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Health Care Issues. NARFE’s Tenth Biennial Legislative Conference March 3-6, 2007. Health Care Issues. Health Care Financing Trends President’s FY 2008 Budget Premium Conversion Medicare Employer Subsidy. Health Care Financing Trends. The Erosion of Employer-Sponsored Health Insurance.

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Health Care Issues

NARFE’s Tenth Biennial Legislative Conference March 3-6, 2007

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Health Care Issues

  • Health Care Financing Trends

  • President’s FY 2008 Budget

  • Premium Conversion

  • Medicare Employer Subsidy

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Health CareFinancing Trends

The Erosion of Employer-Sponsored Health Insurance

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Not Immune To Erosion of Retiree Health Benefits

Share of Employers w/ Retiree Coverage

  • 1988: 66%*

  • 2006: 35%*

    Share of Employers w/ Worker Coverage

  • 2001: 81.2%s

  • 2005: 77.4%s

*Source: Kaiser/Hewitt study of large private-sector employers, 2006.

sSource: Wall Street Journal 1/19/07

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President’s FY ’08 Budget

  • Health Savings Accounts (HSAs) in Federal Employees Health Benefit Program (FEHBP):

    • Expands HSAs in FEHBP, by allowing:

      • BC/BS to offer HSAs.

      • “Indemnity Benefit Plan” to offer HSAs

        • Dormant since 1990

        • Aetna former Indemnity FEHBP Carrier

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FY ’08 Budget: Health Savings Accounts in FEHBP

  • What’s Wrong with a BC/BS HSA?

    • Most Popular & Largest FEHBP plan.

    • Brand Loyalty & Marketing Clout.

    • BC/BS HSAs could spike HSA enrollment.

    • That means higher premiums/fewer benefits for comprehensive plan enrollees.

  • Systemwide Indemnity Plan HSA:

    • Would only make it worse.

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President’s FY ’07 Budget

  • Base Retiree FEHBP Premiums on Length of Service:

    • Average Retiree/Worker Share: 29%.

    • Retirees with less than 10 years would pay more.

    • Discourages mid-career recruitment.

    • Similar to “Operation Offset”

      • 2005 RSC Plan would have cut gov’t share for retirees w/ less than 30 years of service.

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Setting the Bar High

The Fight for



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Premium Conversion

  • Rep. Tom Davis (R-VA)

  • H.R. 1110

    • 56 Cosponsors, including:*

      • Majority Leader Hoyer (D-MD)

      • Oversight & Gov’t Reform Committee Chairman Waxman (D-CA)

      • 19 Members of Ways and Means (10 Ds & 9 Rs)

*As of March 20, 2007

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Premium Conversion

  • Senators John Warner (R-VA) & Jim Webb

  • S. 773

  • 7 Cosponsors*

    • 3 Finance Committee members (Rockefeller, Lott & Snowe.

*As of March 20, 2007

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So What’s New About...

Premium Conversion in the 110th Congress (2007-2008)?

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House Ways and Means Committee

Senate Finance Committee

What’s New? Committee Chairman

Charles Rangel (D-NY) Chairman






Charles Grassley (R-IA), Ranking Member

Max Baucus (D-MT), Chairman

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What’s New?Budget Rule

  • “Pay As You Go” (a.k.a. “Paygo”)

  • Tax Relief Must be Offset by:

    • Revenue Increases, or

    • Program Cuts.

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What’s Old?

  • Premium Conversion Costs: $12 billion.

  • $248 billion Federal Budget Deficit – ’06.

  • Unknown costs of Wars & Homeland Security.

  • The Impending Fiscal Tsunami.

These guys will need a lot

of Social Security benefits,

health care &

long-term care

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What Else is Leftover?Politics of Premium Conversion

  • Many Lawmakers would like to support PC.

  • But, they have to consider how non-feds feel about Premium Conversion.

  • No retirees anywhere receive PC tax benefit.

  • Under H.R. 1110/S. 773, retired Members of Congress get PC too.

  • Concern about giving themselves a tax break other retirees won’t get.

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How NARFE Should Respond

  • NARFE & Sen. Warner: Cutting PC’s $12 billion cost:

    • Cap benefit with no affect on relief for 7-8 years.

    • Annuitants get benefit through a “Flexible Spending Account.”

  • Open PC to all retirees

    • No retirees private or public have PC.

    • Cost goes up, but PC for all removes one obstacle.

OMB Director Portman &

Senator Cardin (D-MD)

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Premium Conversion:Our Best Arguments

  • The cost is not out of line with how the tax code is being used on health care.

  • Federal civilian and military retirees should be rewarded for their sacrifices to our country.

  • Improvements in health care are incremental:

    • H.R. 1110/S. 773 are a foot in the door for other retirees.

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Medicare Part D Drug Benefit

  • 2002 Congressional Budget Office:

    • 1/3 of employers with retiree Rx coverage would drop it in response to “Part D.”

  • Medicare benefit inferior to FEHBP Rx.

  • Subsidy proposed to encourages employers to keep Rx drug coverage.

  • NARFE key in making the Fed Gov’t eligible for the subsidy.

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Medicare Employer Subsidy: Eligibility

  • Subsidies of 28% of the cost per enrollee age 65 and older.

    • Employers Eligible for Subsidy:

      • Drug Benefit = or > Part D

      • Federal, state and local government

      • Private-Sector

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Medicare Employer Subsidy

  • 2004: OPM and CMS staff met on FEHBP application for the subsidy.

  • 2005: OMB Tells OPM not to apply for subsidy.

  • OPM says:

    • Don’t need it: no plans to cut retiree Rx.

    • Government shouldn’t pay itself.

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Medicare Employer Subsidy: OPM’s Arguments Have No Merit

  • OPM: “No plans to cut retiree Rx.”

    • Eligibility not set by whether employer intended to kept Rx coverage with or without subsidy.

  • OPM: “Gov’t shouldn’t be paying itself.”

    • “Intragovernmental Transfers” not unusual.

    • Example: Agency Payments to CSRDF.

    • No Outlay – No Cost to Government.

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Result of Forgoing the Subsidy

  • $1 Billion a year that could have:

    • Reduced Premiums

    • Stabilized or Enhance Coverage

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Result of Forgoing the Subsidy

  • Jan. 2007 GAO Study (Sen. Akaka):

    • Large FEHBP plan with a lot of elderly would have had 3.5% to 4% lower premiums

    • All FEHBP plans would be more than 2% lower on average.

    • Premiums more sensitive to Rx cost in the future.

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Medicare Employer Subsidy: NARFE’s Response

  • Persistent Public Pressure on Administration:

    • Press Releases

    • NARFE Magazine Articles

    • Calls and Letter from NARFE Members

    • Meetings w/ OPM Director(s) and Key Staff

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Medicare Employer Subsidy: NARFE’s Response

  • Assistance from Key Members of Congress:

    • Rep. Tom Davis (R-VA)

    • Sen. Daniel Akaka (D-HI)

    • Rep. Danny Davis (D-IL)

    • Rep. Eleanor Holmes Norton (D-DC)

    • Sen. Charles Grassley (R-IA)

Rep. D. Davis

Rep. E. H. Norton

Sen. C. Grassley

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Medicare Employer Subsidy: NARFE’s Response

  • Conversations with staff of:

    • Then-House Ways & Means Committee Chair Bill Thomas (R-CA)

    • Senate Finance Committee Chair Max Baucus (D-MT)

    • House Ways & Means Committee Chair Charlie Rangel (D-NY)

Rep. Thomas

Sen. Baucus

Rep. Rangel

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NARFE’s Response in the 110th Congress

  • Sen. Akaka to hold hearings on the GAO Report this Spring.

  • President Baptiste will testify.

  • After hearing NARFE will work with Sen. Akaka on next steps.

Sen. Akaka

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Health Care Issues