLIAM MoscHEtta, Deputy Counsel and Parliamentarian duprrt McCoy, Chief Clerk Putt ScHNLIRO, Minority Staff Director SUBCOMMITTEE ON THE CIVIL SERVICE JOHN L. MICA, Florida, Chairman MICHAEL PAPPAS, New Jersey CONSTANCE A. MORELLA, Maryland CHRISTOPHER COX, California PETE SESSIONS, Texas DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland ELEANOR HOLMES NORTON, Washington, De. HAROLD E. FORD, Jx., Tennessee Ex OFFICIO HENRY A. WAXMAN, California GrorcE NESTERCZUK, Staff Director Garay Ewin, Counsel ‘CAROLINE FIEL, Clerk Cepric HENDRICKS, Minority Counsel apHearing held on March 17, 1998 ... Statement of: CONTENTS Flynn, William E., III, Associate Director for Retirement and Insurance, ‘US! Office of Personnel Management Francis, Walton, consultant and author of “Checkbook’s Guide To Health Insurance Plans for Federal Employees” Gammaring, Steve, viee president, Federal Employee Programs, Biue Cross and Blue Shield Association Letters, statements, etc., submitted for the record Gammarino, Steve, vice president, Federal ‘Cross and Blue Shield Association, prepared statement of .... b a Programs, Blue Flynn, William E., Ill, Associate Director for Retirement and Insurance, U.S! Office of Personnel Management: Breakdown of costs Information concernii Prepared statement Francis, Walton, consultant and author of “Checkbook’s Guide To Health Insurance Plans for Federal Employees”, prepared statement of Mica, Hon, John L., a Representative in Congress from the State of BACE notice .. Information et ing dropped benefits ay 48 42 40 20 59FEDERAL EMPLOYEE HEALTH BENEFITS: OPM PROGRAM GUIDANCE FOR 1999 TUESDAY, MARCH 17, 1998 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON THE CIVIL SERVICE, COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT, Washington, DC. The subcommittee met, pursuant to notice, at 1:05 p.m., in room 2154, Rayburn House Oltlee Building, Hon. John L. Mica (chair- man of the subcommittee) presiding. weresent: Representatives Mica, Pappas, Morella, Cummings, and orton. Staff present: George Nesterczuk, staff director; Garry Ewing, counsel; Caroline Fiel, clerk; and Cedric Hendricks, minority coun- sel. Mr. Mica. Good afternoon. I’d like to call this meeting of the House Civil Service Subcommittee to order. The subject of today’s hearing is Federal employee health bene- fits and OPM program guidance for 1999. This, I will begin with my opening statement and then yield to the ranking member for his comments, and to other Members as they arrive. I called this hearing today so that the subcommittee will have an opportunity to examine the policy objectives of the Office of Person- nel Management which they intend to implement in contract year 1999. These policies are of vital concern to this subcommittee. Approxi- mately 9 million individuals, active and retired Federal employees and their families, rely on the Federal Employees Health Benefit Program for high quality and, hopefully, affordable health insur- ance. OPM’s policies directly affect the quality and cost of their health insurance. Members of this subcommittee and many others were taken by surprise last fall when OPM announced an average 8.5 percent jump in FEHB premiums for 1998. Employees’ shares of the pre- miums rose even faster, increasing on average 15.4 percent. We conducted a hearing of our subcommittee on October 8, 1997, to ex- amine the causes of these increases. Testimony at that hearing re- vealed that those rate hikes were primarily caused by increases in general health care cost. However, there were other factors. Witnesses at the hearing also warned us against overregulation of the FEHB market and exces- sive mandates which brought on additional costs. Both of these ac- tions tend to drive up the costs of health insurance. aM2 The FEHBP is a true success story often cited as a model em- ployer-sponsored health benefits program. This success is primarily due to its market orientation. The program relies on the market forces of competition and consumer choice to ensure both competi- tive premiums and quality coverage. This subcommittee is vitally interested in preserving the FEHBP’s distinctive character which offers our employees and an- nuitants a broad range of options with regard to health care insur- ance. In recent years, however, OPM has used its call letter to man- date that all carriers provide specific benefits. OPM even used that call letter to promote the hiring of former welfare recipients, an ob- jective that is not really relevant to providing reasonably priced ealth care benefits to active and retired Federal employees. [The information referred to follows:]FEHEP Letter US. Offe of Personnel Menagenent cso masteice Propane All Prepaid Carriers ee FEHBP Letter No. 97-9 Date: Maren 31, 1997 Prepsidi9) Fee tor Servicel_} Subject: Annual Call Letter for tbe 1998 Coutract Year : ‘This isthe annual call for proposed benefit and rate changes from plans participating in the Federal Employees Health Benefis (FEHB) Program. As in the past, this call letter states ‘our goals and procedures for the upcoming negotiations. Under $ CFR 890.203(b), requests for the concact term beginning January 1, 1998, will be considered through May 31, 1997. ‘To assure a timely Open Season, we will begin negotiations upon receipt of requests for benefit and rate changes. Specific instructions concerning information required to support requests for rate changes will follow shordy. We will operate under a schedule that will ensure completion of all negotiations (benefits and rates) by August 15, 1997. Guidance on Benefits Public Law 104-204, the Veterans Affairs - Housing and Urban Development Appropriations ‘Act for Fiscal Year 1997, imposes a numberof changes on al health insurance carrer, The ‘guidance below on new benefit coverages includes the effect of this legislation on the FEHB Progran, A. Fee-for-Service Plans We are commined wo providing Federal employees, retires and thes families with high ‘quality, comprehensive and afordable health care, Carirs are encouraged to expand and Strengtien their exiting PPO arrangements andthe servies provided under such arrangements. We also expect carriers wo put in place procedures wo capture dicouns from bils presented, where cox effective to do 30. Likewise, we expect carers to continue to encourage competion among subconzactors to reduce administrative costs ‘As in past years, we will not accept proposals for second options. A proposal for a Point of Service product, discussed under “Common Coverage Issues," will be considered wi ‘existing option only and may not be rated separately.FEHBP Lever 97-9 2 B. Prepald Plans ‘We will accept carrier-initintod benefic changes only to the degree that they reflect changes in the carrier’s community package that we purchase. All prepaid plans must meet our ‘minimum benefit requirements provided in the enclosures. Proposals for service area expansions and/or new rating areas for 1998 must be summarized in your cover Jeter. We will not consider any new rating areas or service area expansions ‘tot proposed in your May 31 submission. Proposals for additional rating areas must also be preseated in your rate submission. C, Common Coverage Issues Mental Health and Substance Abuse Benefits. Title VII of Public Law 104-204, the ‘Mental Health Parity Act of 1996," provides that health plans, including FEHB plans, may not impose anoual or lifetime dollar limits om mental bealth benefits that are less generous than similar limits for other benefits, This change in the law signals ‘an interest in adequate health care coverage for menul illness as a matter of public policy. We encourage all carriers to find ways to take significant steps toward ‘improving access to appropriate bealth care for those suffering from tmental illness. ‘In 1996, we required the elimination of lifetime dollar limits on mental health benefits. Beginning with the 1998 concract year, all plans must eliminate any annual dollar limits 00 benefits for the treatment of mental illness. In addition, while aot required by law, we would like to see movement away from contractual day and visit lUmations and high deductibles to improve socess to appropriately managed care. ‘ANbough plans will be required to remove dollar limits, and we would bope day and ‘ist imitations and high deductibles as well, we do not expect that plane will provide ‘unlimited meatal ealih beoefis. Indeed, we expect that through judicious uelization management, plans can provide a higher level of care at no increase in cot. ‘Accordingly. we will expect these benefit adjustments to be cost meutal across all plan benefits, at no additional premium co to the Program. Coasieratio should be ‘iven to accomplishing this goal cbrough the developenent of preferred provider ‘organizations of behavioral health care providers and inoovatve beaefit design. The ‘Meatal Health Parity Act of 1996 does not apply to benefits for the treatment of ‘cobolism or substance abuse, Maternity Length of Stay. Beginning with the 1998 contract year, and in sccordance with Tide VI of Public Law 104-204, the "Newborns? and Mothers’ Hrealth Protection Act of 1996", the mother must bave the option of remaining in the ‘oepital for at leas 48 bours after a regular delivery and 96 hours after a caesarean elivery. In addition, FEHB plans are expected to provide benefits for maternity ‘admissions for as log beyood the 48 or 96 hours as the inpatient say is medically ecesmay.FEHBP Letter 97-9 3 © Mastectomy admission and length of stay. Similarly, we was! to prevent women ‘who must undergo mastectomies from being required by ther bealth plans to have this surgery on an outpatient basis orto leave the hospital premanurly. Beginning with the 1998 contract year, all FEHB plans must provide a mastectomy patient wit the ‘option of having the procedure performed on an inpatient basis and remaining inthe ‘hospital for at least 48 bours after the procedure © Mammography Screening. Consistent with the President's announcement, the FEHEP will follow the recommendations of the National Cancer Advisory Board on ‘mammography screening. Upon release ofthe specific recommendations, we will communicate them to you by separate leter. © Pre-existing conditions. Most plans in the FEHB Program do not have any pre- ‘existing condition limits in their benefit structures. A few plans have specific limitations that apply oaly to cosmetic surgery or dental benefits. Public Law 104- 191, “the Health Insurance Porability and Accountability Act of 1996," amends the Public Health Service Act to limit waiting periods for coverage of pre-existing conditions. Therefore, beginning with the 1998 contract year, if your plan contains any pre-existing condition limitations, please submit a benefits proposal that eliminates them. ‘To the extent the FEHBP expericnce-rated carriers actuarial projections demonstte an increase io com that would justify addtional premium, we will eoterain rate propor, rebited to any of the following: matzraty length of stay, mastectomy admission and leagth of ‘say, and pre-existing conditions, as described above. To the extent tht thee benefis are ‘ot included in the Prepaid Plan's community package, we will enterain proposals for actuarially demonstrated loadings. © Point of Service Product. Plans may again consider proposing a Point of Service (POS) product as an altruative choice within an existing option. We believe this is aan effective way to encourage people to try managed care with the undersanding that they can still exercise the choice to go outside the network for specific services if they decide to do so. Therefore, we will entertain proposals from both fee-for-service plans and prepaid plans for a POS product. FFee-for-service plans may offer a POS product, and it may be offered on a pit basis ‘within a limited geographic area. Plans that offered a POS product on a piloc basis beginning in 1997 may propose an expansion of that product ino additional seographic areas. Although plans may propose a POS product that requires a positive enrollee election, a rate differential will not be permitted for those electing the POS product. Plans’ POS offerings should specify network arrangements, including gatekeeper provisions, and benefit differentials for in- and out-of-network services. In-nerwork. POS benefits may be more comprebensive than the standard benefit package, exceptFEHBP Lener 97-9 4 {for dental and vision care. Favorable consideration will be based on factors such 8 demonstrated experience with POS product By the sponsoring organization or network manager; presentation of an administrative/opratioral plan that addresses issues such as enrollee and provider education, the interelatonship between the POS ‘product and the ongoing fee-for-service product: and presentation of a plan for ‘evaluating pilot projects and expanding the POS product if itis successful. POS savings must accrue to the FEHB Program. ‘We will consider proposals from prepaid plans to offer a POS product only ifthe plan can demonstrate experience with a private sector employer wbo has purchased the product. AS in past years, we will not accept proposals for second options. A POS product will be considered within an existing option only and may not be rated separately. Prior Coverage Certificates Beginning with the 1998 contract year, you will be required to provide certificates to individuals detailing prioc coverage as required by the Health Insurance Porability and Accountability Act of 1996. As soon as the Department of Health and Human Services regulations are issued we will give you more information about this requirement. Electronic Communication Ta the past year, we have moved away from using the mail communicate with plans tothe ‘extent feasible, We transmited many All Carrier Letters by facsimile only and provided 2ccess to the FEHB Guide and plan brochures on the Ineret. We wish t continue inthis disection, Therefore, this year you wll ned to have inteet capability prior wo the beginning of the preparation of your brochure for this year's Open Season. ‘This capability ‘must include E-mail addresses for key personnel with whom we communicate regularly, ‘Submission of Proposals 7 Requests for benefit changes and clarifications must be in writing and signed by an, authorized contacting official of your Plan. 1 Proposed benefit changes must be precisely described and supported by actuarial pene 7 Benefit changes and clarifications must be submined in a specific format. This format ls mandatory. Specific instructions for submitting your proposed changes and clarifications are included in the enclosures.FEXBP Lener 97-9 5 Proposed brochure language must be submitted with your request for benefit changes and clarifiations. Instructions for submining your proposed brochure language are inched in the enclosure, You must inched language for a *How Benefits Change in 1998" page, as wel as language describing how the proposal affects benefits, ‘exchusions, limitations, definitions and procedures. Your proposed language should be clear and in plain English and explain bow the change wil affect the customer from the customer's point of view. ‘Additional benefit proposal instructions appear in the enclosure. Please note that we have temporarily relocated. Send your proposals to: (Overnight delivery) (Regular mail) USS. Office of Personnel Management U.S. Office of Personnel Management Office of insurance Programs Office of Insurance Programs 1900 E Steet, NW., Room 4416 P.O. Box 707 Washingtoa, DC 20415 Washington, DC 20064 ‘Exaluation of Proposed Benefit Changes ‘We will evaluate your benefit proposal according tothe bealth needs of Federal eorolles, the effectiveness of your utilization and cost controls, the economic consequences of the proposal and the efficiency of your administration of the FEHB conmact. Brochures ‘You will continue to have the responsibilty for producing the actual brochures from agreed ‘upon text provided to you on disk after the conclusion of benefits negotiations. Details of the process to be used in creating that disk are under consideration. 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