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94–904 PDF 2004

OVERSIGHT OF THE FEDERAL EMPLOYEES

HEALTH BENEFITS PROGRAM AND THE FEDERAL LONG-TERM CARE INSURANCE PROGRAM

HEARING

BEFORE THE

SUBCOMMITTEE ON CIVIL SERVICE

AND AGENCY ORGANIZATION

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MARCH 24, 2004

Serial No. 108–170

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

MARSHA BLACKBURN, Tennessee

PATRICK J. TIBERI, Ohio

KATHERINE HARRIS, Florida

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

——— ———

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director/Communications Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON CIVIL SERVICE AND AGENCY ORGANIZATION

JO ANN DAVIS, Virginia, Chairwoman

TIM MURPHY, Pennsylvania

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

ADAH H. PUTNAM, Florida

NATHAN DEAL, Georgia

MARSHA BLACKBURN, Tennessee

DANNY K. DAVIS, Illinois

MAJOR R. OWENS, New York

CHRIS VAN HOLLEN, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

RON MARTINSON, Staff Director

CHRIS BARKLEY, Professional Staff Member

REID VOSS, Clerk

MARK STEPHENSON, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on March 24, 2004 ............................................................................ 1

Statement of:

Blair, Dan, Deputy Director, U.S. Office of Personnel Management ........... 6

Fineberg, Dr. Harvey, president, Institute of Medicine; Charles L. Fallis,

president, National Association of Retired Federal Employees; Stephen

W. Gammarino, senior vice president, national programs, Blue Cross/

Blue Shield; Dr. Scott P. Smith, vice president and chief medical officer,

First Health; and Paul E. Forte, chief executive officer, Long Term

Care Partners, LLC ...................................................................................... 28

Letters, statements, etc., submitted for the record by:

Blair, Dan, Deputy Director, U.S. Office of Personnel Management, prepared statement of ........................................................................................ 9

Davis, Hon. Danny K., a Representative in Congress from the State

of Illinois, prepared statement of ................................................................ 4

Fallis, Charles L., president, National Association of Retired Federal

Employees, prepared statement of .............................................................. 41

Fineberg, Dr. Harvey, president, Institute of Medicine, prepared statement of ........................................................................................................... 31

Forte, Paul E., chief executive officer, Long Term Care Partners, LLC,

prepared statement of ................................................................................... 91

Gammarino, Stephen W., senior vice president, national programs, Blue

Cross/Blue Shield, prepared statement of .................................................. 60

Smith, Dr. Scott P., vice president and chief medical officer, First Health,

prepared statement of ................................................................................... 83

(1)

OVERSIGHT OF THE FEDERAL EMPLOYEES

HEALTH BENEFITS PROGRAM AND THE

FEDERAL LONG-TERM CARE INSURANCE

PROGRAM

WEDNESDAY, MARCH 24, 2004

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON CIVIL SERVICE AND AGENCY

ORGANIZATION,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m., room 2203

Rayburn House Office Building, Hon. Jo Ann Davis (chairwoman of

the subcommittee) presiding.

Present: Representatives Jo Ann Davis of Virginia, Danny K.

Davis of Illinois, and Van Hollen.

Also present: Representative Norton.

Staff present: Ron Martinson, staff director; Chad Bungard, deputy staff director and chief counsel; Chris Barkley and Shannon

Meade, professional staff members; Reid Voss, clerk; John Landers,

detailee; Mark Stephenson and Tania Shand, minority professional

staff members; and Teresa Coufal, minority assistant clerk.

Mrs. JO ANN DAVIS OF VIRGINIA. A quorum being present, the

Subcommittee on Civil Service and Agency Organization will come

to order.

Thank you all for joining us today as we examine the Federal

Employees Health Benefits Program and the very new Federal

Long-term Care Insurance Program.

More than 8 million Federal workers, retirees, and their families

are covered by the FEHBP, and more than 20 million people are

eligible for long-term care insurance. And we want to look at several issues facing both programs.

The FEHBP is widely considered to be a model employer provided health insurance program. Yet there are pressing issues facing the program.

For one, there is the question of whether the cost accounting

standards should be applied to the program and what effect that

might have on Blue Cross/Blue Shield, its largest carrier.

There is also the possible addition to the program of health savings accounts which would allow individuals to use tax-free money

to pay for qualified medical expenses. And I am interested to hear

from our witnesses how they view the impact of HSAs on the Federal health program.

2

We will also discuss the Office of Personnel Management’s longterm vision for the FEHBP, including the number and types of coverages offered, the level of government contributions, and how the

addition of flexible spending accounts is working.

Our other subject is the Federal Long-term Care Insurance Program. Established by legislation in 2000, the Federal long-term

care program is designed to cover injuries or conditions that prevent people from performing the task of everyday life.

While more than 20 million people are eligible for the insurance,

I would like to know how many actually signed up. As of last year,

the number was slightly over 200,000. So I wonder if that indicates

any problem with the Federal coverage offered or whether people

just do not know about the insurance.

There is also the question of whether the long-term care program

should be opened up to more than one carrier. I look forward to our

discussion, and now I will turn to our ranking member, Danny

Davis for an opening statement.

Mr. DAVIS OF ILLINOIS. Thank you very much, Madam Chairwoman.

And I could not think of anything that is more important than

health care benefits, and especially long-term care as people like

myself begin to get older and look forward to the possibility of having that need.

So I want to thank you for holding this hearing because it focuses our attention on two issues that greatly impact the lives of

Federal employees, the Federal Employees Health Benefits Program and the Federal Long-term Care Insurance Program.

A major problem facing Federal employees and retirees is rising

FEHBP premiums. This year, the FEHBP premiums will climb an

average 10.6 percent for the 8 million Federal employees, retirees,

and family members who receive their health insurance through

this system.

Representative Hoyer has introduced H.R. 577 which would help

keep Federal employees’ health care costs affordable by increasing

the government’s contribution to premiums. Currently the Federal

Government pays 72 percent of the total cost of health insurance

for Federal employees and retirees. H.R. 577 would raise this contribution to 80 percent.

Representative Hoyer’s bill has been referred to this subcommittee, but unfortunately no action has of yet been taken.

In December 2003, the Office of Personnel Management Director,

Kay Cole James, announced that OPM had begun to explore health

savings accounts [HSAs], for Federal employees and retirees.

HSAs, also known as medical savings accounts, are tax advantaged

personal savings accounts for unreimbursed medical expenses.

Today I hope to hear what impact implementing HSAs will have

on the FEHBP.

This is the first hearing the subcommittee has held on OPM’s implementation of the Long-term Care Security Act, which was signed

into law in September 2000. This subcommittee spent 2 years debating how best to fashion a Long-term Care Insurance Program

for Federal employees. The debate centered around whether or not

a single long-term care insurance carrier should be chosen to negotiate premiums and benefits on behalf of Federal employees, an

3

employer based group model, all where the multiple carriers would

be able to sell individual long-term care insurance to employees.

That debate has been settled, and I look forward to hearing how

Long-term Care Partners, LLC, which was awarded the long-term

care contract by OPM in December 2001, is implementing the program.

And finally, Mr. Gammarino with Blue Cross/Blue Shield will

testify extensively to why cost accounting standards should not

apply to Blue Cross/Blue Shield. However, I would like to note for

the record that there are many who are not represented here today

that feel that it is financially prudent that cost accounting standards apply to all FEHBP carriers.

I look forward to hearing the testimony of the witnesses, and

again, I thank you, Madam Chairwoman, for calling this hearing.

[The prepared statement of Hon. Danny K. Davis follows:]

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5

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Davis.

Ms. Norton, do you have an opening statement?

Ms. NORTON. Thank you very much, Madam Chairwoman.

Let me thank you for this particular hearing coming at this time,

early enough so that there is some contribution we can make to the

increasing troubles I see with the FEHBP model.

I also appreciate the opportunity to hear about experience thus

far with long-term care insurance.

Madam Chairwoman, it is hard for me with a straight face to

simply come here and criticize the increase in FEHBP premiums,

you know, as we do each year. I know full well that what is happening to FEHBP is part and parcel of the never ending spiral, the

virtual explosion of health care costs above and beyond any other

item in our country.

I do regret that Congress is letting it happen. If we are letting

it happen to virtually everyone, including people in Medicare, I do

not know why I would expect that FEHBP would be any different.

If you look at Federal employees and what we could most do for

them, the single most important thing we could do for them, of

course, would be to increase the Federal contribution to FEHBP,

and that is the single least likely thing to happen.

In fact, employers are doing just the opposite elsewhere. They

are offloading part of the premium or entirely eliminating health

care to their employees, and that will not happen, I am certain, in

the Federal Government, and I am grateful that the Federal Government certainly would not set that example.

But I have to say that the much touted FEHBP model I no

longer tout, and I am not sure exactly what Members have in mind

when they say the way we could cure the health care increased

problems of the country would be to have some giant FEHBP.

It is true that FEHBP gives choice, but I am not clear on what

this model with its 8 million employees does for us on price, and

the only way I think we could ever find that out is to compare our

choice model with other choice models.

I mean, when we are the largest employer in the country and you

still have premiums going up at a rate above 11 percent per year,

that is nothing to write home about. That is something to complain

about, and if that is what we do with a million in our risk pool,

heaven help small employers, even Fortune 500 employers.

So I do not know what the largest pool in the country has

brought to pricing or why it has seemed to invite so little to premium costs.

In that regard, Madam Chairwoman, I will be very interested.

The burden is surely on those who want to add health service accounts to show that somehow such accounts would dare I say

strengthen or even leave in place the FEHBP price structure we

have now. If so, that is counterintuitive to me.

It seems to me that health service accounts may well be the one

way to increase premiums at an even faster rate than they are

going now. If you want to leave the least healthy retirees and

workers in the FEHBP and tell everybody else they can get out and

get the tax advantage, I invite them to get the tax advantage that

is already available to them in the Federal flexible benefits plan,

but don’t where you are likely now to leave Medicare.

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Look, we already have seniors in a number of districts as the

guinea pigs for health service accounts in the country. That is

enough guinea pigs for one time. I do not see why we should add

Federal workers to that select group of Americans to try out this

plan that would seem to work in exactly the opposite way we would

want to work for the great majority.

I do not know whatever happened to the idea that we are all one

community. The notion of community economically starts with insurance, and we put everybody in there. We put the healthy ones

that will never use it, and we put the unhealthy ones that will

never use it, and together we are a community. We are all helping

one another, and, by the way, it makes economic sense.

You break up that idea. You break up the very bottom line notion of health insurance as an economic concept. FEHBP is already

far from living up to its reputation as this grand model. I hope we

do not make it even less of a model by marching forward with

something that will fix it by hurting it.

Thank you.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Ms. Norton.

I ask unanimous consent that all Members have 5 legislative

days to submit written statements and questions for the hearing

record and that any answers to written questions provided by the

witnesses also be included in the record.

Without objection, it is so ordered.

I ask unanimous consent that all exhibits, documents and other

materials referred to by Members and the witnesses may be included in the hearing record, and that all Members be permitted

to revise and extend their remarks.

Without objection, it is so ordered.

On the first panel we are going to hear from Mr. Dan Blair, Deputy Director at the U.S. Office of Personnel Management.

It is a standard practice for this committee to administer the

oath to all witnesses, and if all of the witnesses, both the first

panel and the second panel, could please stand, I will administer

the oath to all of you at one time.

If you will please raise your right hands.

[Witnesses sworn.]

Mrs. JO ANN DAVIS OF VIRGINIA. Let the record reflect that the

witnesses have answered in the affirmative, and you may be seated.

Mr. Blair, thank you for being with us today. We appreciate you

coming back to the committee for testimony, and we look forward

to hearing your comments. We will recognize you now for 5 minutes.

STATEMENT OF DAN BLAIR, DEPUTY DIRECTOR, U.S. OFFICE

OF PERSONNEL MANAGEMENT

Mr. BLAIR. Thank you, Madam Chairwoman. It is good to appear

before the subcommittee. Ranking Member Davis, Ms. Norton, it is

good to see you all this afternoon.

I am Dan Blair, the Deputy Director, and I am pleased to be here

on behalf of the Office of Personnel Management and its Director,

Kay James, to talk about the Federal Employees Health Benefits

Program, as well as the new long-term care program.

7

I am assisted here today by Abby Block, who is OPM’s Deputy

Associate Director for Employee and Family Support Policy, and

with your permission, I may ask Ms. Block to help me with more

technical questions that the subcommittee may pose to me.

Mrs. JO ANN DAVIS OF VIRGINIA. Let the record reflect that Ms.

Block also was administered the oath at the same time.

Mr. BLAIR. Thank you.

First, I would request that my full statement be included in he

written record.

Mrs. JO ANN DAVIS OF VIRGINIA. So ordered.

Mr. BLAIR. I will be happy to summarize.

First, let me talk about the Federal Employees Health Benefits

Program [FEHBP]. You talked about our vision. Our vision for the

program is clear. We intend to keep FEHBP as a model for group

health insurance purchasing in the private sector.

In order to do that, we must maintain or enhance competition,

while at the same time effectively utilizing the purchasing power

of the risk pool that is over 8 million people strong.

Further, to borrow from an ad line, an educated consumer is our

best customer, and we intend to provide access to the best possible

education in order to educate our enrollees.

We recognize the program is frequently cited as a model for the

employer sponsored health insurance program. The program operates under a statutory framework enacted in 1959, which has permitted OPM to contract with multiple health plans to provide coverage for about 81⁄2 million employees and retirees and independents.

The statute specifically defines the categories of plan sponsors

that may offer plans in the program. HMOs may apply from year

to year. New fee-for-service and preferred provider type plans may

not.

Each spring we send our carriers our annual call letter which

highlights particular areas of interest and provides broad guidelines for the upcoming negotiations. We have repeatedly expressed

opposition to benefit mandates by opposing mandates in the call

letters.

Rather, we encourage plans to be creative and responsive to consumer interests, especially in the areas of preventive services.

While enrollment in the program is generally relatively stable,

with no more than a 5 percent fluctuation of enrollees, several

plans have increased their enrollment of late, including Blue Cross/

Blue Shield’s Basic Option, and the National Association of Letter

Carriers MD/IPA Plan, and the Foreign Service Benefit Plan.

Committee members recently spoke to flexible spending accounts,

and in order to increase the value of the employees’ hard earned

dollars and give them greater control over their health care spending, we worked closely with the National Treasury Employees

Union last year to make flexible spending accounts available to employees beginning last July.

We had our first full open season last November, and we are

pleased to report that 123,187 employees are participating in the

program. We have 117,950 accounts for health care, and a little

over 18,000 for dependent care. So the total health care allotments

add up to a little over $193 million.

8

Let me talk for a moment about health savings accounts which

were referenced earlier. HSA’s were made available by the Medicare Modernization Act, which was enacted last year. We estimate

that there are 3.1 million individuals covered under FEHBP who

would be eligible to have an HSA if they are enrolled in a high deductible health care plan.

The principle underlying HSA is to give consumers greater access

to more of their pre-tax dollars for health care. In analyzing how

best to approach the introduction of this new product, we must

carefully consider the advantages of expanding the options available to Federal enrollees, along with the potential impact on the

program overall and on specific groups of enrollees, like Federal

annuitants.

While we believe there is a place for products like HSAs in

FEHBP, our experience leads us to believe that the movement by

large enough numbers of enrollees to raise a concern about the adverse selection is not likely. Rather, we will be providing guidance

on HSAs to the FEHBP plans along with our general negotiating

guidance through our annual call letter.

You also mentioned the cost accounting standards. Let me talk

about that for a moment. The Congress, as you know, has waived

the caps for FEHBP contracts in appropriation acts for fiscal years

2000, 2001, 2002, 2003, and 2004.

Further, Director James exercised her statutory authority to

waive them as well, and we are proposing regulations to waive

their applicability to experience rated contracts. We take these actions with the intent to do everything necessary to preserve the

physical integrity of the program without placing an unnecessary

and very costly burden on the plans that would ultimately be reflected in higher premium costs.

And on a final note, I would like to talk a little bit about the

Long-term Care Insurance Program. We are pleased with the success thus far of the program. More than 200,000 individuals have

enrolled, making it the largest employer sponsored long-term care

insurance program in the country.

We are going to continue to work the Long-Term Care Partners

to inform and educate employees and annuitants about the importance of this insurance for their own security and the future financial security of their families. Choice of plan design and options is

a hallmark of the program. We offer 528 plan designs when combining the various components of the benefits package.

Further, the program is designed to meet long-term demands

with an eye to keeping rates stable over the long haul.

That is my summary of my testimony. I am happy to answer any

of your questions.

Thank you.

[The prepared statement of Mr. Blair follows:]

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Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Blair.

I am going to turn first to our ranking member, Mr. Davis, for

questions.

Mr. DAVIS OF ILLINOIS. Well, thank you very much.

Thank you, Mr. Blair.

In addition to providing long-term care insurance for Federal employees, the Long-term Care Security Act also includes provisions

to help employees who had been placed in the wrong retirement

system.

My question is: what is the status of the retirement error corrections provisions of the Long-term Care Security Act?

Mr. BLAIR. As you remember, that was a provision that was

added during negotiations on the program, and that was an issue

that both the House and the Senate took quite seriously.

I will be happy to provide you with an update for the record. I

would have to go back and look, but I know we have been involved

in making sure that those retirement corrections are, indeed, taking place.

I am reluctant to talk off the top of my head on this, but as I

remember, we did not find many employees who were wrongly enrolled in the retirement system. However, any employee that is inaccurately enrolled does, indeed, face financial uncertainties when

they reach retirement, and so we want to make sure that we get

them in the right system.

Mr. DAVIS OF ILLINOIS. Then I would appreciate it if I could get

that information, the number of people who have been placed in

the wrong systems.

Mr. BLAIR. Certainly.

Mr. DAVIS OF ILLINOIS. And the number of corrections that have

been made, as well.

Mr. BLAIR. Certainly.

Mr. DAVIS OF ILLINOIS. Also, let me ask you. I mean, we continuously talk about the increasing cost of health care. We continue to

see premiums escalating, and this has been the order of the day

now for many, many years. As a matter of fact, we have been talking cost containment in health care, to my knowledge, at least 30,

40 years, or at least as long as I have been involved in it.

Does OPM see any possible daylight or areas that can be pursued

that would continue to provide the kind of coverage that our employees need, but at the same time be able to maintain or to handle

cost as effectively as it can be handled?

Mr. BLAIR. Well, let’s look first at what the cost drivers are. They

are utilization, an aging population, increased pharmacy costs, and

that is due to having a burgeoning number of new pharmaceuticals

on the market. That is a good thing.

We have our population which is seeing its average life expectancy increase. That should be a good thing.

But all of those are going to be cost driving factors, and I think

what we need to do with our program is find out what works best

in the program. And what works best in our program is the competition among plans.

I wish that we had a silver bullet to say that, yes, we would reduce premiums next year by 5 percent, but we do not have that,

15

and as Ms. Norton noted, we reflect the economy at large in facing

increasing health care costs.

We are going to continue to hone our competitiveness in this to

make sure that what cost increases do take place should be the

lowest possible for the enrollees.

Mr. DAVIS OF ILLINOIS. Is there anything that perhaps we could

do in addition to the business model?

I am saying we are obviously interested in the business model,

but are there any things that maybe we could suggest or do with

our employees that might then translate into premium differentials

or reductions on the part of those who provide——

Mr. BLAIR. We do have an emphasis on preventive medicine, and

we do have am emphasis on wellness, and I think that those are

two things that will become more and more essential as time goes

on because we have seen that the benefits of a healthy work force

translate into less cost in terms of the health care plan.

And so if there is anything that we can do with our employees,

it is to promote activities and promote a work force that makes

healthy life style choices.

Mr. DAVIS OF ILLINOIS. And so then as utilization changes, then

that gets factored into negotiations?

Mr. BLAIR. It may be a little bit more complicated than that, but

ideally if you have a healthy work force, you will not have as many

claims, and then less claims would help restrain increasing costs.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Mr. BLAIR. Thank you.

Mr. DAVIS OF ILLINOIS. Thank you, Madam Chairwoman.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Davis.

Mr. Blair, when you were just responding to Mr. Davis, you

made a comment, and I think I heard you right, that you rely on

the competition to keep the premiums down rather than, I guess,

anything else.

I guess my concern is when I look at the charts, I think since

the early 1990’s, or the last 13 years, Blue Cross/Blue Shield has

increased steadily, and the HMOs and the other plans have gone

down. Is there any point you see where this may be a danger?

I mean, is the Director looking for competition? I mean, are we

looking to go to a one source? You know, what is the direction that

OPM is going on this, and does that concern you that it has gone

up so much?

Mr. BLAIR. We want to strike a balance, and I think the balance

that we want to strike is we recognize that Blue Cross/Blue Shield

offers a very competitive product, and we see that because it has

a large number of enrollees, but we also have other competitive

plans as well.

We want to keep those plans in the FEHBP. We want to make

sure the competition is strengthened. We want to keep the HMOs.

I remember a point, 10, 12 years ago, maybe longer than that,

when there was a perception there were too many plans in FEHBP,

and that there possibly could be too much competition.

I think the question is how to reach the right balance. Remember

that by Blue Cross/Blue Shield being so large, they reach economies of scale, and they can offer their competitive product that

16

way. We do not want to favor one plan over the other, however,

and we want to encourage the other plans to be just as competitive.

And so if we are constantly pumping up one side, you have to

keep the other side up, and it is a balancing act, and I think that

is what we are going to have to maintain. One of the hallmarks of

the program has been choice, and we want to keep that choice, and

we have a commitment to that choice.

And so it is going to be an effort over the long haul to make sure

that we keep competition and choice in plans intact.

Mrs. JO ANN DAVIS OF VIRGINIA. Does it concern you? When I

look at the chart in 1990, Blue Cross/Blue Shield was 39 percent.

Other fee-for-service plans was 35 percent. Today Blue Cross/Blue

Shield is 53 and other service plans are 22.

Does that direction concern you at all?

Mr. BLAIR. I would not say it concerns me. Maybe, on one hand,

you could argue that size can pose a problem. On the other hand,

is that showing that they are offering a very good benefit, and Federal employees and annuitants and enrollees are recognizing that?

I just want to make sure that we are offering the best product,

and so I would say it does not concern me, but it is an important

trend to watch.

Mrs. JO ANN DAVIS OF VIRGINIA. Do you think the fact that people have heard of Blue Cross/Blue Shield as opposed to maybe

some of these other plans makes a difference?

Mr. BLAIR. It could make a difference.

Mrs. JO ANN DAVIS OF VIRGINIA. When I sold real estate name

made the difference.

Mr. BLAIR. Pardon?

Mrs. JO ANN DAVIS OF VIRGINIA. When I sold real estate name

made the difference. Does Blue Cross/Blue Shield make the difference?

Mr. BLAIR. Well, I think it could make a difference, but at the

same time, if you are a member of the National Association of Letter Carriers, you may come into the Postal Service and decide I

want to go with my union plan, or if you are a member of the

American Postal Workers Union, I may want to go with my union

plan. So that can be influencing, too.

What I said earlier though is we will make sure that our consumers are educated and that name recognition is important, but

you need to go beyond the name recognition. And an educated consumer does make the best choices. That has been one of the initiations that we want to see that we educate our enrollees to make

the best choices for themselves.

Mrs. JO ANN DAVIS OF VIRGINIA. I agree with that. Choice should

hopefully keep the competition going and keep the cost down.

On the HSAs, a lot of people when I talk to them, they say that

the HSAs are much more attractive to the younger employees who

view themselves as healthy, and that the fee-for-service plans and

the HMOs will be more attractive to your older employees and annuitants who consider themselves more at risk.

Assuming that is so, how can the detrimental effects of adverse

selection in the FEHBP program be avoided if the HSAs are readily

available to the healthy or less at risk?

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Mr. BLAIR. I am not so sure I agree with the assumption, but

even if it does occur, I think we need to look at the experience we

have in what we call our consumer driven plans now. Some have

voiced concerns that these so-called consumer driven plans will exacerbate adverse selection.

We have seen those consumer driven plans. It’s the ATWU plan.

Abbie, if you could.

Ms. BLOCK. AETNA and ANGINANA.

Mr. BLAIR. Yes, there were three plans. We have not seen a mass

migration to those three plans. We have 13,000 enrollees in those

plans out of 4 million. Overall, Federal employees, I think, are not

a group that goes for uncertainty; that’s the case with HSAs being

a new product on the market, and I think that should it ever be

offered, it will certainly fill a market niche.

However, I think I do not share the view with those that say that

this will lead to great adverse risk, the adverse selection. Rather,

I see it as filling a market niche should it ever be offered.

Mrs. JO ANN DAVIS OF VIRGINIA. Should the assumption be a

true assumption, does OPM have safeguards in place to modify the

program?

Mr. BLAIR. We would be very concerned over any adverse selection taking place. We do not want to see that happen either, and

so I think we all start from a common premise that, should it ever

be offered, that it be offered within the context of making sure that

we minimize any kind of adverse selection.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Blair.

Ms. Norton.

Ms. NORTON. Thank you very much, Madam Chairwoman.

That was an amazing response, Mr. Blair, that you just gave to

the Chair. I take it that you who have nothing to do with the control of market mechanisms, you who have nothing to do with the

choices that employees make would somehow make every effort to

make sure adverse selection does not occur as a result of the availability of health service accounts.

Let me be specific. You are right that we ought to look at the

evidence, and, sir, I submit to you that the Medicare bill is now in

the process of providing us some evidence that ought to be instructive to us.

You, of course, recognize that it is counterintuitive, maybe even

counteranalytical, to say that if you offer a more attractive package

for younger people with a tax advantage to it that you almost seem

to be saying you hope they do not take it because you are saying

thus far, of course not with health service accounts, but what we

have for the tax savings accounts we do have, there have not been

a lot of people who have taken it.

So you are asking us to believe that if you split up, if you take

away the one advantage that FEHBP has, I mean, because I have

been unable to find what these other ones are, but there is this

very large risk pool. Everybody fits. If you take that away, split it

up, my question to you is: are you willing to say that on the basis

of whatever evidence you are wiling to offer that you do not believe

that splitting the risk pool up into various sections, particularly

health service accounts, HRAs, and everybody else who cannot posVerDate 11-MAY-2000 11:39 Aug 19, 2004 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 D:\DOCS\94904.TXT HGOVREF1 PsN: HGOVREF1
18

sibly eliminate the risk of going in, that would not have an effect

upon those left in FEHBP?

Are you willing to say that there would be no effect in a greater

or higher or more rapid increase in premiums if we opened the

doors and said, ‘‘OK. Everybody wants an HSA. Just come on in?’’

Mr. BLAIR. I am not saying that we are splitting up the risk pool,

that HSAs would be part of that whole risk pool that enrollees will

be able to access. I think it will fill an important niche, and what

you are saying is that you are going to see a mass migration to

HSAs.

Ms. NORTON. I am not saying that. I am saying how can you say

anything about the migration. Are there not incentives, as the

Chair said, for younger people——

Mr. BLAIR. Well, you are presuming that they will take those incentives.

Ms. NORTON. Yes, and you are assuming they are not.

Mr. BLAIR. I do not——

Ms. NORTON. And you are assuming they are not, and based on

the way in which people respond to tax incentives, I do not know

why your assumption is better than mine.

Mr. BLAIR. Well, I do not want to get into that, but I will say——

Ms. NORTON. Well, the burden is on you to justify the notion.

Mr. BLAIR. I will say——

Ms. NORTON. That it will have no effect and we ought to just be

quiet.

Mr. BLAIR [continuing]. It is a new product, and as a new product, it does not have a track record yet, and without that track

record——

Ms. NORTON. So what are you willing to do to safeguard?

In case premiums go up and you have already offered this new

product, what are you going to do to safeguard FEHBP as we now

know it?

Mr. BLAIR. I think that we will do everything that we can to ensure that adverse selection does not take place.

Ms. NORTON. Yes, and you have to be more specific than that.

What is everything that you can?

Don’t you think if you are going to do something as radical as

introduce a product that could lure people away from what has

given FEHBP what it has now to keep price down; don’t you think

you have a burden to say what everything you do, in fact, amounts

to?

I am asking for specifics, Mr. Blair.

Mr. BLAIR. What I am saying is I do not see——

Mrs. JO ANN DAVIS OF VIRGINIA. Well, Ms. Norton, let him answer the question and maybe we can get somewhere.

Ms. NORTON. Well, he keeps saying everything—you know what?

I am trying to make myself perfectly clear, Madam Chairwoman.

I want to know specifically what he means by everything we can

do. That is just an insult to keep coming back with same thing.

That is why I keep interrupting him.

Mrs. JO ANN DAVIS OF VIRGINIA. Do you have safeguards in

place?

Ms. NORTON. Give me some any things you could do. List them

for me.

19

Mr. BLAIR. Well, let me just say this. I do not see the Federal

populations as following the pied piper.

Ms. NORTON. So you are not listing them. You are saying they

are not going to do it. I said list them for me, Mr. Blair. You said,

‘‘We are going to do everything we can do.’’ Give me one.

Mr. BLAIR. One thing would be to review benefit designs in all

the plans to make sure that adverse selection is not taking place.

Ms. NORTON. So after you review them, what do you do if adverse selection is taking place and you have already offered health

service accounts out there?

Mr. BLAIR. Then we will start looking at how to redesign those

benefits out there.

Ms. NORTON. Oh, my God. But it is already out there.

Mr. BLAIR. Remember we re-enroll every year.

Ms. NORTON. The toothpaste is out of the tube then, Mr. Blair.

It is out of the tube. Are you going to put it back in the tube and

say to all of those young people who are trying to save money that

I am sorry we are not going to do this any more? We are going to

cut it off?

Mr. BLAIR. I think that you are talking about a premise that

there is going to be a mass migration out there, and what I am

saying is I think that it will fill an important market niche if offered.

Ms. NORTON. No. 1, Mr. Blair——

Mr. BLAIR. And you are presuming that they are going to be offered. The Director has not made a decision on this issue.

Ms. NORTON. No. 1, Mr. Blair, and this will be the last thing I

have to say, Madam Chairwoman; No. 1, Mr. Blair, you have not

come forward with anything resembling a basis for saying that

there will not be adverse selection, No. 1.

And, No. 2, I assume——

Mr. BLAIR. I said based on our experience with the consumer

driven plans, we have seen 13,000 enrollees go to that, and what

we are saying there is that if you look at that as a test for HSAs,

we have not seen mass migration to those.

They definitely fill a market niche. That is what the FEHBP is

about, being market driven, and I don’t know why we would want

to deny a very popular product out there. You are posing it as an

either/or question. It is either in this basket or this basket.

I am saying it is a balancing act, and it is a balancing act every

year that our folks go through.

Ms. NORTON. What do we get by the balance? What do we get

by the balance?

Mr. BLAIR. You need to strike a proper balance between offering

attractive market rates, attractive benefit designs, while keeping a

broad risk pool. That is a balance.

Ms. NORTON. And if, in fact, these assumptions do not work out,

you will do all you can for all of the rest of the employees who are

left in that pool, and whatever that is, you cannot quite tell us at

this time.

Mr. BLAIR. We have a pretty good track record of maintaining

that balance thus far.

Ms. NORTON. You do not have a pretty good track record of keeping premiums down.

20

Mr. BLAIR. Better than the private sector.

Ms. NORTON. Is that your standard?

Mr. BLAIR. Better than any other governmental——

Ms. NORTON. You ask Federal employees what they think of that

standard. What is the increase in the private sector, on average?

Mr. BLAIR. The average increase——

Ms. NORTON. For large employers.

Ms. BLOCK. The average increase last year was considerably

higher than ours, and I do not want to give you an incorrect number.

Ms. NORTON. Yes, well, you give me some numbers and then—

do not make general statements here that you are not prepared to

back up.

Thank you, Madam Chairwoman.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Ms. Norton.

And just for the record, I think there are assumptions being

made on both parts, on our part, as well as the witnesses, but I

am wondering, Ms. Block, since we swore you in, do you have any

examples of maybe some things that you have done in the past

when there have been new programs and you were concerned about

what was going on? Do you have any specific examples?

I think what Ms. Norton was trying to get to: do you have any

specific examples of what you have done to try and head off the

problem?

Ms. BLOCK. Yes, and I think if I may just say something preliminary to that, we do not have a single risk pool in the FEHBP program now. We have various types of plans with various delivery

systems. And some of the concerns being expressed now about

HSAs were expressed in the 1970’s about HMOs when they first

became an important new product in the market.

And there was great concern that younger employees were going

to enroll in that type of plan, and the premiums tended to be lower

than in the fee-for-service plans. And that has over time certainly

leveled out and has not posed a major problem in the program.

But as Mr. Blair mentioned, one of the things that we always do

in the negotiation process is look at overall benefit design and balancing benefit design so that there is not one type of plan that is

unusually more attractive to one group of employees than another

type of plan. And it is an ongoing process that is in place all the

time of trying to strike that balance, as Mr. Blair suggested.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Ms. Block.

Mr. Van Hollen.

Mr. VAN HOLLEN. Thank you, Madam Chairwoman.

I think we have covered the health savings accounts issue pretty

well. I just do want to add my voice to the concerns that have been

expressed.

And I want to note that when CBO looked at Senate bill 2230,

the Patient’s Bill of Rights legislation in the 105th Congress they

concluded that, ‘‘offering high deductible health insurance with

MSAs to Federal workers and annuitants would increase FEHBP

premiums for comprehensive plans by siphoning off relatively

healthy enrollees into MSAs. Higher premiums for comprehensive

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rollees.’’ That was CBO, which as we all know is a nonpartisan

agency.

So I do think it is critical that we monitor this issue. I share the

concerns that have been expressed, and I do think that before you

really open it up, you should put in place some specific criteria.

Whatever red flag it is going to be we know in advance, you know,

what steps are going to be taken so that we don’t have a problem

on our hands and then later figure out that we are in the middle

of a problem.

Mr. BLAIR. I did not want to leave everyone with the impression

that this is a foregone conclusion because it certainly is not. In the

spirit of discussion that we just had, I would like to just say that

the Director understands the concerns expressed about adverse selection. No one wants that to take place.

Keeping that in mind, we will move forward. We will be keeping

stakeholders, this committee, and others informed.

Mr. VAN HOLLEN. No, I understand you do not want it, and I am

not an expert in this area. So all of us have to rely on people who

are expert, and the CBO experts who looked at this very same

issue just a number of years ago concluded that you would very

likely have adverse selection, and that would have an impact on

the premiums of other people.

So I just think that we have to understand clearly what we are

getting into, and if you do proceed down that road, have in place

in advance some kind of system that you can detect a problem

early on and take action.

During the consideration of the prescription drug Medicare bill

that was passed last year, you may recall Congressman Tom Davis

from Virginia offered a piece of legislation on the floor. It was actually right after the House had passed its version, making clear that

there should be no adverse impact on prescription drug benefits

provided to Federal employees under FEHBP going forward.

That provision was never included in the final package. My question to you is: what impact, if any, do you foresee the prescription

drug Medicare plan having on prescription drug benefits under

FEHBP now or in the future?

Mr. BLAIR. At this point I do not think we see any impact, especially for this upcoming year, but it is still too early to tell. Remember we issue our spring call letter advising the carriers what the

plans may look like, but I do not anticipate any impact from that

legislation this year.

Mr. VAN HOLLEN. I mean, the purpose of that piece of legislation

by Tom Davis of Virginia was not just for this year, but it was to

ensure protection going forward, that this wouldn’t have any impact on the package of prescription drug benefits.

Can you say categorically that it will not impact the benefits

going forward?

Mr. BLAIR. I do not want to fall into that trap, but I would say

that we are going to do everything we can to continue to offer a

very competitive package to both current employees and annuitants, and we will do everything that we can to make sure that

the program continues as a model.

As bumps come down the road, as Congress makes changes in

laws, we are going to have to deal with that, and we understand

22

that and we know that is our job. The bottom line is that we want

to offer the best product we can to our enrollees and the annuitants, and we intend to maintain that course.

Mr. VAN HOLLEN. All right. Well, I know the chairman of the full

committee and maybe the chairman of the subcommittee agrees

that the best protection of course, would have been the actual inclusion of that piece of legislation that was supported by, I believe,

everybody here on this panel, and so I hope we will continue to

pursue and I intend to work with others to pursue that, to insure

that protection is there going forward.

Let me just close with a question regarding the Long-term Care

Insurance Program because in your testimony, you noted that

while the enrollment of over 200,000 members is significant, we believe the program has even greater potential for increased participation. What do you intend to do; what are your current plans for

trying to better educate the people who are eligible to participate

in the program about the benefits?

Mr. BLAIR. Congress recently broadened the eligibility to include

deferred annuitants, Grey Reservists, some D.C. government employees, and we also have new hirees coming into the government.

Our efforts are going to be focused on those new folks to make sure

that they understand what the product is that we’re offering, what

the benefits of that product are and why it is important to them.

Two hundred thousand may seem low to some people, but actually that is something of which we are quite proud. With that, we

are now the largest long-term care insurance offeror in the country,

and we should be. With a relatively new product we had some

startup difficulties. We could not get individual home addresses or

things like that because of privacy concerns. We had to focus our

education efforts in the work place, but we were proud that we

were able to get that to the 200,000 folks.

And we are going to continue. We see the retirements in the Federal Government, new people coming in. There is a new pool of potential applicants, and we are going to go for them as well.

Mr. VAN HOLLEN. If I might, Madam Chairwoman, specifically,

I mean, do you mail out to the new potential enrollees? What specific steps are you taking?

Mr. BLAIR. If they would request a package, I think that we

would. What we do is we make sure that their H.R. offices in the

various agencies make this kind of information available. We will

make sure that it is available to them in the community role.

When you become a new Federal employee, you have the ability

to enroll in the Federal Employees Group Life Insurance Program,

the health benefits program. We make sure that the long-term care

program is offered to them as well.

Mr. VAN HOLLEN. Thank you.

Mr. BLAIR. The Long-Term Care Program is part of our standard

package of benefits.

Mrs. JO ANN DAVIS OF VIRGINIA. Are you satisfied with the

200,000?

Mr. BLAIR. We would have liked to have seen more, but I am told

that this exceeded the normal participation rate when offered in

the private sector, and if you look at it, you have to understand

that not a lot of people understood the product and maybe that was

23

an education issue. If you read Consumer Reports, if you read the

other consumer articles, they are saying most people should not

look at it until their 40’s or 50’s, and so we do have a good population to draw from within the Federal Government. But remember

we also offer into the Uniformed Services. They tend to be much

younger than that.

In the Postal Service we did not see the participation rates within it that we would have liked to have seen. It is a new product,

and most people do not even think they are going to need to use

it. You do not see it widely enrolled in out in the private sector either, and so I think it is going to be an effort on the part of baby

boomers and beyond to make sure that we are well protected when

we confront what can happen to us as we grow older and have

health care challenges.

And again, I think in 15, 20 years, you are going to see it much

more standard than you do now. It is interesting. They call it a

new product, but it has been offered since the 1970’s, but you just

have not seen it widely offered throughout the country.

We offered our product with an eye toward keeping rates stable

for the long term. Some folks thought that our rates were a little

bit too high. I would have liked to have seen them lower as well,

but when we set our rates, we did so according to the National Association of Insurance Commissioners’ rate setting policies, and

now we are seeing other competitors out there having to do the

same thing.

Our rates are looking much more competitive than they were,

and they were still about 10 to 15 percent lower than what you

could find in the private sector.

I think the most important piece of this is that our rates are

going to stay stable. As I enrolled as a 44 year old, I can be certain

that my rate was designed to be the same as when I am 60 or 70

or hopefully 80 years old, as I bought inflation protection, and I am

very pleased with the product. I think I certainly did the right

thing.

Mrs. JO ANN DAVIS OF VIRGINIA. What about the 60 and 70 year

olds, our retired folks? What are you seeing in their enrollment?

Mr. BLAIR. You know, for some I think that it is a very individual choice. You have to look at a whole host of factors to see if this

is something that you really need or not. If you have the money

to cover these long-term care costs, you may not need the insurance.

On the other hand, if you want to leave a legacy to your survivors, you may, again, decide I really do need this. So it is a very

individual call.

Mrs. JO ANN DAVIS OF VIRGINIA. Do you know the breakdown,

Mr. Blair, on the retirees, how many of those have taken the longterm?

Mr. BLAIR. Could I provide that for you for the record because

I don’t think I have that information on the tip of my tongue?

Mrs. JO ANN DAVIS OF VIRGINIA. Because that is where I have

heard the most complaints, is our retirees.

Mr. BLAIR. Our rates are age based, and so the retirees were

going to pay more, and it was not like health insurance. They were

going to pay more because they were older—because they were the

24

people who are most likely going to have to utilize the product

much more quickly than someone who is 45 or 50.

Mrs. JO ANN DAVIS OF VIRGINIA. I look forward to hearing from

our panelists on the next panel, but what I am hearing from the

retirees is that they are not accepted, and I am not so sure that

they are not accepted so much as they are not accepted because the

rate would be sky high. You know, if they have diabetes or things

like that, then they are not accepted or the rate is so high that

they cannot get in.

Let me just echo what Mr. Van Hollen was saying about the legislation. I know that Tom Davis, and I think this is what Mr. Van

Hollen was referring to, has the legislation that protected our Federal retirees, that they would not be treated any differently with

the prescription drug plan than our active force.

And if I can send a message at all today, that is one I would really like to send back to Director James. I would certainly hope that

even though it did not get into the legislation, that our retirees are

not treated any differently than our active.

Mr. BLAIR. She has been a real protector of retirees and retiree

benefits, and so I think that message will certainly be welcomed

and was already there.

Mr. Davis, Ms. Norton, do you have any further questions? Mr.

Davis.

Mr. DAVIS OF ILLINOIS. I think probably just one.

We know that choice costs. When individuals are part of a plan

where they have more flexibility, there is more cost than in a

straight-laced HMO or a straight-laced program. Is there anything

that we could expect in terms of cost differential or that you would

expect to pay for choice?

I am saying how much more should choice cost.

Mr. BLAIR. I am not sure. Abby, correct me if I am wrong here,

but I do not think choice costs more. Actually it may provide the

kind of competition you are looking for that can keep costs down.

Ms. BLOCK. I think what we are talking about here is choice of

providers within a health plan rather than choice of health plans,

and the whole trend, as I know you know, has been away from the

very restrictive model of the very closed HMOs, and that has been

nationwide.

Even the HMO industry has moved more toward choice. Many of

the HMOs have eliminated the requirement for a referral, for example, to see a specialist. So the consumers have really expressed

a very strong interest in having that kind of flexibility in terms of

how they get their health services, and it costs more because you

cannot really control as much as you might in a more closed system

inappropriate utilization or overutilization. That is one of the

issues and one of the factors that goes into choice costing more.

There are some other issues in terms of provider reimbursements

and so on. So it has typically been the experience that choice costs

more, but more and more we are seeing plans now being offered

where the premium really is close to or in some cases even less

than the premiums of more restrictive systems.

Mr. DAVIS OF ILLINOIS. And the consumers, as I indicated, they

are prepared to pay. I mean, if the cost is there, people are willing

to pay for the flexibility.

25

Ms. BLOCK. People feel very strongly about having that flexibility.

Mr. DAVIS OF ILLINOIS. No further questions.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Davis.

Ms. Norton.

Ms. NORTON. Yes. Mr. Blair, I am looking at your testimony because you referred in answer to my question about HRAs to work

you had already done, and you refer to 2004 where the total enrollment in these consumer driven plans was and the figure in your

testimony is 13,151.

Now, how old are these plans that you are referring to, and when

did they go into effect?

Mr. BLAIR. The APW plan went into effect in 2003, and the other

two plans went in in 2004.

Ms. NORTON. Mr. Blair, that is very important information. We

are talking about brand new plans, and you had testified here that

one of the most important things FEHBP can do is to, ‘‘educate

people about all of the choices that are available to them.’’

Again, looking at that figure with education just beginning,

you’re talking about one plan this year, one plan last year. I am

not sure how you could then say on the basis of evidence of less

than a year apparently this experience leads to believe that the

movement of large numbers of employees to raise a concern about

adverse selection is not likely. I thought that most of the time

when people try to make statements like that they have a body of

experience that they can rely upon, whereas you are talking about

experience that has only just begun.

Mr. BLAIR. That is right, and the HSAs would be a new product

as well. What we are saying is that, should they be offered, we do

not anticipate a large migration to HSAs, especially in the first

years.

Ms. NORTON. Well, I can understand in the first years when people barely know about the plans, and I think the burden on OPM,

of course, is to indicate what the risk is to the pool over time. If

the risk to the pool after 5 years or 10 years is great, the notion

that it was not so great after a year would not be very impressive.

And, therefore, I think that at the very least, Mr. Blair, I would

like to see you extrapolate this year or so experience so that we

would have some sense of where this might lead in 5 years, in 10

years, at some point where we could say reliably, ‘‘Look, this is not

going to mean a thing. People look like they are going to stay

where they are despite what is a rather attractive economic incentive depending on your age and state of health to do just the opposite.’’

And of course, as an economic matter, we are taught to regard

human beings as rational economic beings, and one wonders why

a rational economic being, unless they thought ahead, way ahead,

as you say that people do not do, for example, on long-term health

insurance, why they would not respond to the immediate economic

incentive that is planted right there precisely because you want

them to respond.

Mr. BLAIR. I am not sure how I can say this again, but the way

that we are viewing this, and I think that we do have the evidence

26

to show that we have not seen great trends of migration from one

plan to another over a period of a year or even 2 years.

Ms. NORTON. I understand you, Mr. Blair.

Mr. BLAIR. Right.

Ms. NORTON. But you understand me, that I think 1 year or less,

and certain we are now in 2004; this is, sir, not even April, and

so all I am saying to you is I do not think the body of experience

from which you are working is very impressive, and I am asking

you to do something that is typically done in situations like that,

and that is to try to figure out what it would be over a longer period of time based on what it is today.

Would you be willing to do that?

Mr. BLAIR. I think we are going to carefully look at these trends

as they evolve over a period of time because we are all on the same

page here. We do not want to see the program spiral into adverse

selection. We do not want to take actions that are going to do that,

and we want to make sure that we do everything we can, such as

looking at benefit design over the long term. And so——

Ms. NORTON. I am asking you to do more than look at the benefit

design. You know, again, I am trying to be specific, and that is why

you see me being impatient with you. I am not asking you to look

at the benefit design. I am asking you to extrapolate the figures,

sir.

That is to say look at the figures you have now. Economists do

this all the time. Assume that there would be greater knowledge

and information and extrapolate out to what you think over 5 years

or over 10 years, for example, would be the up tick in these plans.

That is all I am asking.

Mr. BLAIR. We certainly can do that.

Ms. NORTON. Thank you. That is really all I am asking.

Finally, I asked because you heard my concern because we have

8 million employees and still the stuff goes up and Federal employees pay 11 percent a year, my heavens, and you say or at least

your partner said, well, it is better than what it is in the private

sector.

I would ask you to both look at, because I am sure these figures

are readily available, at the let me say Fortune 1,000 companies,

and would you give to the chairman and to me personally what the

increase in health care has been? I am not even saying Fortune

500, but Fortune 1,000 companies so that we can get some sense

of comparison.

I think we would more appreciate FEHBP if we could see those

comparisons.

Mr. BLAIR. Oh, certainly.

Ms. NORTON. I am sure there must be something.

Ms. BLOCK. Over how many years would you want that?

Ms. NORTON. These 3 years that are in your testimony. You show

the increases in the last 3 or 4 years, and so I think——

Mr. BLAIR. Since 2000?

Ms. NORTON. 2000.

Mr. BLAIR. Give a fuller figure and fuller flavor of what is out

there.

Ms. NORTON. I would appreciate it. I am sure there is some difference, but it would be helpful to know what that difference is,

27

and of course, they would say that is no fair comparison because

we are talking about 8 million.

Mr. BLAIR. Well, you have to remember when we are comparing

what are we comparing. In FEHBP we have single and family coverage, and that is what we offer. Many private sector employers

will cover a higher percent of an employee’s premium, but not necessarily the family, or they may, but they may not carry people into

retirement either.

So I am always cautioned that when looking at these kinds of figures that you keep in mind what we are actually comparing.

Ms. NORTON. That is a very good point, Mr. Blair. To the extent

that you can, I am not asking for a whole lot of work here. Could

you look at Fortune 1,000 companies that are most like us that

kind of cover families the way the FEHBP does.

Mr. BLAIR. Certainly.

Ms. NORTON. And I recognize that many of them cover a greater

percentage. So that would make that cost even more.

Ms. BLOCK. I think one of the other things though——

Ms. NORTON. A greater percentage of the cost for employees.

Ms. BLOCK. One of the other things that feeds into that comparison is whether there were or were not significant benefit reductions

because we have looked at this very carefully, and very often the

difference in the rate increase may be relatively small, but we got

our rate increase with very minimal, if any, benefit reductions and

the private purchaser got theirs with much more significant benefit

reductions.

Ms. NORTON. With all due respect, when I asked the question before, what were we getting for the large risk pool we had, your answer, madam, was it is better than in the private sector. All I want

to know, all I want to have is some comparisons so that I can better understand that, and you all can give me whatever figures are

most convenient for you.

Thank you very much.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Ms. Norton.

And thank you, Mr. Blair and Ms. Block, and I think Ms. Norton

shares the same concern that many of us have, and that is just to

make sure that the HSA is a good concept, but we do want to make

sure that there is no adverse effect on our Federal employees.

Mr. BLAIR. I think we all share that.

Mrs. JO ANN DAVIS OF VIRGINIA. But thank you so much.

Mr. BLAIR. Thank you. I appreciate it.

Mrs. JO ANN DAVIS OF VIRGINIA. We appreciate your being here,

Mr. Blair and Ms. Block.

I would now like to invite our second panel of witnesses to please

come forward to the witness table. First, we will open with a statement from Dr. Harvey Fineberg, president of the Institute of Medicine.

Next we will hear from Mr. Charles Fallis, president of the National Association of Retired Federal Employees.

Then we will hear from Mr. Stephen Gammarino, senior vice

president of national programs at Blue Cross/Blue Shield.

After Mr. Gammarino, we will be hearing from Dr. Scott Smith,

vice president and chief medical officer at First Health Group.

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And finally, we will have the pleasure to hear from Mr. Paul

Forte, chief executive officer at Long Term Care Partners.

Mr. Forte, did I pronounce your name correctly, or is it Forte?

Mr. FORTE. No, it is Forte.

Mrs. JO ANN DAVIS OF VIRGINIA. It is Forte. OK.

It is going to be tight. I do apologize. Can you all fit?

Mr. Forte, I was going to say you may be more comfortable at

the end of the table if you would like. We can pull the microphone

over there when it is time for you.

I want to thank you all for joining us here today, and the panel

will now be recognized for an opening statement. We will ask you

because there are so many of you to summarize your testimony in

5 minutes and your more complete statement will be included in

the record.

And we will start first with Dr. Fineberg. You are recognized for

5 minutes.

STATEMENTS OF DR. HARVEY FINEBERG, PRESIDENT, INSTITUTE OF MEDICINE; CHARLES L. FALLIS, PRESIDENT, NATIONAL ASSOCIATION OF RETIRED FEDERAL EMPLOYEES;

STEPHEN W. GAMMARINO, SENIOR VICE PRESIDENT, NATIONAL PROGRAMS, BLUE CROSS/BLUE SHIELD; DR. SCOTT

P. SMITH, VICE PRESIDENT AND CHIEF MEDICAL OFFICER,

FIRST HEALTH; AND PAUL E. FORTE, CHIEF EXECUTIVE OFFICER, LONG TERM CARE PARTNERS, LLC

Dr. FINEBERG. Thank you very much, Madam Chairwoman,

members of the subcommittee. It is a pleasure for me to have this

opportunity to testify before you today.

As president of the Institute of Medicine, I represent an organization that is an advisor to the Nation, to the agencies of government, and to the public about matters of health. The kinds of work

that the Institute of Medicine undertakes ranges as widely as the

health agenda of the Nation. We have worked on problems of the

public health infrastructure. We have worked on problems of prevention of disease. We have worked on the science research needs

of our Nation and problems of insurance.

Today I am going to refer specifically to some of our work that

I think may be especially pertinent to your considerations of the

Federal Employees Health Benefits Program, and that has to do especially with matters of quality and safety in our health care system. And I want to stress those in part because I believe they are

not only very important in their own right, but I think they bear

very directly on the concerns of cost that have occupied so much

of the questioning and discussion in the early part of your deliberation today.

Before I get to that, it is worth, I think, reflecting for a moment

on the extraordinary progress that we in our country have enjoyed

in health over a long period of time. It is startling to imagine that

in the time of our grandparents at the turn of the century when

they were having children of which more than 100 per 1,000

newborns in the United States died before the first year of life was

reached.

In the last century, life expectancy in our country increased from

under 50 years to more than 75 years, and particularly in recent

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decades we have seen dramatic deceases in major diseases that

threaten the health of our citizens, and particularly older citizens,

heart disease especially, but also stroke.

Now, with all of this success, we nevertheless have some serious

problems. You’ve already been talking about the rise in cost which

has become especially acute again in the last few years.

Incidentally, according to the figures that I have seen, in the

year between 2002 to 2004, the increase in cost of the average employer based health plan in the United States was 13.9 percent,

and that was a very significant blow, and led many, as has been

alluded to earlier, to change the nature of the benefits that were

offered.

But the problem with our system that I want to stress today is

more around the problems of safety and the quality of care that our

citizens and beneficiaries of the Federal employees plan and others

receive in the care that they seek.

When the Institute of Medicine looked at the problem of errors

in health care a few years ago, we found that every year tens of

thousands of hospitalized patients were dying as a result of errors

in medicine. In fact, if errors counted as a cause of death, it would

rank in the top 10 causes of mortality in the United States.

Other studies that have looked at the quality of care received on

average by our citizens—yes, I know, Madam Chairwoman, it is not

a safe place to go, those hospitals—if other studies that have

looked specifically at the quality of care find that on average only

about half of the care requirements of those in care with chronic

diseases are actually met.

So we have problems of misuse of care. We have problems of

under use of needed care, and we have problems of overuse, of care

that is not really beneficial to the individual recipients.

Now, with respect to the Federal Employees Health Benefits Program, I would like to make a few suggestions that are elaborated

a bit more in my testimony that may be relevant to your considerations over time, and I would like to just briefly mention a few.

First, it would be, I think, very advantageous to do everything

possible to ensure that high value services are, in fact, covered in

the plans. Now, these types of services are those that return very

high benefit for relatively low cost or can be done much more efficiently than typically is done, and they include preventive services,

comprehensive care for common chronic conditions, which is a part

of many of the programs today, coordination of care, especially for

beneficiaries who have multiple chronic conditions, and very importantly an often neglected end of life care, alternatives for those at

the end stage of life.

Second, it is worth considering what the FEHB program could do

in what is sometimes called pay for performance. This is a reimbursement strategy, a kind of approach that says to the providers

of care if you meet certain standards of quality, we will pay a premium for that benefit of service.

The advantage of reducing errors and actually insisting on and

rewarding quality is that over time costs go down, while quality

goes up for patients, but not because of, for example, medication errors and other ways that quality improves performance and can

keep costs down.

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Third, information technology, while it does have an expense at

the outset, is an area that if made available can reduce errors on

physician orders, particularly on medication and in the long term

also save money.

I see that my time is exhausted. I would only like to add one

final thought and that is around the area of what is sometimes

called health literacy. It is shocking to realize how even educated

people under times of stress and in their medical care are unable

to understand and to follow effectively the instructions and advice

that their physicians and other caregivers provide, much less to be

able to find information they need to take care of themselves.

I believe that efforts to better educate and inform and empower

the beneficiaries of the insurance program to make them more informed consumers for their own health would repay benefits for

themselves and for the program in the long term.

Thank you very much.

[The prepared statement of Dr. Fineberg follows:]

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Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Dr. Fineberg.

Charlie Fallis, it is good to have you here with us today, and I

look forward to hearing your testimony. You are recognized for 5

minutes.

Mr. FALLIS. Thank you, Madam Chairwoman.

Madam Chairwoman and honorable members of the committee,

I appreciate the opportunity to express NARFE’s views on FEHBP

today and our concerns that HSAs might be introduced into the

program perhaps as early as this year. NARFE historically has opposed adding MSAs and now HSAs. HSAs are likely to attract

healthier enrollees since the plans reward them with tax free balances if they do not go to a doctor or to a hospital.

However, less healthy enrollees would, in our opinion, remain in

comprehensive plans with significantly lower out-of-pocket costs,

but with increasing premiums, costs of premiums that I believe and

we believe would result from the addition of HSAs.

CBO, the Congressional Budget Office, has estimated that it

would cost taxpayers an additional $1 billion over 5 years with the

addition of HSAs and FEHBP. Although there are some differences

between the old MSAs and the new HSAs, their variation does not

appear to significantly alter the outcomes estimated by CBO and

others.

For example, HSA enrollees will be allowed to contribute larger

amounts to their savings accounts, but this change does not help

those who cannot afford to deposit more money. Although some

may be willing to initiate an HSA experiment in FEHBP, we believe it is premature and risky to impose that option.

Paul Ginsburg, president of Health Systems Changes, states,

‘‘There is little question that HSAs will transfer resources from the

sick to the healthy. Higher income people will benefit more from

these accounts because they are more likely to have insurance and

because of their higher marginal tax rates.’’

HSA supporters claim that enrollees in comprehensive plans are

not sensitive to health care costs, and that HSAs will encourage

them to spend their health care dollars more wisely.

Well, a study in the June 26, 2003 New England Journal of Medicine found that only 55 percent of Americans get sindicated health

care. Massachusetts General hospital took these figures and extrapolated that about 100 million Americans under-used their

health care, where only about 30 million over used health care.

So we do not believe the claim that increased cost sharing required by HSAs will tackle the difference between under use and

over use. HSAs savings might be illusory since HSA consumers acting on their own, as they would be required to do, will have less

leverage than insurance carriers in negotiating provider discounts.

NARFE is also concerned about how OPM intends to pay for

HSAs. For instance, how would enrollees pay for health care costs

early in the year if the account held no more than a prorated share

of the anticipated annual government and enrollee contribution.

And, on the other hand, if the full amount is advanced to enrollees at the beginning of the year and it is their account, they could

walk away from that account, walk away from Federal service with

a windfall.

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NARFE recognizes OPM’s interest in providing more health care

choices. This makes sense when the only choice is a managed care

plan, but that is not the case with FEHBP. We are confident that

what Federal workers really want is to choose their own health

care provider, something they can do very well without an HSA,

and HSA catastrophic plans are not a choice for enrollees over 65

years of age, which of course excludes most of our members.

As a matter of fact, therefore, we question whether this age barrier conflicts with the Federal law that prohibits OPM from implementing contracts with plans that exclude enrollees based on age.

Given the risks and concerns that I have described, we are concerned that HSAs will be offered without any safeguards against

adverse selection. For example, tax free savings accounts could encourage FEHBP enrollees to game the system by switching to a

comprehensive plan during the annual open season for any year

that they know their health care expenses will multiply.

We believe this problem could be mitigated if enrollees were

forced to remain in an HSA for a period of, say, 5 years after making that selection. And since the FEHB fair share government contribution formula is weighted to the number of enrollees, catastrophic plans with lower premiums coupled with HSAs that attract larger shares of enrollees would reduce the overall dollar

amount of the government contribution and we are very concerned

about that.

To protect against this, OPM must disregard high deductible

health plans in determining the government contribution. Otherwise it is a disaster. Most of my fellow annuitants and I started

our careers in government when we were younger, when we were

healthier, with a health care system whose premiums were never

driven by age or condition.

And what gets NARFE members rankled today now that we are

older is that HSAs could sabotage this contract between generations by introducing adverse selection based on health, wealth, age,

and condition just at a time when those factors are most important

to us.

For that and other reasons, Madam Chairwoman, NARFE members implore this subcommittee to insure that OPM’s plan to impose HSAs into FEHBP be put aside.

Thank you very much.

[The prepared statement of Mr. Fallis follows:]

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Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Fallis. You

brought up some good points there. We are going to look into that

one on the 65, whether it violates the Federal law there.

Mr. FALLIS. Title V.

Mrs. JO ANN DAVIS OF VIRGINIA. Got your point on that one.

Mr. Gammarino, you are recognized for 5 minutes, and thanks

for being with us today.

Mr. GAMMARINO. It is nice to be here. Good afternoon. I want to

thank the subcommittee for the invitation. I am please to testify

at Chairwoman Davis’ first FEHBP oversight hearing.

I ask that my written testimony be made part of the record,

please.

Mrs. JO ANN DAVIS OF VIRGINIA. So ordered.

Mr. GAMMARINO. Blue Cross/Blue Shield, as you know, administers a governmentwide service benefit plan today. We are proud

to be involved in the inception of the FEHBP since 1960. Today we

are proud to serve over 4 million Federal enrollees and their families.

You asked us to address two questions: the cost accounting

standards and cost containment. First, let me address the cost accounting standards.

For reasons given in much more detail in my written testimony,

we believe first that the cost accounting standards referred to as

CAS adds no value to the program. We do, however, believe that

it will add unnecessary cost to the program, and therefore, we

think the burden should be on CAS advocates to show concrete

benefits to taxpayers and enrollees.

Second, CAS is not required to protect program integrity. The

carriers today are subject to a broad array of cost accounting requirements, including compatible CAS standards that are in various Federal regulations, and as I am sure you are aware, the

health plans are subject to regular and vigorous OPM Inspector

General audits.

Third, CAS is a particular project to Blue Cross/Blue Shield. For

reasons detailed in our written statement, CAS which was designed

for the defense industry is incompatible with insurance accounting

practices. Simply it is like fitting a round peg in a square hole.

More specifically, the Blue Cross/Blue Shield service benefit plan

for Federal enrollees is tightly integrated into our commercial business. Let me explain.

Blue Cross/Blue Shield benefit plan serving over 3 million members represents about 5 percent of our overall business. Collectively, today Blue Cross/Blue Shield insures over 88 million people.

Consequently Blue Cross/Blue Shield plans would have to either

revamp our systems in ways that we feel are both detrimental and

costly to our far larger commercial customers to be CAS compliant

or leave this program.

We feel either choice makes sense. Therefore, we think CAS is

a permanent problem that requires a permanent solution. We ask

your support of a statutory exemption for all carriers just as Congress did for the Long-term Care Insurance Program.

The second topic you asked us to discuss is cost containment.

Under that heading we are talking about insuring quality health

care at affordable prices. As many people have already addressed,

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we live in a challenging environment, and the FEHBP is subject to

the same cost pressures as other health plans in the country.

Additionally, the FEHBP has a significant aging population. Blue

Cross/Blue Shield’s focus is to keep quality high while restraining

cost.

First, we do think that the FEHBP, which is individual choice

and promotes vigorous competition, promotes continual cost containment.

Second, in the plan itself, we have aggressive initiatives on two

fronts. First, on economic cost controls, Blue Cross/Blue Shield negotiates significant provider discounts on the basis of our commercial business that save billions of dollars annually for the program.

We also partner with at least two PBMs to provide significant savings on the prescription drug side as well.

The second area we focus on is what we call member centered

programs. They are designed to help members make what we call

cost effective use of benefits and/or adopt healthier lifestyles. Included in these programs are areas such as case management, disease management and health and wellness programs.

I cannot say that all of these member center programs lead to

low cost in the short run. We do believe they are helpful in the long

run. We are certain that members receive better care because of

these programs.

This concludes my prepared remarks, and I would be happy to

answer any questions.

[The prepared statement of Mr. Gammarino follows:]

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Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Gammarino.

Dr. Smith, thank you for being with us today. You are recognized

for 5 minutes.

Dr. SMITH. Thank you very much, Madam Chairwoman and

members of the committee. I apologize for my cold.

I am Dr. Scott Smith. I am the vice president and chief medical

officer at First Health, and in the interest of full disclosure, a constituent of Mr. Davis’ from Oak Park, IL.

First Health is a premier health benefit services company and

provides integrated managed care solutions serving the group

health, worker’s compensation, State agency and Federal Government markets, a provider of managed care services in the FEHBP

since 1985, and my remarks will focus on care management.

Since 2002, First Health has offered comprehensive care management services for Federal employees, including Medicare eligibles,

in the Mail Handlers Benefit Plan, which is the second largest plan

in the program. Care management services encompass an array of

patient centered initiatives, including identification of patients

with chronic conditions, patient self-management, education, and

collaboration with attending practitioners.

Fewer people now account for the majority of health care costs

than in the past. As an internal medicine physician and medical officer of the health benefits company, I am concerned about the

prevalence of chronic disease and conditions in our country and the

rising costs associated with these conditions due to uncoordinated

care, as was previously referenced.

The Centers for Disease Control and Prevention estimate that 75

percent of the $1.4 trillion in annual health care costs in the

United States is attributable to providing services for chronic illnesses. What used to be the 80–20 rule, in other words, 80 percent

of the cost generated by 20 percent of the population, is now the

80–11 rule. Eleven percent of the population now accounts for 80

percent of health care costs. Included in this 11 percent are chronically ill patients, and these figures are illustrated in my written

testimony, attachment 1.

For these chronically ill patients, our experience proves that care

management can have a significant impact on cost, productivity,

quality of life, and objective disease related outcomes. Effective

care management requires early identification, the ability to identify at risk members at the earliest possible time so that we may

work with the patient and the physician to achieve the best possible outcomes.

By the time a patient with a chronic condition is hospitalized, the

condition is intensified and incurs the increased costs and complications of an unstable situation. First Health uses a predictive

model, including medical and pharmacy claims to proactively identify patients in need of care management before their conditions

deteriorate.

I want to share with you the story of Ethel. Ethel was one of our

Mail Handlers Benefit Plan members, and her experience demonstrates the value of integrated care management services, particularly those that include pharmacy. Ethel was an elderly patient

who was identified through a pharmacy system trigger, indicating

she had congestive heart failure. When a First Health nurse case

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manager contacted Ethel, she also learned that Ethel was diabetic.

This real time pharmacy trigger led to our being able to support

her in following her doctor’s treatment plan. It allowed us to have

an impact on both cost and clinical outcomes.

Ethel was not stable at this time. Trying to manage her condition

on her own resulted in Ethel incurring medical costs that could

have been avoided due to ER and hospitalizations. Our case manager sent Ethel a glucometer so she could monitor her blood sugar

twice a day, and this same case manager was involved with the

other co-morbid conditions referenced.

Care management intervention avoided further instability and

costs, and Ethel is now able to manage her own condition in conjunction with her doctor, and improve her quality of life.

Financial results indicate decreased annual claim costs for patients enrolled in care management. In attachment 2 in the written

testimony comparing patient costs before and after program participation, decreases are shown in each year. While pharmacy costs

rose for the first 2 years due to increased patient compliance, total

cost decreased.

In the third year pharmacy costs leveled off as well. This cost decrease is in the face of an industry trend that as has been noted,

has risen dramatically each year.

One additional example in which care management resulted in

significant savings for the plan is a recent situation of an elderly

patient admitted to the hospital with pneumonia and complications. At the end of her in-patient stay, she was frail and weak,

and the attending physician did not believe it would be safe for the

patient to return home alone.

Rather than keep the patient in the acute care hospital, which

we just discussed in terms of danger, at a cost of $1,800 per day,

First Health obtained a daily rate of $450 for a skilled nursing facility which provided a safer environment for the patient’s recovery.

The patient was in the facility 28 days to complete rehabilitation

and fully recover. The plan cost was $11,000. The member cost was

$1,200. At the acute care hospital the cost would have been more

than $50,000 for the plan. First Health’s involvement saved more

than $39,000, and the patient received safer and better care.

This is a case where our clinical involvement had significant impact on cost and quality results.

In conclusion, First Health believes that the FEHBP can serve

as an example to the private sector by adopting innovative care

management programs for its participants. These care management programs are essential to achieving optimal cost in clinical

outcomes for Federal employees and retirees.

Chairwoman Davis and members of the committee, I thank you

again for the opportunity to share our views, work further with

your committee, and would be happy to share with you video

testimonials we have of Ethel herself and other members involved

in our care management programs.

Thank you.

[The prepared statement of Dr. Smith follows:]

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Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Dr. Smith.

And finally, welcome, Mr. Forte. We are pleased to have you with

us today, and you are recognized for 5 minutes.

Mr. FORTE. Good afternoon, Madam Chairwoman and members

of the committee. I am Paul Forte, chief executive officer of Long

Term Care Partners, the exclusive administrator of the Federal

Long-term Care Insurance Program.

Long Term Care Partners is headquartered in Portsmouth, NH

and employs 93 people. On behalf of Long Term Care Partners and

of our parent companies, John Hancock and MetLife, I would like

to thank you for this opportunity to participate in today’s hearing.

We are mindful of the privilege of having been awarded the first

contract to administer the Federal program which we believe is

destined to become a critical development in the history of financial

planning and an important resource to Federal employees, annuitants, and family members.

I am happy to report that the Federal program is off to a strong

start. We have conducted a successful open season in 2002, developed policies and procedures for key functions, and begun paying

long-term care insurance claims. The 2002 Federal open season featured a multi-phase, multi-media campaign, one of the most comprehensive education and marketing campaigns ever conducted for

this product. This campaign reached more than 4 million Federal

and U.S. Postal Service employees and members of the Uniformed

Services and an additional 4 million annuitants, including retired

members of the uniformed services.

The campaign was designed to help individuals access information, understand the risk of needing long-term care, and consider

their options for financing such care. Less than 2 years after open

season, the Federal program has over 200,000 enrollees. I am

happy to note some 66,000 retirees.

This makes the Federal program the largest Long-term Care Insurance Program in the country, larger than the program sponsored by CalPERS, now in its 8th year and constituting roughly 15

percent of the total employer group, LTC Market, in the United

States. Thanks to the passage of legislation last year, several newly

eligible groups have been added, including Grey Reservists, D.C.

government employees with Federal benefits, separated employees

with title to a deferred annuity, Navy personal command, nonappropriated funds personnel.

These groups will be contacted in the coming weeks and are eligible to apply for coverage now.

The Federal program requires that certain underwriting conditions be met by prospective applicants. There are several levels of

underwriting depending on the status of the individual, actively at

work, say, or retired, and the window of opportunity in which the

individual is applying, open season, say, versus post open season.

The aim of the Federal program underwriting is not to insist on

perfect health—many people with a medical condition requiring

treatment are approved for coverage—but rather to accept people

who have average health for their age group.

Now, the overall approval rate for underwritten applications is

85 percent, which is in line with the industry. The Federal program

has already assisted people with serious life threatening illnesses

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that may be terminal in nature, as well as those for whom the program is principally designed, people with chronic and debilitating

conditions requiring custodial help with the activities of daily living.

In addition, we are providing care coordination services to the

qualified relatives of those who enroll. As of the end of February,

our care coordinators had handled almost 6,000 calls for services.

These calls consist of evaluating service needs, assisting in the

set-up of a plan of care to answer those needs, identifying and

making referrals to appropriate local services and informal care

providers, and answering questions about coverage under the program.

As Federal family members look forward, they can take comfort

in the assurance that the Federal program is well poised for stability and growth. Those of us who have been involved in the industry

for a long time believe that the full potential of the Federal program has not been capped; that there are tens of thousands, perhaps hundreds of thousands who may 1 day enroll.

We plan to take our message first to the many baby boomers who

are beginning to plan their retirement. We are participating in

about 50 retirement seminars per week with various agencies coast

to coast, and we are continuing to contact annuitants who are now

shopping for long-term care insurance, but have not yet made a decision.

We plan to continue working with NARFE and to extend our promotion efforts with large national associations with both active and

annuitant members.

As we do, we will be sure to emphasize the Federal program’s

general and flexible informal care benefit, care coordination and information counseling services, third party claim appeal process,

international benefits and other features which we strongly believe

make the Federal program the best value in long-term care insurance today.

Thank you for your invitation to participate in this hearing. I

would be happy to answer any questions.

[The prepared statement of Mr. Forte follows:]

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Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Forte.

And thank you, all of our witnesses, for being patient in being

here with us today.

I am going to turn to my ranking member, Mr. Davis, for questions.

Mr. DAVIS OF ILLINOIS. Thank you very much, Madam Chairwoman.

I too want to thank all of the witnesses for their testimony.

Mr. Gammarino, you note in your written statement that the

Federal cost accounting standards, even if they were applied to the

FEHBP carriers would only apply to administrative costs and not

to the payment of medical providers. For the record, could you tell

us what your annual administrative costs are?

Mr. GAMMARINO. Our administrative costs are about $700 million

a year.

Mrs. JO ANN DAVIS OF VIRGINIA. You need to use the microphone, Mr. Gammarino, for the reporter.

Mr. GAMMARINO. OK. I have got everything covered now. They are approximately $700 million a year.

Mr. DAVIS OF ILLINOIS. And you also maintain that applying cost

accounting standards would be prohibitively expensive, forcing

Blue Cross/Blue Shield perhaps to withdraw from the FEHBP program. Could you elaborate on that?

Mr. GAMMARINO. Yes. Let me start with the value proposition.

You mention that the costs only relate to administrative costs,

which from a program point of view are well under 10 percent.

Additionally, what I want to make sure the committee understands is the way it was designed, it does not even apply to most

of the carriers, and that is one reason why you probably just see

somebody like myself sitting here today. Eighty percent of the carriers in the FEHBP are carved out of the requirement to be CAS

compliant.

So specifically, again, about Blue Cross/Blue Shield, we are the

only carrier left when you carve out the community rated HMOs,

which are 80 percent of the health plans that have a product that

we provide the program, the Federal enrollees, that is imbedded in

our private business, and therefore, the existing accounting systems, which are designed for the insurance business rather than

CAS, which is primarily designed around the defense industry. As

I said before, is not comparable and would cause us to have to not

only reengineer our existing systems, and not only affect this program, but every customer we have, all 88 million of them.

And the added cost and burden to those customers, as well as the

Federal employees members, we just do not think is cost justified.

Mr. DAVIS OF ILLINOIS. I think all of us would probably agree

that education, as we try to get to this whole business of cost and

how everybody fits into the picture, that education becomes an essential party.

Could each one of you just briefly comment on what you think

perhaps could be done to actually make that happen?

I mean, I hear us talk about lifestyle changes. I hear us talk

about appropriate utilization. I hear us talk about missed opportunities, missed appointments. I mean, everything that we talk about

that somehow contributes to the overall cost. What can we do?

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Mr. Forte, perhaps we will start with you.

Mr. FORTE. Well, Congressman, I think for the long-term care

program, education is primarily important because we need to educate people about the risk that long-term care poses to them. Many

people are still in denial about it being something that could happen to them. It is a risk that all of us face because you can suffer

from an accident, a tragic accident, as well as an illness in old age.

I think we have to do more to the problem of retirement security

and make sure people understand that this is their problem, that

at least it is something they need to give some thought to.

Now, whether they choose to buy private long-term care insurance under the Federal program or some other sources or not to

buy it at all, they must look at the fact that this is a problem for

them. People turning age 65 have a three in five chance of needing

long-term care at some point, and right now we do not have any

way of paying for it. You can try to save for long-term care, but

it is very, very expensive.

Medicaid programs all over the country are suffering from the

burden of people not having their own form of protection. People

have had to turn to Medicaid for relief, and that is a huge problem

for taxpayers.

That leaves private insurance, and I think what we need to do

is more in the way of helping people understand how it can affect

their retirement and to get them to plan for it, and that is exactly

what we are doing for thousands of Federal employees now. We are

going around the country participating in retirement seminars and

trying to carry this message, trying to get them to understand so

that they can take some steps to prepare for their future.

Mr. DAVIS OF ILLINOIS. Dr. Smith, if I had known, I cannot say

I would have baked a cake, but I would have been pleased to introduce you. We are actually neighbors. I live right on the border of

the city.

Dr. SMITH. Right on the border. Well, as it relates to chronic

care, I think that the brief answer is that education is something

that sounds easy and runs hard, and in discussions with the doctors in our network, they often say, ‘‘Well, you have all of the information. You have all of the data, the claims, the pharmacy. Why

don’t you use it more effectively?’’

And so the system I described briefly is really designed to do

that, to try to identify those patients, high risk patients, and reach

out to them. Nobody calls us and asks us for chronic care management. They call us with problems. They call us with questions.

They call us with issues.

And so fundamentally we want to make ourselves available to

them 24 hours a day, 7 days a week with real people. We want to

provide them with responsive information that is meaningful to

them personally, not just general education, and target it at those

people that need to make changes, and that is really what chronic

care management is about.

As it relates to general lifestyle issues, that is another topic for

another day. How do you teach people to do what is right and good

for them? I wish I had the answer to that question.

Mr. GAMMARINO. At Blue Cross/Blue Shield, we have some of the

very same programs, and one thing we have to deal with today is

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that most of our programs are voluntary. So we do have so-called

intervention programs for the provider or the member, but it is the

member’s choice.

Second, what I think we have to focus on with this particular

population is that it is a significantly aging population, and they

do require medical care. In our standard option program for Blue

Cross/Blue Shield, which is our largest program, the average age

is 60. They need medical care, and so I think when you deal with

the cost issues that are formidable with this program, one thing I

think you have to take your hats off to the agency and to the competitive nature of this program over is that it has held the premiums relative to what is happening elsewhere, relatively in check

even with a population that requires in many cases significant

medical care.

Mr. FALLIS. I think our 400,000 members are fairly well educated

on health care, and quite frankly, everything we have in terms of

retirement and health benefits come from the Congress. I think you

probably will agree that we do a pretty good job at letting you

know what we want. I guess our problem is in trying to get from

you what we need. [Laughter.]

Mrs. JO ANN DAVIS OF VIRGINIA. We know what you want.

Mr. FALLIS. So I think our people are pretty well educated. It is

a work in progress. We have new members coming in every year

and so forth.

On Federal long-term care, NARFE took a very active role. As a

matter of fact, we were leaders in getting the enactment of that

legislation, and my sense is that our members who have an average age of about 74 saw sticker shock when this came out. They

had a heightened expectation because the government was involved, albeit administratively, that this was going to be a great

bargain for them, and they were disappointed when they finally realized that, you know, they are going to have to pay for all of this.

And so that has been a problem and a disappointment. I think

probably most of the members are employees, but I do not know.

I cannot tell you what percentage of our members of that 200,000

signed on, but our people understand quite well some of the things

that are at risk here and are at stake. We really are very concerned

about HSAs.

What it simply comes down to is after 44 years we are talking

about changing the rules, and we do have one risk pool. Let anybody tell you differently. It is one risk pool. Universal employee

and retiree premiums throughout the history of this program until

now, a foot was put in the door a year ago with APWU, and consumer driven plans, and all of these things are nothing more than

MSAs which we fought all the way down the line, and we know

that once the healthy, the young are siphoned from the program,

that one risk pool, what is left in it in those comprehensive plans

is going to be driven by the free enterprise system which says the

higher the risk, and it will be higher, the higher the premium.

Our people understand this very well. We need Congress to understand.

Dr. FINEBERG. In response to your question, Mr. Davis, I would

add the idea of looking to priority conditions that have special

promise for closing a gap between where care potentially could

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make a difference and where we are delivering and failing to deliver on that potential.

Just a little over a year and a half ago, the Institute of Medicine

released a report at the request of the Agency for Health Care Research and Quality identifying 20 conditions which it deemed to be

especially promising as areas of attention for closing the quality

gap and improving on the performance of the system, and I think

it would be a good place to start for our educational objectives.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Davis.

Mr. Fallis, let’s go back to you on the HSAs. I think at least

these members sitting up here on this side understand your concerns on the HSAs, and I guess my question to you is, and I think

I probably already know the answer, do you believe that OPM has

enough safeguards in place if there is any, you know, adverse selection to modify at the FEHBP.

Mr. FALLIS. If they have, I have not heard them. All I have

heard, and I have talked to the Director of OPM directly, face to

face, and she has said, and I do not like to violate confidences, but

this was not given in confidence. She simply said that, you know,

she would really fight for Federal retirees, those that are Medicare

eligible retirees. That is what we are talking about here.

Our concern is for the long haul though. Who knows who will be

Director of OPM 2 years, 3 years, 4 years from now? I do not know.

Mrs. JO ANN DAVIS OF VIRGINIA. I understand.

Mr. FALLIS. We need safeguards. We need statutorial. We need

something in the law that covers the situation.

Mrs. JO ANN DAVIS OF VIRGINIA. To make sure the annuitants

are not treated any differently than the active; is that what you are

saying?

Mr. FALLIS. Pardon?

Mrs. JO ANN DAVIS OF VIRGINIA. You need safeguards to make

sure HSAs never enter into the FEHBP or you want safeguards to

make sure annuitants are treated the same as active?

Mr. FALLIS. Well, I just would want safeguards that would alleviate this problem that I just spoke of where our fears that the premiums for comprehensive plans would go through the ceiling once

we have only left in the comprehensive plans those safe enough to

take HSAs.

These are going to be the elderly, the sickly, the unhealthy.

Mrs. JO ANN DAVIS OF VIRGINIA. You know that in the Federal

Government we have had hearings on recruiting and retention and

so forth, of being able to bring in the best and the brightest into

the Federal Government, and I think in our country today that a

lot of the private sectors are offering similar things like the HSAs

to their employees.

Do you not think that the Federal Government should offer the

same thing as the private sector?

Mr. FALLIS. I am not saying they should not offer them, but they

should have safeguards for those of us who have paid into the system for 44 years under rules that have existed for 44 years into one

risk pool with universal employee/retiree premiums undriven by

age and condition. We do not want to see the system changed here

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at the 11th hour of our lives and suddenly be faced with insurmountable premium costs. That is our concern.

Mrs. JO ANN DAVIS OF VIRGINIA. I understand. I wanted to make

sure I had you clear on the record there.

Dr. Fineberg, let me ask you. Do you believe that the widespread

availability of the HSAs will over time endanger the health care

system as we know it?

Dr. FINEBERG. Let me respond personally because this is not a

subject that we have particularly studied at the Institute of Medicine.

My own belief is that HSAs introduce two types of incentives. As

a matter of out-of-pocket expense, they exert a discipline on seeking medical care which is sometimes good, if it prevents over use,

and sometimes bad if it prevents appropriate use. So there is a

built in disincentive to use care which can have both good and bad

effects. How much of each is the uncertainty.

And, second, by virtue of providing an alternative that is more

attractive to healthier people or those who believe they are likely

to be more healthy, it does provide a kind of adverse selection for

the remaining pool who are not part of the HSA.

So from the point of view of effect on a health system, a challenge for a designer is how can you introduce into a system a kind

of discipline for the individual in seeking care so as not to pursue

frivolous care, keeping the barriers sufficiently low through education and access so that appropriate care can be accessed, and

protect the overall affordability for those whose care needs are

higher.

That is the trick and that is the challenge that is going to be

faced by the FEHBP and every insurance plan that is trying to

wend its way through these competing kind of incentives that an

alternative like HSA provides.

Mrs. JO ANN DAVIS OF VIRGINIA. I think that has been the

$64,000 question today, and everyone is making assumptions because we just do not know.

Let me go very quickly to the long-term care because that is an

issue that I hear about. I have 36,000 Federal employees, about

half retired and half active in my district, and I will tell you that

when I am at NARFE luncheons and speaking to the retired folks

there, Mr. Forte, they tell me that the plan is a failure; that they

are not accepted, and I think out of—I am just going to throw the

numbers out, but it was about this percentage—out of 10 that had

applied, 1 was accepted.

Are you concerned? You said you presented the plan to 4 million

retirees, 4 million annuitants, and 4 million active, and you said

you had 200,000 that were in the plan, and 85 percent were accepted.

Well, if you take the number, and maybe I just have a district

of people who are sick because if you take the number in the different luncheons that I have been to, there certainly have not been

in those luncheons 85 percent of the people who applied accepted.

Mr. FORTE. It is a difficult subject. Let me see if I can shed some

light on it. First of all, I would like to remind the committee that

the statute section, 9002, expressly allows for and says that, in

fact, no issue will be guaranteed. No coverage will be guaranteed

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so as to avoid the occurrence of immediate claims, and furthermore,

that higher standards may be applied down the road if it is deemed

necessary.

Medical evidence underwriting is a standard feature of Longterm Care Insurance Programs, particularly for retirees. There are

probably some 5,000 group plans in place across the United States,

from very small ones to large ones. They are all medically underwritten, and if you start a program like this without having some

underwriting standards, you will probably find that your experience will be poor. Word that that experience is poor will begin to

travel, and you will lose the opportunity to capture larger amounts

of people who have an average health profile as opposed to a poorer

health profile.

I can tell you that the reasons for declinations stem from people

who had serious conditions that would have predisposed them very

much to the risk of stroke. Many had serious cardiovascular conditions, 19 percent. Some 27 percent of declinations had severe conditions that were likely to result in an immediate claim. Some people

actually were in need of long-term care services at the time that

they filled out their application, and there were some questions at

the beginning of the application to try to get at that. Ten percent

had neurological or several vascular or cognitive impairments.

So what we are seeing is, you know, tremendous pent up demand

for the product. People want this product. They have followed the

progress of the Federal program in some instances for several

years, and I think the fact that it was sponsored by the Federal

Government led to expectations that perhaps the underwriting

qualifications would be waived or modified.

But if we had done that, we would not have had the opportunity

to attract a lot of healthy people from the start source to establish

a good, solid risk pool. We want to make sure that we can offer—

this is the kind of thing you buy in. You might possibly not use the

program for 20 or 25 years. You want to be assured of rating stability.

And so we wanted to make sure that we could get off to a good,

strong start. I can tell you that in instances where people are declined, they will come back to us. There are reconsiderations, and

a fair number are actually accepted upon reconsideration because

a certain amount of time has gone by, and the underwriter feels

more comfortable that perhaps he or she has made progress in recovering from some illness.

And there is even an appeal process, and there are numbers of

people who actually are able to be accepted in the program after

they go through that appeal process. Often it is because we get a

vital piece of information that they did not make available to us

in the original application process.

Mrs. JO ANN DAVIS OF VIRGINIA. Let me give you an example,

one couple, and they looked as healthy as you and I. They were

probably in their early 70’s. Both had diabetes, but I mean, my sister-in-law has diabetes, and she is falling apart. These two folks

looked perfectly healthy, but they were both declined.

Mr. FORTE. Yes. Well, diabetes is a tricky, tricky thing to talk

about. You know, if it is insulin dependent diabetic from childhood,

you know, that would be grounds for declination. If it is adult onset

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and it is controlled by medication and there are not other complications such as heart disease, very high blood pressure, weight problems and so forth, that condition may be accepted.

And in fact, we do accept people who have diabetes, but you

know, you have to look at all of the facts, and often when you read

the reports that we read from attending physicians, a picture

emerges that is different than the one that, you know, may have

been described to you over the telephone or in passing and in the

hallway.

And you know, we employ experienced nurses who have clinical

experience, are soundly trained in underwriting. They understand

these conditions. We have physician examiners who are consultants

and are specialists in various families of conditions, and they review the applications. We have underwriters from both John Hancock and MetLife who have reviewed some of the tougher applications, and you know, if it is an appeal, our Director, who is very,

very knowledgeable, is involved in every single one of those.

But I would just say in conclusion that, you k now, it is a shame

that we cannot accept more, but there is a tradeoff between getting

a brand new program like this off to a strong start and accepting

so many people that you would put the program at risk, destabilize

it early on, and then you would have to do something with the

rates, and that is something that we all agreed from the start we

wanted to avoid.

Mrs. JO ANN DAVIS OF VIRGINIA. One more question, and then

Mr. Van Hollen, I was going to go to you. Do you need to go?

Mr. VAN HOLLEN. No, that is OK.

Mrs. JO ANN DAVIS OF VIRGINIA. OK.

Mr. VAN HOLLEN. Thank you very much.

Mrs. JO ANN DAVIS OF VIRGINIA. My ranking member alluded to

the fact that at the beginning it was apparently all hashed out a

great deal as to the fact you would go with one carrier. That was

before my time, obviously.

Do you think that having more than one carrier would make a

difference? You know, we heard earlier talking with OPM that, you

know, you have all of these choices which keeps the competition

and, you know, keeps the rates down, and it is probably not a fair

question to ask you.

But if there were more carriers other than you, would it bring

the price down? Would there be competition? Would it give choice

to the folks and would it be a better program?

Mr. FORTE. At the risk of this statement appearing

counterintuitive, I would say no. I do not see how——

Mrs. JO ANN DAVIS OF VIRGINIA. That is what I expected you to

answer, but OK.

Mr. FORTE. The making available of another officially sponsored

Long-term Care Insurance Program would strengthen what we are

doing right now, and the reason is that you want to build a large

risk pool coming right out of the gate. You do not want to have separate smaller sort of pods of risk pools that are being independently managed by various consortia. If you do that, then everybody

who is doing that will have—there will be more volatility, and I do

not think that you would get the same very robust program that

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is being offered in the Federal Long-term Care Insurance Program

today.

We have one of the most generous informal care benefits on the

market, whereby you can have friends and neighbors and family

members take care of you, and we will reimburse them.

We have a third party claim appeal process where if you do not

like our decision on a claim, you have the right to go to an expert

who is an independent reviewer, and that decision, if it goes

against us, is ultimately binding on us.

You can get coverage anywhere in the world. There is no war exclusion. There are features. This is the engineering that is beneath

the hood that people do not always see on this program. And what

I would submit to you, Madam Chairwoman, is that if there were

to be a number of smaller risk pools, HMO type arrangements, no

one would be able to match the terms that are currently being offered here.

Now, let me just say——

Mrs. JO ANN DAVIS OF VIRGINIA. Because you are new and there

is a smaller pool. But down the road if there were 8 million people

in it, it would be a different story.

Mr. FORTE. That is right. That is a different story. You know, altogether there probably are not more than about 7 million people

who have private long-term care insurance across this vast country,

even though products have been available, as representatives from

OPM noted earlier, for some 15, 20 years. So you know, there are

relatively small numbers of people who have this, and there is no

Federal subsidy of any kind.

So people must pay 100 percent of the cost of this, and the challenge is to educate them about the importance of long-term care,

the risks that they are under, the difficulty of trying to save on

your own, and how much value you can actually get, how this

would really be the difference between your being able to maintain

your financial security or not at some later point in your life.

Now, if there were to be millions of people who were enrolled in

the program, that would be a different thing, and the only other

thing I will just close with and say is that we have a lot of competition. There are dozens and dozens of top quality insurers competing

for people in your district and all over the country. In fact, many

of those agents have reported some good results because we are

generating a lot of discussion and a lot of awareness.

I would say that people do have options, but to get the program

that they have today would not be possible if you were to break it

up and have a dozen separate sponsored plans.

Mrs. JO ANN DAVIS OF VIRGINIA. Mr. Davis, do you have a question?

Mr. DAVIS OF ILLINOIS. Well, just one. Let me make sure that I

understood Mr. Gammarino.

Did you actually say that most of the FEHBP carriers are carved

out from the cost accounting standards?

Mr. GAMMARINO. Right now we are all carved out, but prior to

the administrative waiver by Director James, the intent was that

it would only apply to a small minority of carriers which are called

the experience rated carriers. That is not the majority of carriers.

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The majority are what we call community rated HMOs, which

were about 80 percent of the carriers, and they were excluded from

the cost accounting standards, and they, like Blue Cross/Blue

Shield, have their systems for the FEP program imbedded in their

private insurance products as well.

Mr. DAVIS OF ILLINOIS. Thank you.

Thank you, Madam Chairwoman. That is all.

Mrs. JO ANN DAVIS OF VIRGINIA. I just have a couple more questions, and we may have some questions for the record that we may

want to submit to you all to get you to answer.

Dr. Fineberg, I am not sure. You have to leave in 5 minutes. So

let me ask you real quickly, and you may not know the answer to

this. But how do you think the life expectancy—you know, we are

living so much longer—how do you think that will affect the Longterm Care Insurance Program? Is that something you could answer?

Dr. FINEBERG. Well, I think actuarially what is interesting about

the length in survival, contrary to some earlier expectations is people are also living healthier longer so that actuarial projections

about the burden of long-term care and when it occurs, on average,

have been improving over time.

Mrs. JO ANN DAVIS OF VIRGINIA. You mean later on in life?

Dr. FINEBERG. Later in life and on average, and, therefore, that

is all to the good for the idea of a pooled insurance scheme, but the

premise that ultimately a substantial fraction of us will require

some form of long term care remains valid, and the only real challenge in this is putting together the kind of attractive package that

people in their own interests can find it within their means and

sensible for them early on to make that investment. That is the

trick.

Mrs. JO ANN DAVIS OF VIRGINIA. I am going to try to get you out

of here by 4:15.

Dr. FINEBERG. Thank you. I will try to be brief, too.

Mrs. JO ANN DAVIS OF VIRGINIA. One quick question. Doctors

now are practicing defensive medicine, if you will, ordering more

tests and things that are really not necessary just to try to avoid

potential lawsuits. What do you think that is doing to the cost of

our health care system?

Dr. FINEBERG. It is driving costs up, and I believe that our current system of malpractice serves neither the interest of the patients who may be injured nor the interests of medical care very

well. This is a separate area obviously, but it is another huge potential area of improvement.

Mrs. JO ANN DAVIS OF VIRGINIA. Well, I am very concerned about

our health care system and the cost, and I am going to let you go

because I know you have to go, and I am going to see.

Mr. Gammarino, I do not want to do anything to make those

other, I forget how many million you said, 88 million folks that are

with Blue Cross/Blue Shield, because I am one of those. I am not

under FEHBP. We are under a separate one. So I do not want your

costs to go up to those folks either.

Mr. GAMMARINO. Thank you.

Mrs. JO ANN DAVIS OF VIRGINIA. That does not mean that I

agree with you but—no, just kidding.

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I am going to give any of you a chance to say anything else you

want to say before we close out.

Dr. FINEBERG. Thank you, Madam Chairwoman.

Mrs. JO ANN DAVIS OF VIRGINIA. Anyone else? Mr. Forte.

Mr. FORTE. I would just like to make one more comment. It is

important to note we have established an experienced fund for this

program, and if it turns out down the road that, you know, there

is, you know, excess premium because of ratings; we have been

conservative, it will be possible to enhance benefits or make modifications of one kind or another.

The same thing goes for claims. The carriers cannot benefit because there were fewer than anticipated claims. We are strictly reimbursed according to certain measures for our expenses and for

our profit and other elements of experience stay in the fund and

ultimately belong to the fund and belong to all of the participants.

Mrs. JO ANN DAVIS OF VIRGINIA. I want to thank you, Mr. Forte.

You have given me a lot of answers to questions that I had today

that I will be able to carry back to my constituents and be able to

explain the situation.

And, Dr. Smith, I thank you for being here today and Mr.

Gammarino and, Charlie, it is always good to see you, and with

that the hearing is adjourned.

[Whereupon, at 4:14 p.m., the subcommittee meeting was adjourned.]

[Additional information submitted for the hearing record follows:]

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