Health Care Issues NARFE s Tenth Biennial Legislative Conference

Health Care Issues NARFE’s Tenth Biennial Legislative Conference March 3 -6, 2007 1

Health Care Issues Health Care Financing Trends n President’s FY 2008 Budget n Premium Conversion n Medicare Employer Subsidy n 2

Health Care Financing Trends The Erosion of Employer -Sponsored Health Insurance 3

Not Immune To Erosion of Retiree Health Benefits Share of Employers w/ Retiree Coverage n 1988: 66%* n 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. s. Source: Wall Street Journal 1/19/07 4

President’s FY ’ 08 Budget n Health Savings Accounts (HSAs) in Federal Employees Health Benefit Program (FEHBP): üExpands HSAs in FEHBP, by allowing: ØBC/BS to offer HSAs. Ø“Indemnity Benefit Plan” to offer HSAs v. Dormant since 1990 v. Aetna former Indemnity FEHBP Carrier 5

FY ’ 08 Budget: Health Savings Accounts in FEHBP n What’s Wrong with a BC/BS HSA? üMost Popular & Largest FEHBP plan. üBrand Loyalty & Marketing Clout. üBC/BS HSAs could spike HSA enrollment. üThat means higher premiums/fewer benefits for comprehensive plan enrollees. n Systemwide Indemnity Plan HSA: üWould only make it worse. 6

President’s FY ’ 07 Budget n Base Retiree FEHBP Premiums on Length of Service: üAverage Retiree/Worker Share: 29%. üRetirees with less than 10 years would pay more. üDiscourages mid-career recruitment. üSimilar to “Operation Offset” Ø 2005 RSC Plan would have cut gov’t share for retirees w/ less than 30 years of service. 7

Setting the Bar High The Fight for Premium Conversion 8

Premium Conversion n n Rep. Tom Davis (R-VA) H. R. 1110 ü 56 Cosponsors, including: * ØMajority Leader Hoyer (D-MD) ØOversight & Gov’t Reform Committee Chairman Waxman (D-CA) Ø 19 Members of Ways and Means (10 Ds & 9 Rs) *As of March 20, 2007 9

Premium Conversion n Senators John Warner (R-VA) & Jim Webb S. 773 7 Cosponsors* ü 3 Finance Committee members (Rockefeller, Lott & Snowe. *As of March 20, 2007 10

So What’s New About. . . Premium Conversion in the 110 th Congress (2007 -2008)? 11

What’s New? Committee Chairman n House Ways and Means Committee Charles Rangel (D -NY) Chairman Jim Mc. Crery (R-LA) Ranking Member n Senate Finance Committee Max Baucus (D -MT), Chairman Charles Grassley (R-IA), Ranking 12 Member

What’s New? Budget Rule “Pay As You Go” (a. k. a. “Paygo”) n Tax Relief Must be Offset by: üRevenue Increases, or üProgram Cuts. n 13

What’s Old? Premium Conversion Costs: $12 billion. n $248 billion Federal Budget Deficit – ’ 06. n Unknown costs of Wars & Homeland Security. n The Impending Fiscal Tsunami. n These guys will need a lot of Social Security benefits, health care & long-term care 14

What Else is Leftover? Politics of Premium Conversion n n 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. 15

How NARFE Should Respond n n NARFE & Sen. Warner: Cutting PC’s $12 billion cost: üCap benefit with no affect on relief for 7 -8 years. üAnnuitants get benefit through a “Flexible Spending Account. ” OMB Director Portman & Senator Cardin (D-MD) Open PC to all retirees üNo retirees private or public have PC. üCost goes up, but PC for all removes one obstacle. 16

Premium Conversion: Our Best Arguments n The cost is not out of line with how the tax code is being used on health care. n Federal civilian and military retirees should be rewarded for their sacrifices to our country. n Improvements in health care incremental: ü H. R. 1110/S. 773 are a foot in the door for other retirees. 17

Medicare Employer Subsidy 18

Medicare Part D Drug Benefit n 2002 Congressional Budget Office: Ø 1/3 of employers with retiree Rx coverage would drop it in response to “Part D. ” Medicare benefit inferior to FEHBP Rx. n Subsidy proposed to encourages employers to keep Rx drug coverage. n NARFE key in making the Fed Gov’t eligible for the subsidy. n 19

Medicare Employer Subsidy: Eligibility n Subsidies of 28% of the cost per enrollee age 65 and older. üEmployers Eligible for Subsidy: ØDrug Benefit = or > Part D ØFederal, state and local government ØPrivate-Sector 20

Medicare Employer Subsidy 2004: OPM and CMS staff met on FEHBP application for the subsidy. n 2005: OMB Tells OPM not to apply for subsidy. n OPM says: n üDon’t need it: no plans to cut retiree Rx. üGovernment shouldn’t pay itself. 21

Medicare Employer Subsidy: OPM’s Arguments Have No Merit n OPM: “No plans to cut retiree Rx. ” n üEligibility not set by whether employer intended to kept Rx coverage with or without subsidy. OPM: “Gov’t shouldn’t be paying itself. ” ü“Intragovernmental Transfers” not unusual. üExample: Agency Payments to CSRDF. üNo Outlay – No Cost to Government. 22

Result of Forgoing the Subsidy n $1 Billion a year that could have: üReduced Premiums üStabilized or Enhance Coverage 23

Result of Forgoing the Subsidy n Jan. 2007 GAO Study (Sen. Akaka): üLarge FEHBP plan with a lot of elderly would have had 3. 5% to 4% lower premiums üAll FEHBP plans would be more than 2% lower on average. üPremiums more sensitive to Rx cost in the future. 24

Medicare Employer Subsidy: NARFE’s Response n Persistent Public Pressure on Administration: üPress Releases üNARFE Magazine Articles üCalls and Letter from NARFE Members üMeetings w/ OPM Director(s) and Key Staff 25

Medicare Employer Subsidy: NARFE’s Response n Assistance from Key Members of Congress: Rep. D. Davis üRep. Tom Davis (R-VA) üSen. Daniel Akaka (D-HI) Rep. E. H. Norton üRep. Danny Davis (D-IL) üRep. Eleanor Holmes Norton (D-DC) üSen. Charles Grassley (R-IA) Sen. C. Grassley 26

Medicare Employer Subsidy: NARFE’s Response n Conversations with staff of: üThen-House Ways & Means Committee Chair Bill Thomas (R-CA) üSenate Finance Committee Chair Max Baucus (D-MT) Rep. Thomas üHouse Ways & Means Committee Chair Charlie Rangel (D-NY) Sen. Baucus Rep. Rangel 27

NARFE’s Response in the 110 th Congress Sen. Akaka to hold hearings on the GAO Report this Spring. n President Baptiste will testify. n After hearing NARFE will work with Sen. Akaka on next steps. n Sen. Akaka 28

Health Care Issues QUESTIONS AND ANSWERS 29