U.S. GOVERNMENT PRINTING OFFICE

61–494 CC WASHINGTON : 2000

IMPLEMENTING THE FEHBP DEMONSTRATION

PROJECT FOR MILITARY RETIREES: GOOD

FAITH EFFORT OR ANOTHER BROKEN PROMISE?

HEARING

BEFORE THE

SUBCOMMITTEE ON THE CIVIL SERVICE

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

JUNE 30, 1999

Serial No. 106–62

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.house.gov/reform
(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

HELEN CHENOWETH, Idaho

DAVID VITTER, Louisiana

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

CARLA J. MARTIN, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON THE CIVIL SERVICE

JOE SCARBOROUGH, Florida, Chairman

ASA HUTCHINSON, Arkansas

CONSTANCE A. MORELLA, Maryland

JOHN L. MICA, Florida

DAN MILLER, Florida

ELIJAH E. CUMMINGS, Maryland

ELEANOR HOLMES NORTON, Washington,

DC

THOMAS H. ALLEN, Maine

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

GEORGE NESTERCZUK, Staff Director

GARRY EWING, Counsel

JOHN CARDARELLI, Clerk

TANIA SHAND, Minority Professional Staff Member
(III)

C O N T E N T S

Page

Hearing held on June 30, 1999 ............................................................................... 1

Statement of:

Carrato, Thomas F., Rear Admiral, USPHS, Director, Military Health

Systems Operations, Tricare Management Activity, Department of Defense; and William E. Flynn III, Associate Director for Retirement

and Insurance, Office of Personnel Management ....................................... 78

Hickey, Sydney T., associate director, government relations, National

Military Families Association; Charles C. Partridge, Col., U.S. Army

(Retired), legislative counsel, National Association of Uniformed Services; Kristen L. Pugh, deputy legislative director, the Retired Enlisted

Association; and Stephen W. Gammarino, senior vice president, Federal

employee program, Blue Cross Blue Shield Association ............................ 26

Moran, Hon. James P., a Representative in Congress from the State

of Virginia; Hon. Carlos Romero-Barcelo ́, a Representative in Congress

from Puerto Rico; and Hon. Randy ‘‘Duke’’ Cunningham, a Representative in Congress from the State of California ............................................. 6

Letters, statements, et cetera, submitted for the record by:

Carrato, Thomas F., Rear Admiral, USPHS, Director, Military Health

Systems Operations, Tricare Management Activity, Department of Defense, prepared statement of ........................................................................ 80

Flynn William E., III, Associate Director for Retirement and Insurance,

Office of Personnel Management:

Information concerning legal authority ................................................... 117

Prepared statement of ............................................................................... 98

Gammarino, Stephen W., senior vice president, Federal employee program, Blue Cross Blue Shield Association, prepared statement of .......... 62

Hickey, Sydney T., associate director, government relations, National

Military Families Association, prepared statement of ............................... 28

Moran, Hon. James P., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 9

Partridge, Charles C., Col., U.S. Army (Retired), legislative counsel, National Association of Uniformed Services, prepared statement of ............ 44

Pugh, Kristen L., deputy legislative director, the Retired Enlisted Association, prepared statement of ..................................................................... 52

Romero-Barcelo ́, Hon. Carlos, a Representative in Congress from Puerto

Rico, prepared statement of ......................................................................... 16

Scarborough, Hon. Joe, a Representative in Congress from the State

of Florida, prepared statement of ................................................................ 3

(1)

IMPLEMENTING THE FEHBP DEMONSTRATION PROJECT FOR MILITARY RETIREES:

GOOD FAITH EFFORT OR ANOTHER BROKEN PROMISE?

WEDNESDAY, JUNE 30, 1999

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON THE CIVIL SERVICE,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:09 a.m., in room

2203, Rayburn House Office Building, Hon. Joe Scarborough (chairman of the subcommittee) presiding.

Present: Representatives Scarborough, Miller, Cummings, and

Norton.

Staff present: George Nesterczuk, staff director; Garry Ewing,

counsel; John Cardarelli, clerk; Tania Shand; minority professional

staff member; and Earley Green, minority staff assistant.

Mr. SCARBOROUGH. Good morning. I would like to welcome everybody to this hearing before the Civil Service Subcommittee.

Today our subcommittee is going to examine the implementation

of the demonstration project established in last year’s defense authorization bill to allow Medicare-eligible military retirees and certain others to enroll in the Federal Employees Health Benefits Program. The purpose of this project is to test the FEHBP as an option

for providing military retirees and others with high-quality, affordable health benefits.

This is a high priority for me since I represent more military retirees than any other Member of Congress. I have seen first-hand

some problems that have plagued TRICARE, the military health

care system for military families and some retirees, in my district

and throughout the country. I know how hard I had to work to persuade doctors in my district to even join up in the TRICARE system and I know that many of them, even after our initial rounds

of hearings, rejoined and then left again.

Military retirees who are eligible for Medicare are particularly

ill-served by the current military health care system. The vast majority of them are locked out of TRICARE and the dwindling number of military treatment facilities. They are the only retired Federal employees who are expelled from their employer’s health benefits program after a lifetime of dedicated service. Members of Congress are not, nor are retired civilian employees. In my opinion,

this is unconscionable.
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When I assumed the chairmanship of this subcommittee, I said

early on that I hoped one of the my highest priorities would be to

improve the health care available to the families of the men and

women who serve or have served our Nation under arms. For that

reason, this subcommittee will closely monitor the implementation

of this demonstration project.

Unfortunately, the actions of DOD and of OPM, the two agencies

charged with conducting this project, have raised serious concerns

in some people’s eyes. As a result of their decisions, many believe

that it seems very unlikely that the demonstration project will be

as large as the U.S. Congress had first intended. Congress intended

that 66,000 military retirees would be able to participate in

FEHBP. Whether to save money or for other reasons, DOD and

OPM have limited the total population of eligible beneficiaries in

the test site to about 69,000.

Few really believe that almost 100 percent of those eligible will

alter their current health care arrangements to enroll in a temporary, 3-year program. As a result, we are likely to have a demonstration project that is much smaller than what the U.S. Congress originally expected it would be. The small size of the demonstration project may deprive military retirees of the wide range

of choices available to civilian retirees and to Members of Congress.

It may drive up the premiums they will have to pay.

As a result of these decisions, the demonstration project may not

provide an adequate test of the FEHBP. Unfortunately, many retirees will conclude that, despite their years of sacrifice to serve this

country, the government has broken yet another promise to them.

I want to pledge to them, as I know other members of this committee want to pledge also, that we will continue to work with

other Members, military organizations, and all interested parties to

improve the quality of health care available for military families

and military retirees. I believe this is going to be the first of many

hearings and much effort by this committee to ensure that Congress does not break their promise to the men and women who

have served this country so proudly for so many years.

[The prepared statement of Hon. Joe Scarborough follows:]
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Mr. SCARBOROUGH. With that, I would like to turn it over to the

distinguished ranking member, Elijah Cummings from Maryland,

Mr. Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman. And I—

the last words you echoed, I agree wholeheartedly we cannot—I see

so often where promises are made but not kept and I, too, agree

that we must keep our promises. I also extend a warm welcome to

the witnesses, particularly our congressional colleagues on the first

panel who will be testifying before this subcommittee in a few minutes.

Non-active duty military beneficiaries, those over 65, are finding

it difficult to get access to military health care system TRICARE.

Retirees over 65 can obtain military health care only if space is

available and after TRICARE enrollees and other active-duty members and their dependents receive care. In addition, when they are

able to access TRICARE, they face high out-of-pocket costs and limited, if any, pharmacy benefits. Military beneficiaries are desperate

for a solution to the inadequacies of TRICARE and want to be included in the FEHB Program.

The idea of improving access to health care for military families

through the Government Employees Health Benefits Program has

been around since 1995, when this subcommittee held its first

hearing on this issue. During the 105th Congress, Representatives

Moran and Thornberry, along with other Members of Congress, introduced legislation to address some of the difficulties with the

military health care system.

Some of the bills would have authorized immediate nationwide

access to FEHBP for Medicare-eligible military beneficiaries. Other

bills propose establishing an FEHBP demonstration project to better determine government costs and beneficiary interest before deciding whether to implement the option nationwide. This is the approach that was taken in section 721 of the National Defense Act

of 1999.

Section 721 of the National Defense Act calls for the Department

of Defense and the Office of Personnel Management to implement

a FEHBP demonstration project for Medicare-eligible retirees and

dependents. The program should cover up to 66,000 military health

systems beneficiaries, with DOD contributing to the premiums; 6

to 10 sites must be chosen with no more than 1 site per region. The

statute also requires that a separate risk pool be maintained for

military beneficiaries. The FEHBP demonstration project is one of

three demonstration projects that is or will be on the way to examine different ways of improving the military health care system for

military beneficiaries who are over 65.

Finally, we are here to discuss how the statutory requirements

of section 721 are to be implemented and how the program will be

evaluated once the FEHBP demonstration project is complete.

The demonstration projects that are on the way are temporary

and were put in place to help us come up with a permanent solution to the problems facing the military health care system. I look

forward to the testimony of today’s witnesses and I thank you

again, Mr. Chairman, for holding this hearing.

Mr. SCARBOROUGH. Thank you, Mr. Cummings.
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Now it is with great honor we can introduce our first panel testifying today. We have Representative Jim Moran of Virginia. We

have Resident Commissioner Carlos Romero-Barcelo ́ of Puerto Rico.

And we are expecting to have Representative Randy Duke

Cunningham to testify before this committee very shortly.

They have all been very interested in this issue for some time.

I know I have had numerous military retirees in my district telling

me to go talk to Jim Moran, over and over again, about his FEHBP

plan and we have done that. I want to thank these gentlemen for

what they have done in the past. We certainly look forward to their

testimony.

Mr. Moran, would you like to begin?

STATEMENTS OF HON. JAMES P. MORAN, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF VIRGINIA; HON. CARLOS

ROMERO-BARCELO ́, A REPRESENTATIVE IN CONGRESS

FROM PUERTO RICO; AND HON. RANDY ‘‘DUKE’’

CUNNINGHAM, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF CALIFORNIA

Mr. MORAN. Fine, Mr. Scarborough. Thank you very much, Mr.

Chairman and Ranking Member Cummings, for—Hi, Duke; how

are you—for letting us testify at today’s hearing on implementing

the FEHBP demonstration project for military retirees. And I look

forward to reading the testimony of your other witnesses.

As you know, I introduced legislation last Congress which established the Federal Employees Health Benefits Program demonstration project for military retirees. And, with the help of some extraordinarily good original cosponsors, this measure received overwhelming bipartisan support, drawing 292 cosponsors ultimately

and illustrating strong interest among all the Members in seeing

this demonstration project move forward.

I got involved in this issue 4 years ago as a result of the difficulties faced by many of my constituents in finding access to quality,

affordable health care once they retire from the military. And as

you say, the same thing was happening within your constituency.

I think that was pretty well experienced. I know you do have an

extraordinarily large military retiree population, so we are particularly sensitive to it.

We are pleased to see DOD moving forward with the FEHBP

demonstration project. But I am concerned that its limited scope

and funding will preclude an accurate demonstration of the true effectiveness of the Federal Employees Health Benefits Plan to military retirees. I would encourage this subcommittee to continue to

exercise its oversight of the program because we are going to be

looking to you to ensure that a full and fair demonstration is conducted.

But the demonstration, I think, was just an attempt to bide time

to avoid tough decisions and to save money and I think this feeling

may be shared by many of my colleagues. The Congress and the

Department of Defense really should be expanding FEHBP now to

the larger military retiree population in this country because now

is when the TRICARE program is being implemented, now is when

military retirees are being rejected from military care at the military treatment facilities around the country, now is when they
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need this. And, instead, what we have is a very limited demo

project. And it may be so limited it is not going to give us information that is going to be particularly useful. That is why the representatives of so many organizations that have worked so hard on

this are present today.

FEHBP, as you so very well know and your chief of staff on this

subcommittee has been working on this program for a long time,

this is a phenomenally successful health care program, when you

consider that it covers almost 9 million participating Federal employees and their families. With 1.3 million military retirees over

the age of 65 today and an expectation that we are going to have

1.6 million by 2005, FEHBP is the most viable program for military

retirees who no longer have access to the military health care system.

But the problem with other approaches, even Medicare subvention, is that so few military retirees live within a military

catchment area. So having Medicare subvention at military hospitals is just not a reasonable option for regular medical for them.

The FEHBP is all over the country.

Now I have also cosponsored other related legislation to grant

Medicare-eligible military retirees the option of participating in

this program. There are a number of approaches. Randy

Cunningham—we call you ‘‘Duke,’’ I guess—has introduced the

Health Care Commitment Act, H.R. 205. This provides health care

once military retirees become eligible for Medicare and are prohibited from participating in TRICARE and shut out of medical treatment facilities if they are not willing to be last on the priority list

for receiving care.

It just seems as though when people need care the most to then

deny it to them is—what is wrong with this picture? And what is

wrong is the absence of a program like the FEHBP that is available for all civilian retirees.

You know, when we recruit young men and women to go into the

Nation’s military, we promise them that they will get health care

for life and that it will be quality health care. It may not have been

a contract, but there was action as a result of that promise. There

was a, if not a written contract, there was certainly consideration

given. And I think you could make a strong case that, in fact, within our legal system, it could be considered a contract. There was

never any mention that once they had served their country and

turned 65, that DOD would ever consider reneging on this promise

and turning them away from insurance programs and from military treatment facilities. DOD is the largest Federal employer in

the Nation. So to kick its employees out of health insurance programs is an irony that cannot be sustained.

A lot of what I have to say is duplicative. I am not going to get

into that any more because I am preaching to the choir. Everybody

in this room understands this argument.

But in order to achieve a worthwhile demonstration of the FEHB

Program, DOD and the Office of Personnel Management have to

ensure that the actual enrollment is as close to 66,000 as possible.

I think 66,000 is a minimal figure.

But with the limited scope of sights and, as the chairman said,

when it is only for 3 years and there may be some disadvantage
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to retirees and then going into subsequent health insurance programs if the DOD decides not to sustain this, there is a disincentive to go in. So I think it is a real stretch to think that we are

actually going to get 66,000 people, based upon the way the demo

project is constructed right now. I think we are going to need a

larger mix of sites to the eight locations that were selected earlier

this year. We need more ample information on the demo program

provided for military retirees. And we need to incentivize. So that

is the second thing I want to say.

The third thing is the Federal funding commitment. Last year’s

Defense Authorization Bill authorized the sale of assets from the

national Defense stockpile. But now the proceeds of these sales, we

understand, are not going to be available to fund the demonstration. The Federal Government and the Congress has an obligation

to follow through on this project and ensure that it is properly tested. We have to insist that there be adequate offset funding and the

fact that DOD has decided that it is not going to use the proceeds

of these sales for this purpose, I think it is incumbent upon them

to come up with some other offset. That should certainly not be an

excuse not to follow through on this demo project.

We authorized it. We are anticipating it. There are hundreds of

thousands of people who need it. So I trust that the DOD is going

to work with us to ensure that it does go forward.

I addressed Medicare subvention. It works where it is possible,

but I think we are only talking about less than half of the population, at best, even with expanded catchment area definitions that

possibly take advantage of Medicare subvention. So I think we

should have it. It is complementary to what we are talking about.

We should proceed with it. But it certainly is not an option to what

we are attempting to do in making FEHBP available to everyone.

I have said more than enough and you want to hear from my colleagues. But, again, let me conclude where I started. This is a

needed program. I wish we had gone ahead with it without the

demo project. It is going to require a great deal of oversight from

this subcommittee. And I appreciate your having this hearing.

Thank you, Mr. Chairman.

[The prepared statement of Hon. James P. Moran follows:]
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Mr. SCARBOROUGH. I appreciate your testimony and your efforts

in this fight. I would like to recognize next—first of all, welcome,

Congressman Cunningham and also Congressman Miller, both gentlemen who have fought for fairness for our military retirees since

they have been up here. I would like to recognize next for testimony Representative Romero-Barcelo ́ who actually represents one

of the sites that was selected in this demonstration project. Welcome to our subcommittee.

Mr. ROMERO-BARCELO ́. Thank you, Mr. Chairman, Ranking

Member Cummings, and Congressman Miller. I very much appreciate the opportunity to be here to testify at this oversight hearing.

As Congress and the Federal Government consider the alternatives to improve access to health and medical services while increasing the effectiveness and the efficiency of these services and

striving to contain escalating costs, I believe that it is essential

that we assess and determine the impact of the proposals on one

of our most vulnerable populations, our military retirees. And these

citizens have dedicated a substantial part of their lives in the defense of our Nation and, including those who are also veterans,

have selflessly safeguarded American democratic values, often at

the risk of their own lives.

We must fulfill our promises to them. It is the right thing to do.

And it also happens to be in the best interests of the Nation.

And, in particular, I welcome the opportunity to appear before

you today in this hearing to provide a voice for the thousands of

military retirees in Puerto Rico, whose health needs have been neglected when compared with their fellow citizens in the 50 States.

For instance, in Puerto Rico, it took over 12 years for the Veterans

Administration to recognize that the hospital facilities of the Veterans Administration were inadequate, insufficient; and overcrowded. It was 12 years before we finally got the funding. I don’t

think this ever happened in any other State. We waited that long

for the recognition. I think the retirees only have one hospital in

Puerto Rico where they can go.

So, I consider Puerto Rico’s selection as one of the demonstration

sites as a most fortuitous and challenging opportunity. Indeed, I

view it as a turning point in the availability of adequate and appropriate health services for this here-to-fore poorly served population.

The demonstration program as proposed would limit the total

population of eligibles to the test sites to 66,000, of whom approximately 9,900 reside in Puerto Rico. And I believe that the Puerto

Rico site enables the Department of Defense to evaluate issues that

have not been considered previously.

The situation for military retirees and their beneficiaries in

Puerto Rico is most unusual. It is unbelievably limited by the status of the territory, when viewed in the context of the rights and

the benefits of military retirees in any of the 50 States. For instance, in the 50 States, retirees under the level of poverty would

be entitled to Medicaid services. In Puerto Rico, we don’t have

Medicaid. We only get about one-tenth of what we would get if we

were treated the same as a State.

Much can be learned from the selection of Puerto Rico as a demonstration site, including access to treatment for individuals in re-
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mote locations and providing treatment to military retirees and

their beneficiaries with limited English language proficiency.

Hearings in the 104th and 105th Congresses revealed serious deficiencies in the military health care system and it is the responsibility of the Congress to consider and develop alternatives that will

improve services, especially in situations similar to those experienced by the retirees at home. Currently, the military retirees in

Puerto Rico experience critical barriers to health services that are

of grave concern to me. Retirees in the island are more likely to

depend on the treatment and services offered at military hospitals,

including free prescriptions. Why? Because, as I said before, the

military indigent retirees do not have access to Medicaid.

I must point out that the only full-service hospital in Puerto Rico

is in Roosevelt Roads Naval Station in Sabana Seca on the eastern

coast. So even though military retirees reside at cities throughout

Puerto Rico, they must travel to the remote site of Roosevelt Roads

to be provided service on a space-available basis.

Travel from San Juan, the capital, to Roosevelt Roads may require anywhere from 1 to 11⁄2 hours, but travel from Mayaguez on

the western coast, would require a minimum of 3 to 4 hours of

travel. By any standards, these are unacceptable amounts of time

in a medical emergency. The remoteness of the location plus the

availability of treatment strictly on a space-available basis, impose

serious health hazards and an unacceptable risk to patients.

But it is also a challenge to provide medical care to a population

that may have limited English language proficiency. The language

barrier may limit the availability of enrollment documents and access to appropriate health services, particularly in the case of beneficiaries. I am pleased to note that the Department of Defense is

developing materials for distribution in both English and Spanish.

An issue of particular concern is that—and I would like to point

out here that some people object to the fact that they have to translate to Spanish. Well, those that served in the military, were never

asked what language they spoke before they were asked to risk

their lives. And I would also like to mention that, in the time of

war, the volunteers have always been more than enough to cover

the quotas in Puerto Rico.

An issue of particular concern that I would like to ask the Office

of Personnel Management to address is the availability of the same

level of benefits for military retirees in Puerto Rico as for retirees

in the 50 States. I have been informed that the level of service provided to retirees in the island are not always comparable to retirees elsewhere in the Nation and would appreciate a clarification

and detailed information on this issue.

For instance, only TRICARE standard plan is offered in Puerto

Rico, whereas military retirees in the rest of the Nation have access to TRICARE Prime and TRICARE Extra.

The demonstration program will only be available to Medicareeligible military retirees and their beneficiaries. Since there are

some issues concerning Federal health programs that apply differently in Puerto Rico, I would also like clarification in terms of

the impact of those programs on this demonstration group.

It is important to note that the U.S. citizens of Puerto Rico do

not have access to some of the Federal health programs that are
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designed to protect the neediest populations. For instance, in Puerto Rico, there is no Federal cost-sharing program under Medicare

for eligible low-income individuals. This means that elderly, indigent individuals cannot receive assistance for their Medicare fees

and deductibles as elsewhere in the Nation, where they would receive Part B assistance. In addition, Medicaid is, for all practical

purposes, nonexistent in Puerto Rico.

I believe that this demonstration program is a step in the right

direction and I wish to commend the Department of Defense for the

opportunity to incorporate the needs of Puerto Rican-American

military retirees and to consider the factors that limit their access

to adequate health services. While I cannot estimate the number

of retirees and their beneficiaries that will select this plan, I am

sure that most will welcome the availability of more plan choices.

As with any new program, there are areas of specific concern that

must be considered and carefully monitored to ensure the successful implementation of a program of this magnitude.

Mr. Chairman, once again, I thank you for the opportunity to

bring my concerns to your attention and consideration. Throughout

the century, the American citizens of Puerto Rico have demonstrated their patriotism by upholding American democratic values whenever and wherever it has been necessary in the world and

contributing to the national defense and national security concerns.

Right now, as a matter of fact, there is one area in the whole nation where the Navy is bombarding with live ammunition close to

where people reside and that is right in Puerto Rico at Vieques. No

other citizens in the Nation are subjected to that kind of concerns

and anxiety.

We recently had one bomb explode. It was off-target and a civilian guard was killed. He was working for the Navy, but he was a

civilian. He was killed and three others were wounded.

However, despite this accomplished record of service, they are

not receiving the same benefits as the rest of their fellow citizens.

And particularly the colleagues with whom they serve. Puerto

Rico’s selection as one of the demonstration sites is most welcome

and I believe that, as a test site, it will provide invaluable information concerning the provision of benefits to military retirees and

the conduct of health programs in remote locations.

In addition, the military faces renewed challenges in the recruitment and retention of military personnel and has focused a great

deal of resources on recruiting minorities. It is critical that the

needs of that diverse force be foremost in Congress’ consideration

to ensure equality and to ensure that we keep our commitment and

fulfill the promises made to all the men and women who serve our

Nation. I urge you to remember that Puerto Rico has always responded to our Nation’s call. Thank you very much.

[The prepared statement of Hon. Carlos A. Romero-Barcelo ́ follows:]
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Mr. SCARBOROUGH. Thank you, Representative. I appreciate you

being here to help us better understand this issue and certainly do

appreciate you stating for the record the sacrifices that the people

of Puerto Rico have made in the past. Again, I appreciate your

being here and look forward to asking you some questions later.

Mr. ROMERO-BARCELO ́. Thank you, Mr. Chairman.

Mr. SCARBOROUGH. I would like to now welcome Congressman

Randy ‘‘Duke’’ Cunningham, also a champion of military retirees

and their dependents. I know this because I hear it from my grandmother who Duke represents in Solana Beach who tells me I need

to be more like. [Laughter.]

So I say, thanks, Grandmom.

Mr. CUNNINGHAM. That is funny because my mom tells me I

need to be more like you.

Mr. SCARBOROUGH. There you go. There you go. But, anyway, we

appreciate you being here along with the other gentlemen who

have been fighting for military retirees.

Mr. CUNNINGHAM. Thank you, Mr. Chairman. I would like to associate myself with the comments of my colleagues. I think they

are right on the money. And I would also let my colleague, RomeroBarcelo ́

, know that not many people realize when he talks about

minding people talking in Spanish, there have been more Medal of

Honor winners, Hispanic Medal of Honor winners, for representation and population, than any other group. And, yes, they have

paid the price. And their values, their family values, their military

patriotism is second-to-none. And I would like my colleague to

know that and I would like to put it on the record, as well.

The subvention bill. When I came to Congress in 1990, it was my

bill. I didn’t write it. My veterans in San Diego had tried 4 years

prior to that to get it through Congress and they couldn’t. And we

finally got that subvention bill through and then we had to even

fight to get Balboa Naval Hospital in San Diego listed on the group

and it was my bill. Somebody in the Senate wanted to steal the

project, but we didn’t allow that to happen.

But it is just a band-aid. And one of the terms that you hear

from our military over and over again, that there are just bandaids out there. And I saw a movie once called Broken Arrow. Well,

it was because of a broken promise. And for those of us that have

been in the military that we were promised health care for life

after that. Now these aren’t people that are setting back not paying

taxes, not working. They make the sacrifices and many times the

ultimate sacrifice.

But people don’t know that about every 2 years, military members are uprooted from their homes. They have to move. They can’t

make investments. That means that their spouses quite often can’t

get a job. Their children are ripped out of the schools and it is a

very difficult situation for families.

And right now, there is a strong irony that we are having difficulty keeping people in the military. The No. 1 reason is family

separation and all of the deployments from Haiti to Somalia to Bosnia to Kosovo to Iraq to all the rest of them. But the No. 2 reason

is the erosion of what they consider promises made to them. In

1993, the White House cut both military and veterans COLAs.

And, in a bipartisan way, I saw my own party, when we took the
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majority, in the Budget Committee, try and cut veterans COLAs.

We stopped that in our conference and we got bipartisan support

to stop that, thank goodness.

But those kinds of things, our military that make all these sacrifices look back and that is why we are only keeping 23 percent

of our enlisted, only 33 percent of our pilots. Our military experience, our quality of personnel is eroding, our equipment is being

degraded. And, at the same time, while they are overseas, they are

seeing their families not receive the health care that they were

promised in active duty.

And then when they get out—we are losing, every year, great

numbers of World War II veterans. They are dying. We are talking

to people that are between 70 and 90 years old. And their life expectancy in the last few years, they want some health care above

65 years of age.

There are a lot of military brats that pass on, too. My wife is one

of them. Her dad is retired Navy. But, usually, when those sergeants, when those enlisted and officers get out, they talk to their

children about how good the benefits are in the service. That while

they won’t ever be rich, at least they can serve their country well

and when they get out, the government is going to honor their

pledge. That hasn’t been the case.

For example, General Krulack is retiring today as commandant

of the Marine Corps. He gets out at 65. Here is a guy that has been

through war. Look at his chest, at the sacrifice that he has made.

And, yet, General Krulack has served 30 years in the U.S. Marine

Corps. A secretary in his office that works with him at 65 gets

FEHBP. He does not. There is something wrong with that equation

in the fact that, after you make all these sacrifices, that a civilian

Federal employee or they don’t get the same benefits that you and

I do here in Congress. And that is wrong.

And Mr. Moran and Mr. J.C. Watts, myself, Mr. Romero-Barcelo ́

have tried to sponsor a bill to make a level playing field for our

military veterans in this. And it is something we feel very passionate about. I think it is very important to have a balanced budget. Most of us signed an agreement in 1997. The President signed

it. And to stay and not break those agreements is important. But

when we are moving money around in allocations, the one area

that we ought to sacrifice for is for our veterans. And, down the

line, by having a balanced budget, we are going to get them more

money by reducing the debt, so we don’t have to pay $1 billion a

day on the national debt.

So, two important factors is to stay within a balanced budget but,

at the same time, make those tough choices in the priorities. And

those should be our veterans. Thank you.

Mr. SCARBOROUGH. Well, I appreciate it and certainly identify

myself with your remarks also and everybody on the panel’s remarks. I have been told the story before that my grandfather, who

has since passed away, was a member of that World War II generation that you were talking about and after serving this country for

30 years and serving in World War II and the Korean War, he died

a very bitter man toward his government whom he had given his

whole life to, because of broken promises.
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Mr. CUNNINGHAM. I would like to submit this for the record, my

complete statement.

Mr. SCARBOROUGH. Without objection. I would like to have that.

Let me recognize Dan Miller. Any comments or questions?

Mr. MILLER. The only comment is we are preaching to the choir

with our group. I am just interested to hear some of the other comments. And so I am just glad you are having the hearing. Thank

you for having it.

Mr. SCARBOROUGH. Great. Appreciate your being here. Mr.

Cummings, do you have any questions?

Mr. CUMMINGS. No, I don’t have any questions, but I want to

thank you all for your testimony and certainly we are all very, very

sensitive to this issue. And I just hope that we can—I always say

that we really have to put a face on policy and I think sometimes

what happens is up on the Hill, we don’t put the faces, sometimes,

with the policy. And I think you all helped to bring that to light

and we really do appreciate it. And so we will hear from these

other witnesses and, hopefully, they will be able to shed additional

light. Thank you very much.

Mr. SCARBOROUGH. Thank you. Let me ask one or two questions

and if other Members have any followup, feel free to do it. Congressman Cunningham, let me ask you, what do you think the

most important thing Congress could do right now to improve this

demonstration project so when it is over we actually, in Congress,

have a better understanding of what we have done and whether it

is going to work in an expanded situation or not?

Mr. CUNNINGHAM. Well, many of us, when the demonstration

project came out, said that the number of 66,000 is not enough. We

said it has been interpreted so that you are not even filling the

quotas that you have and that the numbers that you have will offset an unrealistic cost because those are the people that are in dire

need of it and they are not living long and they need, you know,

advanced medical care.

The best thing we could do is to put this across the board just

like, you know, civilian Federal employees do. You know it has

been very difficult to get this through. Mr. Moran and Mr. Barcelo ́

and myself and I think over 260-some cosponsors criticized the

project when it first came out, realizing that it was just a bandaid. And I think we need full implementation. I don’t know if the

panel agrees. And you are going to find cost savings in it because

you are not going to have these people—just like where we are trying to give pharmaceuticals to Medicare recipients, which we support, those people that need it.

I think the only way to really enhance the project is to have full

implementation of the program and either support Mr. Moran’s bill

or mine. We are both cosponsors of each other’s bills. Because they

add, I think, the best bang for the dollar for military active duty

and retired personnel. But I think it is a little unrealistic what we

have set up to make it work and I think the cost is going to come

out high because of the way that it was set up.

Mr. SCARBOROUGH. Representative Romero-Barcelo ́, you had indicated before that you wanted clarification of the impact of other

Federal health programs on the demonstration project. Can you expand on that about what issues you think need to be clarified as
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we go through this project? Also, have you approached DOD or

OPM to get answers?

Mr. ROMERO-BARCELO ́. No, I have not yet approached the DOD

or OPM. What I think about is that, in Puerto Rico, I mentioned

in my testimony, when the veterans or the retirees run into hard

times and their pension is not enough and they are on the poverty

line. They do not have access to the same health programs that

they have in the rest of the Nation. For instance, as I mentioned,

Medicaid. In Puerto Rico, we only get about $171 million in Medicaid. If we were to have the same formula, it would be about $1.4

billion.

Mr. SCARBOROUGH. You get $171 million in Medicaid, and what

is your population?

Mr. ROMERO-BARCELO ́

. 3.8 million.

Mr. SCARBOROUGH. OK, thanks.

Mr. ROMERO-BARCELO ́. What we would be getting would be about $1.4 billion. That means that the people, all of the veterans, any

retiree under the poverty quideline does not have access to Medicaid because it is nonexistent. The State government gives services, but it cannot give services to the same extent as Medicaid because we lack the funding.

An example, for instance, this is a simple case, diabetes. Diabetes coverage under Medicaid, you get the equipment and the

lancets and the strips for taking the blood samples. And, at home,

that is not available. If you are diabetic, here you have access to

podiatric services that are not available in their programs. A lot of

the things that come with the Medicaid and are available, because

of the funding are not available in the health care programs in

Puerto Rico.

So how does that impact—all of that—the same people who serve

their Nation the same way with the same loyalty and now they are

retired and they have problems. Their families have problems. You

have veterans whose children are not covered by any health care.

So those are the situations which I think should also be analyzed

at this time.

And problems with access, at times, that has been solved in the

veterans hospital. I don’t know, I have to find out, how that has

been solved in the Naval Hospital at Roosevelt Roads. One time

they had problems because of the language and because of the

availability of the materials that were printed. Now the veteran’s

hospital has had all the materials for quite a few years now printed

in both languages, but I am not so sure about the hospital being

at one end of the island, the naval hospital. Those are the issues,

I think, that are there and many others similar to those.

Mr. SCARBOROUGH. OK. Thanks. Anybody else? Any other followup questions?

Mr. CUMMINGS. Yes. Thank you. Representative Barcelo ́, let me

ask you this. Is the FEHB Program—does it meet the needs of the

civilian population in Puerto Rico now?

Mr. ROMERO-BARCELO ́. No. No. It is not, because of the lack of

access. It is too far away. I mean, because you have some people

who live in the west coast of Puerto Rico, as I said, it takes 3 or

4 hours because of transportation and everything else so they don’t

take advantage of it. They can’t take advantage of it.
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Mr. CUMMINGS. Do you expect the 9,000 Medicare-eligible participants to enroll in the demonstration?

Mr. ROMERO-BARCELO ́

. I think there will probably be many more

than that will try to enroll, if the program gets enough publicity.

I am going to help it as much as I can in giving it enough publicity,

but I don’t know yet what the plans are for the publicity of the program.

Mr. CUMMINGS. You know, Representative Cunningham, Mr.

Moran raised a very interesting issue when you said if you go

through the demonstration project and it doesn’t work, then you

leave these people hanging. I mean, they have gotten used to certain things and then are sort of out there. And I guess what happens—and you all have been around here a little longer than I

have, but I assume that what happens in these demonstration

projects is that there is a presumption that they will be successful.

I guess. And then—well, what happens when they are not?

Mr. CUNNINGHAM. Well, that is the reason many of us criticized

just making it a pilot, that we want a full implementation. There

are plans if it does fail, for those individuals on that particular

plan to go back. But the problem is that we have closed or degraded over 75—just in the United States—military treatment centers. And so when you say go back, go back to what when there

is already a substandard system for them and then they go back.

We are going to make this work, one way or another. There isn’t

any turning around. But what we are asking for is a more realistic

evaluation and not a limit to the project like it is because of the

inflated costs that will come out of it and the lack of enrollees.

What we are looking for is competition. Whether it is Medicare,

whether it is IRAs, whether it is savings accounts, whether it is

Medi-plus, whatever, you know, the things have. It is a competition

and even TRICARE, someone is not eligible when they are over 65,

so this system has got to work and we are going to make it work,

but we would like a more realistic set-up to start with. It is like

in a football game. And if you go out there and you know the referee is all pulling for the other side, you are kind of hesitant and

say, we are going to win this game regardless, but it is tough. And

we are asking just for a fair shake and I think that is what this

committee can give us, Mr. Cummings.

Mr. CUMMINGS. Thank you very much.

Mr. SCARBOROUGH. Thanks a lot. I appreciate it, gentlemen. I

would like to now call our second panel. We have four distinguished witnesses. We have Sydney Hickey of the National Military Families Association; Charles Partridge of the National Association of Uniformed Services; and Kristen Pugh of the Retired Enlisted Association. These three have been forceful advocates for this

demonstration project and were instrumental in building support

for its enactment.

Our fourth witness is Stephen Gammarino. Mr. Gammarino is a

senior vice president for the Federal Employees Program and the

Integrated Health Resources of Blue Cross and Blue Shield Association, who is, of course, the largest carrier in the FEHBP. I would

like to welcome all four of you here. Why don’t we start on our left

by recognizing Ms. Hickey.
26

STATEMENTS OF SYDNEY T. HICKEY, ASSOCIATE DIRECTOR,

GOVERNMENT RELATIONS, NATIONAL MILITARY FAMILIES

ASSOCIATION; CHARLES C. PARTRIDGE, COL., U.S. ARMY (RETIRED), LEGISLATIVE COUNSEL, NATIONAL ASSOCIATION

OF UNIFORMED SERVICES; KRISTEN L. PUGH, DEPUTY LEGISLATIVE DIRECTOR, THE RETIRED ENLISTED ASSOCIATION; AND STEPHEN W. GAMMARINO, SENIOR VICE PRESIDENT, FEDERAL EMPLOYEE PROGRAM, BLUE CROSS BLUE

SHIELD ASSOCIATION

Ms. HICKEY. Thank you very much, Mr. Chairman. Mr. Chairman and distinguished members of the subcommittee, the National

Military Family Association is most grateful for your continued

strong interest in providing quality health care to military beneficiaries. We are particularly appreciative of the subcommittee’s

leadership in examining the progress of the congressionally mandated FEHBP demonstration program.

As this subcommittee is well aware, NMFA would prefer that the

FEHBP option be offered to all military families and retirees. Short

of that, we firmly believe that at least the Medicare-eligible military beneficiaries, those who have been left out of TRICARE, the

DOD health care program, should be offered this opportunity.

Nonetheless, we have strongly supported the FEHBP demonstration because it was the only act in town.

The purpose of this demonstration is to test the extent to which

Medicare-eligible military beneficiaries would participate in the

FEHBP and, therefore, the potential cost to the Department of Defense by extending the option to all such beneficiaries. However, as

implementation plans for the demonstration have emerged, NMFA

has found cause for great concern. First, even though Congress authorized and funded 66,000 enrollees, DOD limited the selection to

only 66,000 eligibles. Using the subvention demonstration as an enrollment model, probably less than 20,000 of the eligible population

will enroll.

Second, the bingo drum method of choosing sites resulted in the

selection of one site that has an FEHBP enrollment pattern significantly different than other areas of the country. The sole demonstration site has no military hospital, only a military clinic and,

by far, the fewest number of eligible beneficiaries. Neither of these

sites will be particularly useful in determining potential enrollment

patterns when the program is offered worldwide.

Third, if the Office of Personnel Management requires a separate

reserve fund for the demonstration, premiums for the Federal military beneficiaries may be significantly higher than those for Federal civilians. If such is the case, this will not be a test of enrollment in the FEHBP, but simply a test of enrollment in plans offered by some of the same carriers that participate in FEHBP.

Finally, NMFA strongly believes that a significant education effort must be made with Medicare-eligible military beneficiaries and

others who are able to participate in the plan. At the present moment, DOD does not plan on publicizing even the names of the carriers, much less the rates, until the end of October. This short fuse

approach for those who will not only have to decide whether to participate in the plan, but further choose among available plans

seems extremely short-sighted.
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While NMFA remains firmly committed to implementing the

demonstration program this fall, we believe certain issues must be

addressed. To overcome the extremely small number of expected

enrollees and to more accurately test the FEHBP option, NMFA

strongly urges the addition of other geographic areas, if not this

year, then at least in the open enrollment season of 2000. In order

to provide a true test of interest of Medicare-eligible military beneficiaries in the FEHBP, premiums must be kept in line with those

of Federal civilians. DOD should accelerate its timetable for providing information and expend at least as much effort on marketing this program as it did for the subvention demonstration.

Many military associations and Members of Congress have been

more than willing to significantly expand the numbers of those who

can enroll in FEHBP. Many feel strongly that this country owes its

most elderly and vulnerable military population some form of employer-provided health care. DOD wanted a more limited test.

DOD, therefore, should bend over backward to ensure that the test

is as fair and representative a demonstration as is possible. Thank

you, Mr. Chairman.

[The prepared statement of Ms. Hickey follows:]
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Mr. SCARBOROUGH. Thank you. I appreciate your testimony.

Next we have Charles Partridge, and Mr. Partridge is of the National Association of Uniformed Services and has testified for us before. Good to see you again.

Colonel PARTRIDGE. Good to see you again, Mr. Chairman, Mr.

Cummings, Mr. Miller. It was more fun testifying down in Pensacola.

This testimony, in addition to representing the views of my association and the Society of Military Widows, also represents that of

the National Military Veterans Alliance, with some 20 military and

veterans associations.

I would like to make four points regarding the FEHBP demonstration. But first I want to mention briefly why FEHBP is so

badly needed for military retirees. And some of that has already

been said, that they are the only Federal employees that lose the

benefit at age 65. But, going along with that is that the Department of Defense does not have a plan that by a certain date all

beneficiaries will be covered. There is nothing that they are doing

now that will guarantee coverage at any time in the future by a

specified date. There is no light at the end of the tunnel that our

retirees can see, other than FEHBP.

TRICARE does not meet the needs of all of our beneficiaries. In

addition to disenfranchising Medicare-eligibles, the reimbursement

rates, the red tape, and the bureaucracy have not been solved.

Therefore, the families need another option. The Secretary of Defense wants to close more bases. Sooner or later, there will be another round of base closures. We need FEHBP in place now so that

when that happens, there are reasonable alternatives for people

when they no longer have those military hospitals and clinics to go

to.

Regarding the FEHBP demonstration, I want to underline what

has already been said about the small size of the population. With

66,000 and 8 sites, it is just not big enough and we are not going

to get 66,000 people signed up. We would like to go ahead and expand it to 10 sites, certainly by next year. And I believe the law

would allow up to 70,000 eligibles enrolled and we would like to see

the goal set at that maximum so that we end up with 70,000 enrollees rather than just having it as a target.

There is the risk pool and the reserve fund problem that we

know is being worked between OPM, the Department of Defense,

the carriers, and this committee. And we know it is a complicated

issue. But in view, the concept is very, very simple. The legislation

was certainly not intended to have this small risk pool as the only

source of reserve funds. There is sufficient money to provide a reserve fund that would protect the carriers while still ensuring that

we can use the same premium rates that are used by other enrollees in the Federal plan. If we don’t have the same premium, then

that is going to be perceived as a different program. It won’t be a

true test.

There are a couple of other points that will require a change in

the law. One of them is that under the current law FEHBP enrollees will be locked out of military treatment facilities. We think this

works against the program in this regard. First of all, occasionally

some hospitals are overstaffed. They have extra appointments.
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They should be able to invite those people in, give them their appointments, and bill the Federal plan for that so that it would, in

effect, reduce the cost of the program to the Department of Defense.

And, finally, with the demonstration running from 2000 through

2002, individuals who enroll in the last year will have only 1 year

in the program. We believe that should be extended for 3 years and

that should be done next year so that people know that you have

a minimum of 3 years in the program because asking people to enroll for only 1 year is not much of an incentive.

Mr. Chairman, we appreciate what this committee has done to

take care of the medical needs of medical retirees and we appreciate your support for this program and I will be glad to answer

any questions.

[The prepared statement of Colonel Partridge follows:]
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Mr. SCARBOROUGH. Thank you, Mr. Partridge. We appreciate you

being such a strong advocate for this demonstration project from

the beginning, as our previous speaker and our next speaker have

also been.

Kristen Pugh, who is representative of the Retired Enlisted Association. Ms. Pugh.

Ms. PUGH. Good morning, Chairman Scarborough and distinguished members of this subcommittee. Thank you for the opportunity for the Retired Enlisted Association to discuss the implementation of the FEHBP 65-plus demo.

TREA has over 100,000 members and auxiliary, representing all

branches of the Armed Services in which 61 percent of our membership are 65 and older and whose continued concern over accessing comprehensive, quality health care in the future stems from

being dropped out of the military health care system at 65. With

base closures, military treatment facilities downsizing, and demographics changing, the need to provide access to health care to our

ever-growing number of aging retirees creates anxiety with those

that ‘‘were promised lifetime health care.’’

One solution with the support, the strong support of this subcommittee, was the passage of the FEHBP 65 demo, a win-win to

provide a benefit to the men and women who have patriotically

served this country. The number of 65-and-over aged military retirees will not decline, but continue to grow in numbers to an estimated 1.6 million in 2004. Today I hope we find a solution to administering a ‘‘fair test’’ for FEHBP 65 demo in a timely manner

so as not to delay implementation of this program this year.

OPM needs to finalize the operational guidelines with approved

regulations by OMB for the test. This makes it extremely difficult

to educate our members on rates, benefit guidelines, and participating carriers, as well as answer any questions they may have

prior to the open enrollment season, beginning November 8. Also,

this will jeopardize DOD’s marketing time line for the demo.

OPM has not implemented regulations for carriers to access their

own reserves to compensate for possible financial risk of enrolling

service retirees. This access would control costs for the carriers, especially since this is a limited test with a limited number of enrollees in each site. Carriers will set high premiums over and beyond

the costs of current FEHB programs in order to protect themselves

until they have gathered some claims experience for this new group

of beneficiaries. The consequence is OPM will be creating a completely new program, different from FEHBP, even though the legislation directs OPM to set up a risk pool as a new rating category

for FEHBP.

The intent of title 10 in U.S.C. subsection 1108, ‘‘The director of

OPM shall require health benefit plans under chapter 89 of title 5

that participate in the demo project to maintain a separate risk

pool for purposes of establishing premium rates for eligible beneficiaries who enroll in such a plan,’’ which means that, for the purpose of this demonstration program, OPM needs to set a new rating category in order to track the categories of beneficiary groups.

This is no different than setting a risk category group for self/only

and self/family under FEHBP, in which rates are based on access

to service benefit plan reserves. The test should be no different
51

than one of the category groups in which premium rates are studied and set for that population for rating purposes only.

Delay in regulations will further delay military retirees to enroll

in FEHBP November-December open enrollment season with reasonable premium rates, comparable to current FEHBP rates. As we

have told this subcommittee in the past, we know that not all military retirees will enroll in this program, but we need to give them

the option to make that choice in order to determine the viability

of providing health care through FEHBP.

The Fiscal Year 1999 Defense Authorization Act defined the total

number of enrollees for this test may not exceed 66,000. This was

interpreted by DOD as 66,000 total persons eligible to enroll. TREA

would like to see the sites expanded for more participants to enroll

to meet the 66,000-enrollee cap, in the future of the test program.

By limiting the number of beneficiaries eligible to enroll, this will

create a scenario of more adverse selection, jeopardizing the viability of a ‘‘fair test.’’

In conclusion, in the past years, TREA has educated their members to the concept of FEHBP and that it was not a free benefit.

The response was simple. TREA members wanted to have the option to participate and pay for a comprehensive health care benefit

equal to their neighbor who served in the civil service. In order to

accomplish this, the rate structure needs to be more in line with

those civilian servants pay for their health care. If not, then yet

again another program and inequity for these retirees would be

created by the government, a program that looks like, smells like

FEHBP, but is not FEHBP. Let us correct this wrong with a right

and provide a fair test for FEHBP for those men and women who

served in the uniformed services.

Thank you for your attention, by this subcommittee.

[The prepared statement of Ms. Pugh follows:]
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Mr. SCARBOROUGH. Thank you. I appreciate it.

Mr. Gammarino from Blue Cross, welcome back and we look forward to your testimony.

Mr. GAMMARINO. Good morning. I would like my written testimony entered into the record. I will be giving an oral summary.

Mr. SCARBOROUGH. No objection.

Mr. GAMMARINO. Mr. Chairman and members of the subcommittee, good morning. I am Stephen Gammarino, senior vice

president at the Blue Cross and Blue Shield Association and, on

behalf of the Association, I thank you for the opportunity today to

discuss the demonstration project for military retirees to enroll in

the Federal Employees Health Benefits Program. We are committed to doing our part to ensure the project’s success.

As you know, Blue Cross and Blue Shield sponsors the governmentwide Service Benefit Plan in the program today. This plan is

the plan of choice of approximately 45 percent of all Federal employees and annuitants, covering almost 4 million members. As the

FEHBP’s largest carrier, we bear a special responsibility to the program. We do not wish to create contention, but we must speak up

when we have serious concerns about particular issues affecting

this program. We have such concerns about the approach planned

for implementing this demonstration project.

My testimony focuses on two areas specified in your letter of invitation. First, the difficulties posed by the limited size of the eligible population. And, second, the impact of the requirement for separate risk pools.

First, the size of the eligible population. Originally, we understood that as many as 66,000 military retirees and other qualified

individuals would be allowed to enroll in this project. Therefore, we

were surprised to learn that the total eligible population would be

limited to only 66,000. With the other health coverage options

available to these individuals, we estimate that fewer than 20,000

will enroll in this program.

A demonstration involving 66,000 enrollees, not eligibles, would

have been preferable. Why? A larger group helps in spreading risk

and increases the likelihood of attracting a broad cross-section of

individuals. Additionally, the overall administrative effort and cost

would be essentially the same for a larger group, but more people

could benefit. Despite this projected small size, we believe the demonstration project can still be successfully implemented.

A much greater concern than the size of the group is the interpretation by OPM of the law’s requirement for a separate risk pool

and the subsequent determination of how reserves will be used to

offset any resulting carrier liability. We understand that OPM,

through an interim regulation, will be proposing to pay any deficits

carriers incur under the project from the unused portion of the administrative reserve. This reserve, a 1 percent overlay on each carrier’s premium, is meant to pay OPM’s administrative expenses

only. According to law, the unused portion is returned to carriers

in proportion to their share of the total premiums paid.

We believe OPM is asserting authority to turn this into a fungible pool of money that would be returned to carriers based upon

their operating results. What is wrong with this? First, we find no

statutory basis for any such action. The statute is clear and direc-
61

tive on how moneys from the administrative reserve are to be paid

to the carriers. Second, diverting reserves from one carrier to the

competing carrier is totally inconsistent with a competitive program in which carriers are ultimately at risk.

The essential point of our objection is not that we may lose

money, rather that the proposed reallocation among competing carriers sets a harmful precedent when it is without clear congressional mandate and in the face of contrary statutory directive.

OPM’s immediate purpose may well be benign, but its proposed action threatens the basic structure of this program. We’ve shared

our views and legal opinions with OPM and we are prepared to

take all necessary steps, including legal action, to protect the integrity of this program.

Our position is that the law need only be followed as written:

Treat the DOD enrollees separately for rate-setting purposes, but

for all other purposes, including carrier liability, they should be

part of a larger group. Blue Cross Blue Shield premiums today for

high-option versus standard option and for self versus self and family are determined in this manner. Each category is rated to stand

on its own, but the plan’s financial reserves are available, if needed, across rating categories. This is the only way of implementing

the demonstration project that is both consistent with the law and

likely to serve the purpose for which it was enacted.

Additionally, since January, we have received only oral guidance

on the project during meetings with OPM. We still await the first

formal guidance with respect to operational issues. Especially as

we approach year 2000, details must be communicated immediately. Our window of opportunity continues to shrink as November’s open enrollment period quickly approaches.

In conclusion, let me reiterate that we are committed to a fair

test of the FEHBP as a viable option for the retired military community. As matters now stand, however, the fairness of the test is

endangered by a course of action that is contrary to law and by a

delay in addressing operational issues. There is still time, if all

parties work together, to make the demonstration project a success.

And we stand ready to do so.

Thank you and I will be pleased to answer any questions you

may have.

[The prepared statement of Mr. Gammarino follows:]
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Mr. SCARBOROUGH. Thank you. I appreciate your testimony.

I wanted to ask all of you a question. To summarize very quickly,

Mr. Moran stated that the way this project is being implemented

is nothing more than an attempt to buy time and to cut costs. We

have had testimony that the education approach was a ‘‘short fuse

approach,’’ and there was bad marketing. We heard testimony

there is ‘‘no light at the end of the tunnel.’’ Testimony about the

‘‘lack of fairness’’ and how we need a ‘‘fair program.’’ And also testimony that the pool is so small that we are not going to have the

broad pool necessary to see whether this works or not.

It goes back to what Congressman Cunningham said, that he felt

like the referee was rooting for the other team. I think the question

that is central right now to this hearing is do you all believe that

this demonstration project has been set up for failure by DOD and

OPM? Or, putting it in Duke’s terminology, is the referee rooting

for the other team? There is a referee speaking on the next panel—

[laughter]—so you all don’t be shy because the ref is not going to

be shy. The ref will probably also accuse me of setting them up for

failure with these first two panels.

But, is the referee rooting for the other team? This is very important, to get your gut feeling.

Ms. HICKEY. I don’t know that I want to characterize that any

one person, Admiral Carrato or anybody else, is rooting for the

wrong team. But, from our point of view, when you take a look at

the problems that are inherent at the moment in the demonstration, it certainly looks like you are creating a demonstration, for

whatever reason and whatever motive, that may be doomed to failure. If you are looking at 20,000 enrollees, I don’t know what you

are going to find out. Particularly when two of the areas are not

representative of what the test is supposed to be determining.

Mr. SCARBOROUGH. What are those two areas, again?

Ms. HICKEY. Puerto Rico because its enrollment pattern is significantly different than the rest of the country. As was mentioned,

I think 45 percent of most people take the Blue Cross Blue Shield

standard product. That is not true in Puerto Rico. They basically

take the—it happens to be a Blues product—but it is an HMO

product.

The other one, of course, is the subvention. I mean, Dover Air

Force Base. Dover doesn’t have a military hospital. It has only a

small clinic. And it has only I think about 4,000 eligible people that

live there. Half of whom or 1,500 of whom could enroll in subvention. How are you going to tell—we are looking at populations

in San Diego of 34,000. That would have been a place to test it.

Mr. SCARBOROUGH. OK. Not to nail you down here and certainly

we all understand—we have been in Washington long enough to

know—that the people that come and testify aren’t always the people that make the final decisions, but they are doing their job. So

certainly you are not characterizing anybody in this room. But you

said this project may be doomed for failure? Can you go back to

your members and give them any scenario under which this

project, as currently framed, is going to be a success? What I am

saying is I think ‘‘may be a failure’’ is very generous. And I underline the word ‘‘may.’’ Is it going to be a failure?
70

Ms. HICKEY. The only reason I use ‘‘may’’ is because I firmly believe that we have an awful lot of people out there in this age category who are literally desperate for health care. So it is conceivable that we may have a higher enrollment in some of these areas

than enrolled in the subvention areas. I don’t really know.

I think there are ways we could fix it. I think, currently in the

law, we could go up two more sites. They could be picked tomorrow.

We could go up to 66,000 enrollees by picking 2 sites with fairly

good eligible populations. I don’t think we need any legislation in

order to do that. If you are really committed to a project and this

is something that has been mentioned by both the carriers and the

associations and the Members of Congress who worked on this legislation maybe this is something that needs to be done tomorrow.

Mr. SCARBOROUGH. OK. You said this may work because there

are people that are so desperate for health care choices that, sadly,

as Mr. Gammarino said, with approval this narrow, you are going

to get the people that are the most desperate for it. You are going

to have the sickest people in it, because it is not broad enough. It

is going to be cost-prohibitive.

Mr. Partridge, have we been set up for failure here?

Mr. PARTRIDGE. Failure in this sense: We are not going to get

enough data to satisfy the statisticians and the actuaries to give

them any answers. Our view has always been we are all people.

And this program is designed for people. So the only possible reason for a test is money. There is absolutely no reason to test it

other than that. Otherwise, why not make it an option and let the

people who want it enroll in it and become part of the pool? So, in

that sense, it is set up to say we don’t have enough information so

let us extend the test; let us not go forward. That is one of the

points that concerns us.

There is institutional opposition to this. You know, the military

surgeons general like to have their sheep pen with all the military

retirees in that sheep pen. And then they reach in there and pull

out the ones they want for their training programs and so forth

and then the others get their care where they can. If you give people a real option, then they are going to have to guarantee care in

those hospitals and guarantee that the service is top-notch. So you

have an institutional problem as well.

Mr. SCARBOROUGH. Ms. Pugh, have we been set up for failure?

Ms. PUGH. I think Ms. Hickey stated it very clearly. I think it

is a difficult statement to answer, but in three regards, we do feel

that we are having difficulty implementing this program in a fair

time. I look at my watch. It is June 30. We were going to have a

hearing on this back in April. I looked at my testimony that I put

together in April and none of those points have changed. That is

frightening. That is frustrating.

We can debate the subject is it set up for failure. Well, we are

on a one-way train to failure right now because one thing is I can’t

educate my members. I have members calling in on a daily basis

trying to get some information.

I have members who want to enroll, but don’t meet the zip code

requirements because the eligible category they don’t meet. I have

people who are willing to move to those zip codes. I mean, I will

be quite frank with you. They have heard about this. We have edu-
71

cated them. And it would just be a crime at this point that we

haven’t implemented it on a timely basis, that the enrollment season will come and go and I will be looking at you in the year 2000

and we will be having this same discussion and we will have not

tested a viable option and we have yet failed my beneficiaries and

your constituents yet again.

I think there have been a lot of road blocks. One thing is even

getting the site selection done on a timely basis. How you define

the eligible category has already been explained. And as well as the

fact is marketing information. I have started to see some time lines

from DOD which concern me, to be quite honest. But we are going

to be educating people. October 30 we will be sending out a packet

of information.

These are people who have been Federal employees. These are

people that are watching the House floor going where is my pharmacy benefit? Medicare plus choice is changing. They need some

more lead-in information prior to making a big decision, especially

if you don’t know how long the test program is going to last. You

make a change—and we know this from experience from the Medicare subvention test program.

And, again, there has been—and I have not gotten this point

clarified—but a one-time open enrollment season this year would

further restrict the number of participants. And then, yet again, we

would have adverse selection, high rates, and we wouldn’t have the

participants. And, yes, it would fail.

Mr. SCARBOROUGH. You know, you said something about people

being so desperate they were talking about moving into zip codes.

I saw some people sort of raise their eyebrows and chuckle; it is

the truth. I mean, in Pensacola, FL, 32507, there are a lot of military retirees. Why? Because they all moved to be next to the Navy

hospital.

People from my generation—don’t realize that people served in

the military and believed for 30 years that they were going to be

taken care of. Some understand the scope of the human tragedy to

these people who plan their whole lives around this only to have

it yanked out from underneath them.

Mr. Gammarino, are we set up for failure? Would you invest in

a company that set up a project like this?

Mr. GAMMARINO. I wouldn’t have designed it quite this way.

[Laughter.]

Mr. SCARBOROUGH. All of you are so diplomatic. God bless you.

Mr. GAMMARINO. I think we do need a bigger risk pool. 20,000

doesn’t cut it. And it sounds to me, in the previous answers to your

questions, you do have options to increase that pool to a full

66,000. And I would recommend not only that this be done, but

that it be done in such a way that, demographically, you ensure a

cross-section of individuals that will be representative of the whole

eventual pool. And that way you can ensure that this small pilot

will get the results that will provide you the answers about how

to proceed going forward.

Mr. SCARBOROUGH. Mr. Cummings.

Mr. CUMMINGS. You keep talking about this 20,000. Can you explain that to me? You mentioned it also.
72

Mr. GAMMARINO. Yes. Our actuaries came up with that. And let

me tell you what we did to provide you with that figure.

Mr. CUMMINGS. First of all, what is it?

Mr. GAMMARINO. Excuse me?

Mr. CUMMINGS. What does the figure represent? The 20,000.

Mr. GAMMARINO. The 20,000, in our estimate, is the number of

individuals that are actually going to enroll in the FEHBP from the

66,000 eligible beneficiaries that have been allowed to participate.

Mr. CUMMINGS. That is what I thought. OK, now, go ahead.

Mr. GAMMARINO. There are a couple of things we looked at. First

of all, we took a look at the actual sites and when we took a look

at the sites, we took a look at what was available to those beneficiaries today in terms of military treatment facilities. What do

they have available today? In terms of coverage, health care coverage. In terms of either MediGap or Medicare risk, what is there

today? What rates do they pay today versus what rates would they

expect to pay in this particular program?

So we took a look at each demographic site along those specific

lines. Then we brought it up to the next level and said, one, this

is a 3-year demonstration project. There is going to be some hesitancy in terms of people jumping into this program, not knowing

if it is going to be there for them in the long run. And so those are

some of the factors we used. And it is a guesstimate and I can assure you this: It will be either slightly higher or slightly lower.

Mr. CUMMINGS. But there is no way you will get up to 66,000?

Not even close?

Mr. GAMMARINO. Not with the way it is designed right now. I

don’t see how that would happen.

Mr. CUMMINGS. So, I guess going back to you, Ms. Hickey, you

were talking about increasing the sites. Is that right?

Ms. HICKEY. Yes, sir. I think that we have to get—first of all, we

have one-fourth of our sites that are not representative of either

DOD’s population or the enrollment patterns of the FEHBP in general in this country. So you have 25 percent of your sites that are

not going to tell you a lot when you want to overlay it on the rest

of the country, that is one reason.

The second reason: We came at the same 20,000, or actually a

little bit less, because we based it on the people, the same group

of people, the Medicare-eligible military retirees, who were offered

the opportunity to enroll in Medicare subvention and did not.

Using that percentage and applying it to this population of 66,000

eligibles, we also came up with a little bit less than 20,000.

The law allows 10 sites; 8 were picked. The law allows 66,000 enrollees. There are only 66,000 eligibles in those 8 sites. I don’t see

why we couldn’t extend it to two other sites.

Mr. CUMMINGS. Now, going back to you, specifically mentioned

Delaware and I think Puerto Rico.

Ms. HICKEY. Yes, sir.

Mr. CUMMINGS. And said that they were not representative of

the kind of—well, what you are looking for. I mean, of what you

would expect, generally, throughout the country.

Ms. HICKEY. Yes, sir.
73

Mr. CUMMINGS. So I guess you have two problems. One, you have

two sites that are not representative that have, I guess, a limited

number of people that would even be eligible.

Ms. HICKEY. In the Dover site, that is correct sir. Yes, sir.

Mr. CUMMINGS. And then you also have the problem where you

could pick up two sites that would be representative but we are not

doing that.

Ms. HICKEY. Yes, sir.

Mr. CUMMINGS. So, basically, when you net it out—and I notice

when you answered me you said the Dover site, but then you didn’t

mention the Puerto Rican site.

Ms. HICKEY. Puerto Rico is different because of the enrollment

pattern for FEHBP. The enrollment pattern in FEHBP in Puerto

Rico is that the majority enroll in HMOs. That is not true anywhere across the country. If the purpose of this is to test the number of people that would enroll and in what type of program they

would enroll in within FEHBP if we opened it up to our entire beneficiary category across the United States, then overlaying Puerto

Rico on the same type of population is not going to tell you whether

they are going to enroll in a fee-for-service or an HMO, because the

enrollment pattern in Puerto Rico is different.

Mr. CUMMINGS. So, therefore, if you net it out, you come up with

six, right now, that probably pretty much fit the pattern.

Ms. HICKEY. Yes, sir. And one of those—excuse me, sir—but one

of those——

Mr. CUMMINGS. No. No problem.

Ms. HICKEY [continuing]. Is the only site where there is any

other competitive thing that DOD offers as an employer benefit and

that is the Medicare subvention. And that only competitive site

that is in this demonstration is Dover and it has a total of 3,900

beneficiaries. We are not going to even know, if you are offered

subvention, would you rather have that then the FEHBP, when

you are talking about a total of 4,000 people, some of whom probably have other health insurance any way.

Mr. CUMMINGS. So when the chairman talks about whether we

are doomed for failure, all of you seem to indicate that this 20,000

problem is a major, major problem I guess because, one, it is not—

I mean, you would think that you would have, if you are going to

do a pilot, that the pilot is going to be representative because the

reason why you do a pilot, as I understand it, is so that you can

get a sample and see how it works and how it is going to be used

as what we talk about up here costs—I mean, effective and costefficiency, looking at all those kinds of things. But if you don’t have

a true sample to start with, then you have a problem.

Ms. HICKEY. Yes, sir.

Mr. CUMMINGS. Is that a fair conclusion? Would that be the No.

1 problem, you think? When you talk about doomed to failure? This

whole thing of the——

Ms. HICKEY. I think the first problem and I think we would all

agree, at least the three of us, would be if the premiums were set

significantly higher than they offer Federal civilians.

Mr. CUMMINGS. OK.

Ms. HICKEY. Because I think you would have two problems there.

One would be the problem that the premium is higher, so there-
74

fore, somebody is going to choose not to enroll because of the premium. The other one which, in ways bothers me even more is that

this group of people already feel they have been shot down by their

country. They feel that a promise has been broken and probably it

has. And then to say to them, because that is the way they are

going to interpret it, you are not as good as a retired Federal civilian because we are going to charge you more for this program. I

think in many ways it could do an awful lot of harm.

Mr. CUMMINGS. So No. 1 would be cost, the premium. No. 2

would be this whole issue of our numbers. And what is No. 3?

Ms. HICKEY. The fact that I think that this population, as Ms.

Pugh mentioned, is going to need a lot of education. They are making two choices; Federal civilians and Federal civilian retirees

make one: Which plan do I want to be in next year? Our folks are

going to have to make two. No. 1, do I want to even look at this

demonstration that is only going to last 3 years? And, No. 2, having

made that decision, which one of these plans am I going to enroll

in?

So there is a lot of education that has to go on. And if DOD is

not going to get its brochures out until October 30th and open enrollment season starts November 8th, I think that is a problem.

Mr. CUMMINGS. Mr. Partridge, you put up a very good point

about people possibly enrolling in the last year.

Mr. PARTRIDGE. Yes.

Mr. CUMMINGS. That is a problem. I guess so this thing is structured so that people might join in the first, second, or third year.

Is that——

Mr. PARTRIDGE. Yes, sir. They will have an open enrollment season each year, just like Federal employees have, as I understand

it. But the last year, since the program ends at the end of the last

year, they have only 12 months in the program.

Mr. CUMMINGS. So your proposal is that you extend it so that everybody has at least 3 years. Is that right?

Mr. PARTRIDGE. That is it.

Mr. CUMMINGS. OK. You are not talking about the first year people having 2 additional years beyond the 3-years? Do you follow

what I am saying?

Mr. PARTRIDGE. I understand what you are saying. I would say

that the people who enroll the first year should be allowed to stay

for the full length of the demonstration program.

Mr. CUMMINGS. OK.

Mr. PARTRIDGE. And the people who enrolled in the last year

should be allowed to stay at least 3 years.

Mr. CUMMINGS. OK.

Mr. PARTRIDGE. So, yes, you could have people in there for—

what—6 years.

Mr. CUMMINGS. I would hope that the next panel would—I mean,

the reason why I am raising these questions is just so that the next

panel can effectively, hopefully, can address these issues. Because

I think you all have done a good job of punching holes in this thing.

But, now, do any of you all have anything good to say about it?

And I am not trying to be smart. I am just curious. The fact that

it is there.
75

Mr. PARTRIDGE. We are delighted it is there and we agree with

Representative Cunningham, there is no reason why that we can’t

move this more quickly. Because the only thing we are talking

about here is cost. That is the only thing that is holding it back.

So we think it is going to be a very cost-effective program and we

should look forward to expanding it quickly without waiting for the

full time of the demonstration.

Mr. CUMMINGS. But we have a program, we have a demonstration project, I guess you could kind of summarize it by saying it

probably could use a little fixing up and making a few changes

here and there to make it the best that it could be so that it can

accomplish what we all hope that it will accomplish. Is that a fair

statement?

Ms. PUGH. Congressman, yes. It is a fair statement. The first

thing is we have to fine tune the program as it is right now, but

the second part is we don’t want to delay it either. That would be

the biggest concern. In response to your first question, yes, this is

a big hope out there for the military retiree community. I will attest to the fact that last year when we published the fact that the

House passed it 120 to 1 every one of my members was calling in

happiness.

And even though we selected the sites and it wasn’t in their

State or their district, they said, I can’t wait for this data to get

together because I want to enroll. I had a woman who called from

California 2 days ago who just read about this in one of the local

newspapers. She said, you know, I signed up for the military career

for my 20 years—and we are not debating about the free health

care—but she said, my neighbors down the street have this great

benefit. When can I see it. And I said, time. And she said, I don’t

have time.

Mr. CUMMINGS. I think one of the statements that you and the

chairman, that you made and the chairman reiterated and I am

going to certainly talk about it when I talk about wherever I go is

this whole idea of people actually moving to certain areas so that

they can get health care. I mean, that says a lot. And I think the

chairman is right. I think a lot of people don’t even realize how serious this whole question is of health care and people being able

to get it. And so I want to thank you all for your testimony.

Mr. SCARBOROUGH. Thank you, Mr. Cummings. Mr. Miller.

Mr. MILLER. Thank you. I appreciate you all being here. It is

very concerning these statements you have made because this is

something that we all want to see succeed. I mean, we really do.

I have a large number of retirees in my district, not military retirees, but close to, probably, in my area of southwest Florida. We

have beautiful beaches by the way. But the concern is how do we

make it succeed? And maybe it is something that we have to do in

Congress. And then, you know, we have to look at this. And we still

have time to do some things as our authorization bills and our appropriation bills go through, you know, in the next few months.

And so we need to have the input for that.

How much input did you all have, the three military organizations plus Blue Cross, in the development of the plan to this stage?

Have you all been able to provide input that you feel comfortable

that they are listening to you?
76

Ms. HICKEY. We got invited to the bingo drum ceremony and several of us picked the sites after they rolled the bingo drum.

Mr. SCARBOROUGH. Is that your input?

Ms. HICKEY. We have seen, as of last week, I think, the potential

marketing plan and time lines and have responded to that. In the

normal scheme of things, I would say if we were going back and

looking at when we first saw the subvention marketing plans, it

was well over 6 months before they even were going to market on

the first site. That is part of my concern, is there a commitment

at the Department of Defense to put as much marketing and other

effort in this program as they did in their own subvention program,

the one that they wanted?

Mr. MILLER. Mr. Gammarino.

Mr. GAMMARINO. Well, we are sort of at the back end of this, as

you can imagine. We are providing the care. I don’t think we were

significantly involved in the beginning. There have been some periodic meetings. We have initiated many meetings to get clarification

both from the administrative perspective and also from the issue

of underwriting risk.

And Mr. Cummings asked if there were anything significant that

would hold this project up and I think, us being the largest carrier

and I think many of the other carriers also see this as an issue as

well, and that is ensuring that the underwriting risk is patterned

after and follows what is there today and not to jerry-rig some

other administrative mechanism. To do that really undermines the

credibility of this program in the long run.

So we would have liked more participation. We would still like

more participation today. And we do stand ready to assist both

agencies in delivering this program.

Mr. MILLER. Well, thank you very much. You know, we are going

to do everything we can to make sure this succeeds and if there

is something we can do in the authorization or appropriation bill

yet this year, we can do that. But I think we are all looking forward to the next panel.

Ms. PUGH. Can I interject one moment? And I apologize. What

you could do this year is where we are today is there are no operational guidelines so no one can move forward on doing anything.

So I guess that is my question. If it is being held up, so to speak,

in OMB, then the rate issue definitely has to be figured out or

solved. And it is this committee and the agencies need to work together because I think as we have already stated, that is a very

big concern of creating two different benefits for two different populations, civil servants and retirees. Yet, again, it is a disconnect in

benefits. Thank you. I apologize.

Mr. MILLER. Thank you, Mr. Chairman.

Mr. SCARBOROUGH. Thank you, Mr. Miller. The representative of

the district that has the second most beautiful beaches in Florida

and all of America. We have studies to prove that.

Ms. HICKEY. Aren’t you happy Mr. Mica is not here.

Mr. SCARBOROUGH. Well——

Mr. MILLER. He doesn’t have any beaches.

Mr. SCARBOROUGH. He doesn’t. No. He is not even in the top 10.

I want to just followup very briefly two quick points. Mrs. Hickey, you keep talking about the short fuse and keep talking about
77

October being the time line to get some educational mailings out.

I wanted to ask you. I have a time line here that talks about the

first educational mailings going to be going out to eligibles and the

deadline for that is tomorrow, July 1, 1999. And I understand that

you actually saw—I think saw—copies of this about a week ago.

Are they helpful?

Ms. HICKEY. That was the original time line that those of us in

the coalition and the Veterans Alliance received as well, sir. But

we had an updated one about 10 days ago that was e-mailed out

to several of us to make comments on. And that one stated that

they were not planning on putting stuff in the mail until October

30, correct?

Ms. PUGH. Yes. I have the time line right here, the most recent

one. And the information to distribute out was starting July 15.

That was a postcard. But the actual information wouldn’t be until

October 30, they would have the FEHBP enrollment and marketing

and beneficiary information. This is the most recent that I received

from DOD.

Mr. SCARBOROUGH. Really?

Ms. PUGH. I feel like I am on the sidelines sometimes.

Mr. SCARBOROUGH. Well, actually we are——

Ms. PUGH. Asking for information is a difficult thing in this city

sometimes.

Mr. SCARBOROUGH. We are actually, I think, further out on the

sidelines and maybe up in the stands rooting, because we have actually got this time line, June 28, 1999, which was a day or two

ago. Ours is even more dated than yours.

Ms. PUGH. Well mine says DOD and maybe you had a different

agency. I don’t know if that is OPM’s time line.

Mr. SCARBOROUGH. Yes, it is OPM’s but they have gone ahead

and been kind enough to put an X by July 1 for DOD to get it out.

All right. Well, I want to thank all of you for coming and, Ms. Hickey, I want to, once again, take you to task for using ‘‘may’’ again.

You said this ‘‘may’’ have been a broken promise. Let us be very

clear right now. I talked to retiring General Charles Krulack and

the other joint chiefs in a DOD hearing a year or two ago and all

four of them testified that it was a broken promise.

Ms. HICKEY. I agree.

Mr. SCARBOROUGH. I agree with them and I will guarantee you

every military retiree in my district believes that Congress and this

administration and past administrations have not kept their promises. So I thank you all for what you do every day to make sure

that we keep our feet to the fire. Thanks a lot.

Our final panel, and most popular one today, actually is going to

be comprised of two distinguished witnesses. One is Rear Admiral

Thomas Carrato, the Director of Military Health Care Systems and

Operations at the Department of Defense’s TRICARE Management

Activity. And the second is Ed Flynn III, the Associate Director for

Retirement and Insurance at the Office of Personnel Management,

and a regular guest here at our subcommittee.

And I understand, Admiral, that you are going to be up for your

second star very soon and we certainly congratulate you on that accomplishment and certainly know, coming from a Navy town, that

that is a lifetime of commitment to excellence. So we commend you
78

on that and welcome you to our committee. I look forward to your

testimony.

STATEMENTS OF THOMAS F. CARRATO, REAR ADMIRAL,

USPHS, DIRECTOR, MILITARY HEALTH SYSTEMS OPERATIONS, TRICARE MANAGEMENT ACTIVITY, DEPARTMENT

OF DEFENSE; AND WILLIAM E. FLYNN III, ASSOCIATE DIRECTOR FOR RETIREMENT AND INSURANCE, OFFICE OF PERSONNEL MANAGEMENT

Admiral CARRATO. Thank you, Mr. Chairman. I appreciate the

opportunity to discuss our progress in implementing the FEHBP

demonstration program. The Department of Defense has worked

closely with the Office of Personnel Management in preparing to

implement the demonstration program. We have selected eight

sites for the program and are preparing to notify eligible beneficiaries about the program this summer and conduct an open season in coincidence with the usual FEHBP open season in November

for health care beginning January 2000.

The statute requires the Secretary of Defense and the Director

of OPM to jointly identify and select the geographic areas in which

the demonstration project will be conducted. Statute limits the size

of the demonstration to no more than 66,000 participants, 6 to 10

locations, with not more than 1 site per TRICARE region. Sites

must include a catchment area, one or more military hospitals, an

area that is not located in the catchment area of a military hospital, and an area in which there is a Medicare subvention demonstration project. Our current best estimate is that there are approximately 70,000 persons eligible for the demo, based on their

place of residence and their category of eligibility for military

health system care.

Two principal factors influenced the Department’s decision for

sizing the demonstration at approximately 69,000 eligible beneficiaries. First, DOD wanted to avoid an artificial cap on enrollment in the demonstration. And, second, while the demo is authorized for up to 66,000 participants, no funding was provided. The

Department’s fiscal year 2000 budget includes funding of $79 million for this demonstration and two other demonstrations authorized in the Defense Authorization Act for Fiscal Year 1999. And

this closely matches the CBO pay-as-you-go estimate for these demonstrations. Based on current government contributions and anticipated increases in the FEHBP rates, this could result in a cost in

excess of $130 million for the FEHBP demo alone if 66,000 participated.

In summary, the Department believes the demo is sized to yield

statistically relevant data, no requirement to artificially cap participation, and is in line with the cost estimates done by the CBO

for this initiative.

The Department and OPM have been jointly developing an

FEHBP demonstration marketing plan. The marketing plan describes our approach to educating our eligible beneficiaries about

the demonstration program. Our strategy will include mailings to

beneficiaries, which will begin actually July 15. A toll-free telephone call center to respond to beneficiary inquiries and distribute
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materials. And this will start in September. And participation in

health fairs during the open season in November.

During the open season, all eligible beneficiaries will be directly

mailed a special guide. The guide will list important information

about participating plans, health benefits offered, premium costs,

and instructions for requesting individual plan brochures. As you

can see, the Department has taken numerous steps to ensure timely and accurate information is provided to the demonstration-eligible population.

Mr. Chairman, I want to address specifically the issue of access

to health care for military beneficiaries over the age of 65.

TRICARE will always be incomplete until we have the capability

to enroll retirees over the age of 65. Access to military health care

is a benefit these people have earned, based on their years of service to and sacrifice for their country. Many of them were promised

free care for life if they spent a career in the military. DOD feels

a sincere and enduring responsibility for the health of our retired

beneficiaries and will do all it can to meet its moral commitment

to provide health care for our retirees and their families. We are

committed to finding the best alternative for ensuring our older retirees and their families comprehensive health care delivery.

This concludes my statement and I, of course, would be happy to

answer all of your questions. Thank you.

[The prepared statement of Admiral Carrato follows:]
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Mr. SCARBOROUGH. Thank you, Admiral. Welcome back, Mr.

Flynn.

Mr. FLYNN. Thank you, Mr. Chairman.

Mr. SCARBOROUGH. Good to see you again. I look forward to your

testimony.

Mr. FLYNN. Thank you very much, Mr. Chairman. I want to

thank you for inviting me to testify today on the Federal Employees Health Benefits Program demonstration project for Department

of Defense Medicare-eligible beneficiaries and dependents.

There has been a lot of testimony today and I will try and emphasize just a couple of key points, Mr. Chairman. But first let me

say at the outset that I firmly believe the collaboration between the

Office of Personnel Management and the Department of Defense on

this project has been and continues to be strong. Further, our individual work with representatives of military retirees and their families, and with the health insurance plans affected by the demonstration project has been equally extensive. All of this work, in

my judgment, will lead to an effective rollout of this project and

will set the stage for a sound assessment of its potential for helping

to address the health care needs of this particular group of military

retirees and their families.

Second, our primary goal in this project has been to structure the

health care delivery system in ways that mirror the Federal Employees Health Benefits Program, departing from those practices

only where the nature of the demonstration project requires a

change. We believe this is consistent with the intent of the project

and will also contribute toward a solid evaluation of the project’s

potential for expansion.

Mr. Chairman, I would like to address two points that I know

are of concern to you and other members of the subcommittee and

which have been addressed in earlier testimony today. First, we

have now received rate and benefit proposals from all of the health

insurance plans that will be participating in the project in the different test areas. As you know, we are still negotiating with them

and the other plans that will be offering health insurance in the

Federal Employees Health Benefits Program during the year 2000.

Nonetheless, I can say to you today that in my judgment, military retirees and others who will be able to participate in the

project will have an adequate number of health plans from which

to choose. The number of health plan choices available in the different test areas will range between 8 and 15 and the average

number of plans in each area will be 11.

This is the case for two reasons, one of which leads to my second

point addressing one of your concerns as well. First, however, we

deeply appreciate the cooperation we have received from the health

plans that participate in the Federal Employees Health Benefits

Program. For many of them, participating in this project was a new

and somewhat uncharted experience. Through their cooperation

and willingness to work through issues of concern, I believe we

have a good number of health plan choices to offer affected individuals.

Second, since this is a startup program with no specific utilization experience and a statutory limit currently on its duration, we

believe that premium rates can be kept competitive only if risk ex-
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perienced by the health insurance plans is mitigated. If premium

rates are not competitive, it will be impossible to accurately compare enrollment trends and otherwise assess the project. And I

think that was borne out in the testimony, particularly by the previous panel. Therefore, absent some mechanism to protect health

insurance plans that might experience smaller enrollments and

higher utilization, insurers would add risk charges to their premiums. And these can produce major distortions in the demonstration project.

OPM has developed an approach to address this problem that we

believe is reasonable, logical, and fully supported by the law establishing the project. Our proposal is to assure participating carriers

that we will supplement premium revenues with money from the

administrative reserve if necessary.

Now, Mr. Chairman, both you and Congressman Burton expressed some concerns about this strategy in a recent letter to Director LeChance. Perhaps if I lay out exactly how we plan to implement our proposal, we can begin to put these concerns to rest.

By law, the Office of Personnel Management has the discretion

to distribute excess administrative reserves to the contingency reserves of health plans based on their market share. Should it be

necessary in this project to supplement a health plan’s revenue

from the administrative reserve, we would go first to that plan’s

proportional share of the reserve itself. Only if that share were exhausted would we intend to use funds that might ultimately go to

others and we would maintain strict accounts of which plans received what amounts. We believe this approach is consistent with

the law establishing the demonstration project.

The bottom line, Mr. Chairman, is that our action on this matter

does three important things. First, it ensures competitive premiums. Second, the affected population will have more health plan

choices than would have been the case otherwise. And, finally, it

enables the Office of Personnel Management and others to see

clearly the cost of carrying out the demonstration project in order

to assess its effectiveness.

In summary, both the Department of Defense and the Office of

Personnel Management have worked hard to make this project a

success and to lay an effective foundation for its assessment. We

have collaborated with a wide range of interested parties to ensure

that the design of the project addressed concerns. And we are about

to embark on a major educational effort leading to an open enrollment period this fall for health benefit coverage beginning next

January. We are excited about the project’s potential and eager to

move forward to carry it out.

Mr. Chairman, that concludes my statement. I would be happy

to answer any questions you or other members of the subcommittee

have.

[The prepared statement of Mr. Flynn follows:]
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Mr. SCARBOROUGH. All right. Thank you, Mr. Flynn. Appreciate

it.

I want to start, Admiral, by saying that I certainly appreciate in

your opening testimony that you did say that your belief is and

DOD’s belief is that these men and women and their families were

promised health care for life. That is a great place for us to start.

I also was pleased that you saw it as a moral commitment. Unfortunately many people in past administrations have not felt that

way.

I want to start with a couple of clarifying points. First of all,

there was some question on the first educational mailing. We had

seen something that said that it was going to be July 1. There was

also some testimony earlier that they received an e-mail saying it

wasn’t going to be until October. You have now stated that it is

going to be on July 15. Tell me what is going out on July 15 and

who is it going to? Will it go to all 69,000? How extensive will that

be and can this committee get a copy of that as soon as possible?

Admiral CARRATO. Yes, absolutely. In my written testimony,

which I have submitted, I have attached a time line which lays it

out. Just to start with, I think we recognize what a complex educational effort this will be for our retirees, given that they aren’t

Federal employees. So we do have a fairly steep learning curve.

We actually have started in mid-June by posting some information on our TRICARE website, some basic information. And I apologize for the confusion as to when the first mailing will go out. But

we are going to distribute the postcard to all eligible beneficiaries,

a description of the project, and lay out information regarding

scheduling of the various marketing activities, some information on

the open enrollment season.

In September—if you will permit me, I will just walk through a

couple of the key points which I think are important.

Mr. SCARBOROUGH. Sure. Go ahead.

Admiral CARRATO. In September, September 1, actually, we have

prepared a trifolder. It is in draft and we are coordinating it. September 1, we will distribute an FEHBP demo trifold to our information processing center which will then go out to all eligible beneficiaries. It will go out to our TRICARE service centers at our facilities. It will go to retiree affairs offices, public affairs, et cetera.

On September 7—and I think this is a very, very key activity—

is we actually are setting up a 1—and, actually, they have exhausted 800 and 888—we have a 1–877 FEHBP number and there

will be a phone system dedicated to answering questions, providing

information to all our beneficiaries. So I think that is actually an

excellent effort. Mid-September, we will distribute additional press

releases. And then on October 30, we will submit more, fuller information on plans, prices, et cetera. And then we will conduct the

open season with health fairs, beginning in November.

Mr. SCARBOROUGH. So July 15 you are going to be sending out

a postcard.

Admiral CARRATO. Yes, sir.

Mr. SCARBOROUGH. Just a generalized postcard, explaining time

lines and what is going to happen.

Admiral CARRATO. Yes, sir.
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Mr. SCARBOROUGH. And who is going to be eligible. Your trifold

is going out in September.

Admiral CARRATO. Yes, sir.

Mr. SCARBOROUGH. Is that going to be something that is going

to be extensive enough that—and let me get the clarification, because you said you are actually going to start distributing that on

September 15. When are military retirees going to be able to get

that in their hand and understand what is going to be happening

within a month’s time?

Admiral CARRATO. I guess there are two pieces to it. One is the

trifold, which will provide some general information. We think in

this program, premarketing is critical. For example, if you enroll

in FEHBP, you are not eligible while you are enrolled for services

at a military treatment facility. That is a real important point to

make sure people clearly understand that. So we have some—the

trifold will have some good information about all the aspects of the

program.

I think what you may be asking is when will we have specific

information on the plans and the premium costs? And that will not

be until the guide goes out in October.

Mr. SCARBOROUGH. That exclusion is statutory, just for the

record. That exclusion that you are speaking of is statutory, not

something that you all dreamed up in the middle of the night.

Admiral CARRATO. Yes, sir. That is by statute, sir. Helping us.

Mr. SCARBOROUGH. A little bit.

Admiral CARRATO. If it wasn’t by statute, I probably wouldn’t

have mentioned it.

Mr. SCARBOROUGH. Yes, exactly. Let me ask you—well, actually,

let me make a statement just for the record and just tell you that

I guess it was July 1, back in 1996 that TRICARE was implemented and they had an 800 number at that time. Unfortunately,

they didn’t spend enough money and man enough people on that

phone to make that happen. I know that because I received a stack

of letters about this big from my district.

Admiral CARRATO. Yes, sir.

Mr. SCARBOROUGH. It was an absolute nightmare and Humana

came down and testified and DOD came down and testified talking

about this wonderful 800 number. And it was of no practical effect

other than it made our military retirees and dependents even more

frustrated. I would just urge you to make sure that you all spend

enough money on the people who are answering those questions,

whether it is in Topeka, KS, or Washington, DC, or wherever that

when somebody calls up they are not put on hold for 3 hours or

they don’t get a recording. First of all, are you aware of the problems that we had with the TRICARE 800 number?

Admiral CARRATO. Yes, sir. Absolutely.

Mr. SCARBOROUGH. OK. I don’t want that to happen.

Admiral CARRATO. I am painfully aware of them.

Mr. SCARBOROUGH. OK.

Admiral CARRATO. And, unfortunately, in our most recent

startups, we also had some similar concerns with telephone response rate.

Mr. SCARBOROUGH. Fine.
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Admiral CARRATO. Which I am happy to report we cleared up in

a hurry. But one of the things, I, too, when we have a 1–800 number, it probably stands to reason that people will call that number.

Mr. SCARBOROUGH. Oh, sure.

Admiral CARRATO. And we need to make sure that we do have

the phones answered. We have paid particular attention to that

and made it perfectly clear. The phone actually is in Des Moines,

IA, is where it is going to be.

Mr. SCARBOROUGH. I knew it had to be somewhere in the Midwest. I commend you. And I am going to be forwarding all the positive responses I get from my constituents when they tell me how

successful that 877 number is.

Let me ask you this question. You have heard from the previous

two panels that a lot of people do not believe that we are going to

have any more than 20,000 or so participants in the program. Do

you agree with the testimony of our other two panels that we are

not going to get anywhere close to the 66,000 number that Congress originally intended?

Admiral CARRATO. I don’t agree with the estimate as low as

20,000. As we looked to size the program, we relied on a couple of

reports, actually three reports. Two by CBO, one by GAO. CBO in

a 1995 report estimated—and, again, it is not completely analogous—but as they looked at a nationwide FEHB Program, in the

1995 report, CBO estimated that the enrollment, the take rate,

would be 95 percent for the over 65s. In 1997, GAO estimated the

enrollment rate at about 83 percent for military over 65s. And then

in 1998, CBO actually revised their estimate and they thought it

would be about 70 percent participation rate.

So we actually believe it will probably be in the 83 percent range

is what we believe. I think one of the reasons of the demonstration

and actually one of the reasons for actually keeping the enrollment

level at the eligible level at 66,000 is we want a true test of who

will participate. If we had substantially more than that, it could

lead to a situation where we would have to cutoff enrollment. We

wouldn’t have a true and valid test of the enrollment rate. So I

think the enrollment rates will be much more significant than 20

percent.

Mr. SCARBOROUGH. Really. Or 20,000.

Admiral CARRATO. Yes, 20,000. I am sorry. 20,000.

Mr. SCARBOROUGH. So you think 85 percent. That is, I think, a

higher percentage than what FEHBP gets right now from—is it

about 85? Yes, from their employees. Do you understand what the

concern is about it being a one-time project? A 3-year project?

Admiral CARRATO. Yes, right.

Mr. SCARBOROUGH. You think 85 percent of the people are going

to say that they are willing to give up their current health plan for

a program that may not be around 2 or 3 years from now?

Admiral CARRATO. I think they will. And I know in one of the

earlier panels there was a concern about looking at our experience

with the TRICARE Senior program, the Medicare subvention program. And the fact that there was some speculation that enrollment would exceed all expectations. And in some locations, the enrollment was below what was expected. Now keep in mind that

TRICARE Senior was conducted within catchment areas. And that
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some of those areas, on a space-available basis, large medical center, they have access to the MTF and I think that factored into the

decision. You know, if you have access to a military treatment facility, then perhaps you don’t have to enroll in a demonstration program. The FEHBP sites are in areas where we don’t have as robust

an MTF as we do in some of the TRICARE Senior sites.

So I expect that we will have significant enrollment, given that

it is a demonstration program, even given that.

Mr. SCARBOROUGH. Boy, if it is up to 85 percent—and I know

this sort of puts you in a no-win situation—but if it is up to 85 percent, isn’t that a heck of an indictment against the military health

care system, as it is right now? That DOD believes 85 percent of

the people would choose to bail out of that system?

Admiral CARRATO. Well, I don’t think it is bailing out of the system. If you look where these demonstration sites are, you know,

they are for non-catchment so, by definition, there is no MTF in

that location and in the sites where we do have military treatment

facilities, I think, as Mrs. Hickey indicated, much smaller capacity

and capability of those facilities. So I think the judgment that a

Medicare eligible is making is do they want to continue on a spaceavailable basis getting what access they can or would they like to

enroll in a program and upfront know what benefit they are eligible for and it is a little more predictable.

Mr. SCARBOROUGH. One final question before I turn it over to the

ranking member. I wanted to ask you this because you suggest

that we could approach that, but in the written statement, you say

that 66,000 participants in the FEHBP could cost the DOD more

than $130 million. Now the President budgeted about $79 million

for this demonstration project and the Senior Supplemental Administration project together. So, obviously, that is a shortfall of about

$50 million.

I want to ask you, because, again, from my understanding, the

Senior Supplemental is going to be taking at least as much money

as this project. How much of the $79 million is budgeted for

FEHBP for that demonstration project, and the budget for Senior

Supplemental?

Admiral CARRATO. Sure. And I will round numbers so it won’t

add up exactly, but we have actually budgeted, in the President’s

budget, we have $79 million for three demonstration programs that

were authorized. For FEHBP, it is about $62 million that we have

allocated. For the TRICARE Senior Supplement, it is about $14

million. And for the over 65 pharmacy, it is about $4 million.

Mr. SCARBOROUGH. So that is $62 million for over what time period?

Admiral CARRATO. Fiscal year 2000.

Mr. SCARBOROUGH. Fiscal year 2000. OK. And what number of

participants or participation rate is the President’s budget based

on?

Admiral CARRATO. We looked at about 80 percent, we estimated.

Mr. SCARBOROUGH. 80 percent. So you would agree with our

friends on the previous panel that if it is lower than that and the

risk is not as spread out, that those costs could skyrocket. Would

you agree with that?

Admiral CARRATO. If the participation rate is less?
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Mr. SCARBOROUGH. Right. If we have 20,000 instead of, say,

60,000.

Admiral CARRATO. I think the issue is where will the participating plans set their premiums. And I think the largest concern

is information on our beneficiary population. Now, to the extent we

have it, we have provided that information to OPM and I think

they, in turn, have supplied that to the plans. But there is some

concern on the part of the plans, so I think that is the issue, you

know, what is the risk level? There is some possibility, if it is a

lower enrollment rate, that there could be some adverse selection.

And, you know, I don’t know. I don’t know.

Mr. SCARBOROUGH. Thank you, Admiral. Mr. Cummings.

Mr. CUMMINGS. Admiral, I have to tell you, when you mentioned

the 85 percent, people in the audience began to smile and I think

they share with me—and I can really begin to kind of understand

their cynicism. If the FEHBP is doing—what did you say? 85 percent? And then we look at this program. I mean, I don’t care what

kind of studies we look at. Logic just tells you that that doesn’t—

unless I am missing a factor or some factors that you haven’t

talked about today, I don’t see how a program that has a big question mark is going to draw the same kind of numbers as the FEHB

Program. And I think that if somebody said that to you based upon

what we know, I don’t—maybe I am missing something and you

can help educate me. I don’t see how you would come to that same

conclusion either.

Admiral CARRATO. OK.

Mr. CUMMINGS. I mean, let us set the reports to the side.

Admiral CARRATO. OK.

Mr. CUMMINGS. Let us just deal with the logic.

Admiral CARRATO. OK.

Mr. CUMMINGS. I mean, am I missing something?

Admiral CARRATO. Yes. And, setting the reports aside, because

that was one big factor we looked at, I think some factors you have

to consider. For our over 65 military retirees, they are not eligible

to enroll in the TRICARE program. They are eligible for spaceavailable care at our military treatment facilities. And, as I mentioned with downsizing and with the implementation of the

TRICARE program, some of the capacity is not as readily available

for the over 65s. Plus our over 65 population is growing. It is increasing dramatically. So a lot more over 65s. We have less care

available.

Now, some of our over 65s, recognizing that limitation, have

made other arrangements. A large majority have Medicare part fee,

so they have a Medicare program available to them. Some are enrolled in Medicare risk plans. But I think a large percentage of

them would like to have a predictable health plan. The FEHB Program offers a good benefit. So I think there will be—based on all

those factors—I think there will be significant enrollment, even

given that it is a demonstration program.

Mr. CUMMINGS. I will come back in a moment. Now, Mr. Flynn,

you heard the concerns, right? And I am sure you tried to address

them in your testimony. I didn’t hear it all. I apologize. I will have

to review your testimony.
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Those three problems, you remember them? They talked about

the premiums.

Mr. FLYNN. Premiums.

Mr. CUMMINGS. They talked about the information getting out.

And there was one other thing. The measure—the number, right.

Thanks. I call these senior moments. [Laughter.]

So, I mean, just real briefly, can you address those three real

quick? I mean, without——

Mr. FLYNN. Yes, Mr. Cummings, I will try and do that. In the

remarks that I made, I tried to indicate that we have taken steps

that, for this demonstration project, will ensure competitive premiums for the military retirees and other eligible beneficiaries.

And, if I might, I want to relate that statement to the question

that you asked of Admiral Carrato and that had to do with the

numbers of people who would sign up. Let us just assume for a moment that we offered the Federal Employees Health Benefits Package of benefits for no cost to the individual. I would suspect that

if there were 69,000 eligible individuals, 69,000 people would line

up at the door to be able to gain access to that health care.

The only reason I say that is because, whether it is in the Federal Employees Health Benefits Program or anywhere else, people

are price sensitive—very much so, about the cost of their health

care. So the fact that premiums are going to be competitive, I

think, does help in attracting higher numbers of people to participate in this demonstration project than might otherwise be the

case or if there were not a competitive premium.

The other thing that I would say that I think has some influence

is that when you think of an individual participating in the Federal

Employees Health Benefits Program, on behalf of herself or himself

or the family, what they tend to look at is what is my out-of-pocket

cost? Now, keeping in mind for a moment that the typical participant is going to be someone who has Medicare, Part A and B, and

who pays the $42 a month Part B premium, for all practical purposes, what the Federal Employees Health Benefits Program enrollment means to them is it wraps around Medicare, which is the

primary payer.

Since the typical cost of a MediGap policy for a couple runs from

roughly $750 to as much as $3,000 a year, and the average participant share of the FEHB Program runs from roughly $370 to

$1,750, you can see that if someone has Medicare and a MediGap

policy, it is more likely than not that the out-of-pocket comparison

is going to favor joining the FEHBP and having it coordinate benefits with Medicare.

So, again, I think that speaks to the potential for a higher number of enrollees than some might have predicted. The end of the

day, though no one really knows and you have to be prepared for

the number of people that do enroll, subject to whatever statutory

limit there is.

I have listened to the issues about information, and I think Admiral Carrato has helped clarify a great deal, the information

strategy and the information steps that will be taken over the

course of the next several months to help these potential beneficiaries participate in this program. As Mrs. Hickey mentioned,

there are really two questions that these individuals will be asking:
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(1) Do I want to move to this option, compared to the other options

that I have? And, (2) Assuming I do, what are the choices of health

plans that I have available?

And I think the staggered plan for information, the ability to get

information from a variety of sources that we have worked on with

the Department of Defense is based on our own experience, a reasonable approach to that we are giving people information in the

order of: What you need to know today is whether or not you might

want to join; what you will need to know just prior to the start of

the open enrollment period is what choices do you have and of

those choices, which seems best for you? And I think that is a reasonable approach to the information issue.

Mr. CUMMINGS. Can we hold on that point?

Mr. FLYNN. Sure.

Mr. CUMMINGS. Assuming you weren’t finished.

What are we doing—and maybe you should—you might want to

answer this, Admiral—are we working with the National Military

Families Association? I mean, are we in contact with the stakeholders as we process this? I mean, these are the people who have

folks who they are dealing with every day. I mean, that is their job.

They do it 60 hours a week. You know? And so I am just wondering

how much contact we have with them in getting the information

out. What is the status of that?

Admiral CARRATO. Right. We jointly have met with the coalition

and alliance organizations and we have shared the draft materials

with them and they have provided their input, comments on those

materials. And they have been very helpful in all of these demonstrations. They were very instrumental in identifying some enhancements we could make to the TRICARE Senior program. So

they have been involved.

Mr. CUMMINGS. And you all do listen?

Admiral CARRATO. Yes, sir.

Mr. CUMMINGS. And the reason why I asked that is that, I mean,

it gets very frustrating and I am sure Mr. Scarborough would agree

with me. I mean, we go to these town hall meetings. And if people

feel that we don’t listen to them, then they get kind of cynical. And

next thing you know, you don’t have people that would normally

participate participating because they don’t want to waste their

time. They would rather be home doing something else. And so

that means, just from a very practical matter, I just was curious.

And I am curious about this Mr. Flynn. DOD said the 100 percent enrollment would cost $230 million. The President budgeted it

at $62 million. Does that create a problem?

Mr. FLYNN. Well, it doesn’t create a problem for us. We send a

bill to the Department of Defense and expect them to pay it.

[Laughter.]

Admiral CARRATO. Sir, that was——

Mr. CUMMINGS. Good answer. It is what you call passing the

buck.

Admiral CARRATO. Yes, sir. The figure we quoted was if we had

full enrollment at 66,000, that would be the cost of the program.

And we don’t believe we will have, you know, full enrollment. We

think we will have very significant enrollment. But we just added

that number just to show you what the 66,000 at an average pre-
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mium and with the government’s contribution, of about, you know,

74 percent, that would be the Department estimate.

Mr. CUMMINGS. Now you know I have to ask you this question.

You said that you anticipated somewhere in the 80, 85 percent

range, right? And so I am just dealing with percentages now. Let

us assume we have 80 percent.

Mr. SCARBOROUGH. 85 percent is $112 million.

Mr. CUMMINGS. Are you serious? [Laughter.]

Thank you.

Mr. SCARBOROUGH. I didn’t add that. I went to Alabama.

Mr. CUMMINGS. This is what you call bipartisan cooperation.

Mr. SCARBOROUGH. That is right.

Mr. CUMMINGS. So, help me. I mean, we have 100—based upon

your own testimony. I guess we come up with about somewhere in

the area of $112 million bill and we have—we are dealing with—

now, again, that is a percentage. We are just dealing with percentages. Yes, your percentages. So, help me.

Admiral CARRATO. The fiscal year starts this October and then

we wouldn’t actually start enrollment until—our health care delivery begins in January. So that accounts for all of it. And the averages of the premiums. We were using averages. So that accounts

for the difference.

Mr. CUMMINGS. Let me just say this in summary. I think that

you—I think that the people who—I mean, I could take that a step

further, but I am not going to do that. I think you get the point.

Admiral CARRATO. Right. [Laughter.]

Mr. CUMMINGS. The problem is that we have people who really

feel like they have been set up for failure. And that is not a real

good feeling. I mean, for us, we don’t—and we don’t want to be a

part of that process. We don’t want to go to our constituents and

our constituents say, you know, we thought you were doing A but

really it didn’t turn out to be A, it turned out to be something much

less. And so we have a responsibility and a duty to get into these

kinds of issues. And when we have the stakeholders’ representatives here and they are sitting here and they are shaking their

heads, I think what it does is it causes us a little bit of anxiety.

And, you know, they have listened to all of this and they are going

to go back to their folks and say this is what we believe.

Admiral CARRATO. OK, can I respond?

Mr. CUMMINGS. I am almost finished. But they have set a bar

and they basically said we don’t believe this is going to work. And

that is what I am hearing. And I believe that, in the end, when

all the dust settles and everything, it probably will work. But right

now there is a presumption that it is not going to. And, to be frank

with you, some of the testimony here today hasn’t helped. It hasn’t

helped. I think they will go out feeling probably just as they did

or worse. And they can speak for themselves at some other time.

But I do want to hear what you have to say, but I just want you

to see——

Admiral CARRATO. Sure.

Mr. CUMMINGS [continuing]. See it from our perspective, too. I

mean, we want success. That is why we are here.

Admiral CARRATO. OK.

Mr. CUMMINGS. And I am not saying you don’t.
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Admiral CARRATO. Yes. And that is basically what I was going

to start with is that we clearly, and OPM clearly believes this, is

we want to have a valid demonstration. I don’t want to be involved

with a demonstration program that is set up to failure. I just

wouldn’t operate that way. I think the issue we are talking about

is participation rates.

And just to set that aside for a moment, but I think we, working

closely with OPM, I think we have developed a demonstration program that I think will be a very valid test of this program. I think

we have taken steps to education is a big piece. And I think we

have taken great steps to educate the beneficiaries and educational

material never comes out fast enough and you can never get

enough educational material out for any new program. I agree with

that.

The question of take-up rates. I don’t think the success of this

demonstration hinges on, you know, whether we have 60, 70, 80

percent enrollment. I really don’t. I think we have designed this,

as we went through the site selection, we designed it that we would

have—and our statisticians, our actuaries have also looked at this.

And I am confident that we will have a statistically valid demonstration program and one that we can learn great lessons from.

So I do not think it is set up to failure. I think it is actually going

to be very, very successful and I am anxious to get the answer to

the question of how many people will participate. I told you what,

you know, our estimates are. We have heard others. And so I think

that is going to be one of the results of this demonstration.

Mr. CUMMINGS. I think Ms. Pugh said it best. I think she said

something to the effect that we don’t want to be sitting here a few

years from now looking backward and basically having not accomplished what we needed to accomplish. And, in the meantime, so

many people will have suffered. You see, that is the bottom line.

Admiral CARRATO. I agree. I agree.

Mr. CUMMINGS. Thank you very much.

Admiral CARRATO. Thank you, sir.

Mr. SCARBOROUGH. Thank you, Mr. Cummings. I want to followup, briefly, on a few points. Let me say, Admiral, I do believe

you want this to succeed. It was very interesting when you were

testifying about working with the groups that you did take their

input. I looked at them and they were agreeing that you had and

I commend you for that.

I will just say this, though. You know, our ranking member

talked about cynicism. I think we can sit here all day and talk

about how we are not setting this up for failure and how we want

this to succeed, but, unfortunately, the people who sent you over

here to testify in this administration—certainly not your doing and

Mr. Flynn’s doing—set you up for failure today by telling you that

they believed and the DOD believed that there was going to be an

85 participation rate and yet they only funded you for 50 percent.

And that is about $50 million short of that—let us see. You had

$112 million for 85 percent of what was projected. And then the

$62 million cost. So, we are about $50 million short and the percentages aren’t adding up right.

Now I am confident that we can work together to make this a

success, but I think we all need to recognize today—and certainly
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I recognize today—that right now the numbers don’t add up. They

don’t add up for an 85 percent participation rate. And if we do have

an 85 percent participation rate, we could have the chaos that we

had with TRICARE.

If you want to respond to that, you can, but if not, let me just

say, again, certainly, I know that you want this to succeed. And I

am looking forward to all of us working together to make sure it

does.

Mr. Flynn, I wanted to ask you a couple of questions. First of all,

when do you expect that your regulations on the project are going

to be published and available to carriers and others? What is your

date?

Mr. FLYNN. I expect they will be available today, sir.

Mr. SCARBOROUGH. Today?

Mr. FLYNN. Yes, sir.

Mr. SCARBOROUGH. Now that is efficiency. Not only do you know

how to pass the buck on a tough question, you know how to give

the right answers. Let me ask you this also. We were talking before

about other deadlines regarding your negotiations. According to

your guidelines, OPM is going to be completing negotiations with

the carriers regarding benefits and rates by August 15. Are you

going to be able to meet that deadline?

Mr. FLYNN. We should be able to, Mr. Scarborough. Generally

speaking, we conclude those between August 15 and the first of

September. That has been our practice for years. I see no reason

to think they will be any different.

Mr. SCARBOROUGH. Certainly, well, you certainly don’t see any

circumstances under which that would move into September, then?

Mr. FLYNN. Not this year. No, sir.

Mr. SCARBOROUGH. OK, good. As soon as you get those rates,

could you provide those to this subcommittee?

Mr. FLYNN. Yes, sir. Absolutely. I think, actually, we do a pretty

big announcement and provide Members of Congress with advance

notice of that just before that is concluded. Typically, that occurs

around the first of September.

Mr. SCARBOROUGH. Great. Let me also talk to you very briefly

about the reserves issue that you talked about in your testimony

regarding the letter that we sent to you. We expressed our strong

reservations about the proposed use of the administrative reserves

because we didn’t think it was legal. And, in fact, we got a legal

opinion from CRS that I would like, without objection, to submit

for the record.

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Mr. SCARBOROUGH. That says that they concluded the proposal

was not authorized by statute. I wanted to ask you about do you

have any documentation with you here or any information regarding the legal testimony or the legal information that you all received that suggested this would be legal?

Mr. FLYNN. Mr. Scarborough, you ask a very important question.

We have looked at this from a number of perspectives, including

a legal perspective. It is, without question, and the agency and I

know it was part of OMB’s review of our proposed regulations,

something that we do believe is legal. And, moreover, it is in the

interests of making this demonstration project successful. You mentioned an opinion from the Congressional Research Service. This is

the first I have become aware of it. We would certainly like to take

a look at that—take it back to our legal staff and do our own analysis of that. And I know that, in our Office of the General Counsel,

we have some information that I am sure we can provide for the

record regarding our own review of the matter.

Mr. SCARBOROUGH. That would be great. I will get this CRS opinion to you. We got it June 25. I am sorry I didn’t get it to you before this hearing. But if you could just see whatever legal memos

you have and provide that to this committee, that would be great.

I wanted to ask you also if you felt comfortable guaranteeing to

the subcommittee that your proposal was not going to create a

moral hazard in the FEHB Program that Mr. Gammarino fears.

You heard Mr. Gammarino’s testimony before. How do you feel you

could prevent that occurring?

Mr. FLYNN. Well, providing an absolute guarantee against a

moral hazard is something I would not hazard to predict about, but

let me say this. First of all, this is a demonstration project. And,

as I said in my prepared statement, we have tried to parallel the

FEHBP, Federal Employees Health Benefits Program operations,

every step of the way so that we could have a good test. There are

several areas where that is just simply not possible. You have a situation here where you have a special group of individuals who are

able to participate in selective areas around the country and we

had the health plans who are planning to participate in this program come to us and demonstrate the degree to which they felt

they were facing potentially adverse risk and that they needed to

provide for that in their premium.

And so we looked at the authorizing legislation and, as I say,

from a variety of standpoints, came up with this as a way to deal

with it. I think it has been very effective in doing that because all

of those plans expressing those concerns have decided—virtually all

of them—have decided to participate. So we will have good choice.

And we will have competitive premiums.

The second thing that I would say is that, as our actuaries have

looked at what is the total amount of risk that we are potentially

facing here, in terms of the size of the program, it is quite small,

about two-tenths to perhaps three-tenths of 1 percent. In dollar

terms, Mr. Chairman, that amounts to perhaps $50 million a year

in a program that runs between $18 billion and $20 billion a year.

So I don’t think we are creating a dangerous precedent, a moral

hazard, in this program. I think what we are trying to do is make

competitive premiums available to eligible beneficiaries and to give
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those beneficiaries the widest choice of health plans available. That

has been our objective all along and that is the way that we will

continue to work at this.

Mr. SCARBOROUGH. OK. Well, I appreciate your testimony and I

have some more questions but I would prefer to submit them in

writing to you all if you all could respond within 30 days. If that

is OK, that would be great. I appreciate your testimony and appreciate everybody that has been here to help us out on this difficult

issue. This hearing is adjourned.

[Whereupon, at 12:35 p.m., the subcommittee was adjourned.]

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