[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
2009 BLUE CROSS BLUE SHIELD HEALTH BENEFIT: WHAT IT MEANS FOR FEDERAL
EMPLOYEES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FEDERAL WORKFORCE,
POSTAL SERVICE, AND THE DISTRICT
OF COLUMBIA
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
DECEMBER 3, 2008
__________
Serial No. 110-194
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
----------
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Washington, DC 20402-0001
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania DAN BURTON, Indiana
CAROLYN B. MALONEY, New York CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri CHRIS CANNON, Utah
DIANE E. WATSON, California JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of PATRICK T. McHENRY, North Carolina
Columbia VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota BRIAN P. BILBRAY, California
JIM COOPER, Tennessee BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
JACKIE SPEIER, California
Phil Barnett, Staff Director
Earley Green, Chief Clerk
Lawrence Halloran, Minority Staff Director
Subcommittee on Federal Workforce, Postal Service, and the District of
Columbia
DANNY K. DAVIS, Illinois
ELEANOR HOLMES NORTON, District of KENNY MARCHANT, Texas
Columbia JOHN M. McHUGH, New York
JOHN P. SARBANES, Maryland JOHN L. MICA, Florida
ELIJAH E. CUMMINGS, Maryland DARRELL E. ISSA, California
DENNIS J. KUCINICH, Ohio, Chairman JIM JORDAN, Ohio
WM. LACY CLAY, Missouri
STEPHEN F. LYNCH, Massachusetts
Tania Shand, Staff Director
C O N T E N T S
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Page
Hearing held on December 3, 2008................................. 1
Statement of:
Francis, Walton, author, CHECKBOOK'S Guide to Health Plans
for Federal Employees; and Peter E. Petrucci, M.D.,
president, medical staff, Sibley Memorial Hospital......... 7
Francis, Walton.......................................... 7
Petrucci, Peter E., M.D.................................. 30
Kichak, Nancy H., Associate Director, Strategic Human
Resources Policy Division, Office of Personnel Management;
and Stephen W. Gammarino, senior vice president, national
programs, Blue Cross and Blue Shield Association........... 56
Gammarino, Stephen W..................................... 64
Kichak, Nancy H.......................................... 56
Letters, statements, etc., submitted for the record by:
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 87
Davis, Hon. Danny K., a Representative in Congress from the
State of Illinois, prepared statement of................... 4
Francis, Walton, author, CHECKBOOK'S Guide to Health Plans
for Federal Employees, prepared statement of............... 11
Gammarino, Stephen W., senior vice president, national
programs, Blue Cross and Blue Shield Association, prepared
statement of............................................... 66
Kichak, Nancy H., Associate Director, Strategic Human
Resources Policy Division, Office of Personnel Management,
prepared statement of...................................... 58
Petrucci, Peter E., M.D., president, medical staff, Sibley
Memorial Hospital, prepared statement of................... 32
2009 BLUE CROSS BLUE SHIELD HEALTH BENEFIT: WHAT IT MEANS FOR FEDERAL
EMPLOYEES
----------
WEDNESDAY, DECEMBER 3, 2008
House of Representatives,
Subcommittee on Federal Workforce, Postal Service,
and the District of Columbia,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:04 a.m., in
room 2154, Rayburn House Office Building, Hon. Danny K. Davis
(chairman of the subcommittee) presiding.
Present: Representatives Davis, Norton, Cummings, and
Sarbanes.
Staff present: Tania Shand, staff director; William Miles,
professional staff member; Marcus A. Williams, clerk/press
secretary; Jill Schmalz, minority counsel; Alex Cooper and Adam
Fromm, minority professional staff members; Howard Denis,
minority senior professional staff member; and Patrick Lyden,
minority parliamentarian and Member services coordinator.
Mr. Davis. Never believing in punishing those who are where
they should be at the time they had said they would be, we are
going to go ahead and call the hearing to order.
It is my understanding that we do have, that Delegate
Eleanor Holmes Norton is on the way momentarily and will be
here. So, the subcommittee will now come to order.
Unfortunately, Ranking Member Marchant will not be here.
Members of the subcommittee, hearing witnesses and all
those in attendance, welcome to the Subcommittee on the Federal
Workforce, Postal Service, and the District of Columbia's
hearing to examine the changes in Blue Cross and Blue Shield's
benefits and premiums for 2009 Federal Employees Health
Benefits Program.
The Chair, ranking member, and subcommittee members will
each have 5 minutes to make opening statements, and all Members
will have 3 days to submit statements for the record. Hearing
no objection, so is the order.
I will then go ahead with an opening statement. Other
Members will have the opportunity to do so when and should they
come.
The Federal Employees Health Benefits Program is arguably
the gold standard for employee sponsored health insurance
programs. It provides health insurance coverage to
approximately 8 million people, including Members of Congress,
and is the largest employer-sponsored health insurance program
in the United States.
The Office of Personnel Management [OPM], negotiates plan
benefits with the health plans and is responsible for ensuring
that the Federal Government and its employees get good value
for their health care dollars. Yet, the program still struggles
with high premium cost and plan quality. Last week my
subcommittee office received numerous calls from congressional
staff members, Members' offices and plan participants about
changes to the 2009 Blue Cross Blue Shield standard option
benefit plan. Spurred by reports in the Washington Post Federal
Diary column, Roll Call, and most recently U.S. News & World
Report, all the callers expressed outrage about the changes.
One Blue Cross Blue Shield subscriber wrote in an e-mail to
my staff, ``I thought that OPM was supposed to represent the
interests of Federal employees and retirees in negotiating
coverage. The 13 percent increase in premiums coupled with the
dramatic reduction in coverage for out-of-network surgical
expenses makes me wonder, who indeed is at the helm? The 2009
proposed coverage would also expose subscribers to financial
duress.''
In addition to the 13 percent increase in premiums for the
Blue Cross Blue Shield standard option, 2009 beneficiaries will
be responsible for paying up to $7,500 for surgery performed by
non-participating physicians, except in the case of medical
emergencies or accidents. And for mail order brand name drugs,
the co-payment will be raised to $65 per prescription for the
first 30 prescriptions filled or refilled and $50 thereafter.
This is of concern to many individuals because the current fee
to fill a prescription is $35.
The question is asked, who indeed is at the helm? Are these
changes emblematic of larger concerns and challenges? While
plan participants can use in-network physicians or simply opt
out of Blue Cross Blue Shield and into one of any number of
other plans, we must question the structural framework of the
program, plan negotiations, and what led Blue Cross Blue Shield
to implement such drastic changes?
This issue deeply concerns me. Blue Cross Blue Shield is
one of our Nation's oldest and most prominent nonprofit health
insurance companies. When patients turn to name brand health
insurers like Blue Cross Blue Shield, they do so for their
physical, mental, and social well being. And while I understand
that Blue Cross is reexamining its 2009 benefit option, and I
am pleased that it is doing so, Americans, FEHBP participants
included, can no longer assume that their current health
insurer will perform in a reasonable fashion, especially as it
relates to their ability to experience coverage at an
affordable cost.
There is a lesson here for those seeking to reform
America's health care systems. Expansions in coverage must mean
more than simply paying for health insurance policies. At a
minimum, this case shows us that we also need to consider
appropriate regulations and oversight to ensure that Americans
will actually get the care they need at affordable rates.
I look forward to the testimony of today's witnesses. It is
my belief that today's hearing will not only assist plan
participants in choosing a health plan before open season
closes on Monday, but it will also assist the subcommittee in
setting its hearing agenda for FEHBP during the next session. I
thank you very much.
And I am delighted that Delegate Norton is here.
I ask if you have some opening comments.
[The prepared statement of Hon. Danny K. Davis follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. Norton. Thank you, Mr. Chairman.
Just a word or two. I want to thank you for responding to
the concerns, particularly among Federal employees, who have
tended to favor Blue Cross Blue Shield, so that we can get an
explanation for what appear to be failures on the part of the
two parties that employees depend upon, OPM and Blue Cross. The
failure of transparency and clear explanation from the Blues
seems to be clear. It is kind of search and ye shall find a
very substantial cost change for enrollees.
And the failure on the part of OPM may be the honest broker
failure. We depend upon OPM to keep the plan, which is much
marketed as one of the best in the country because of its
choice, transparent and understandable, and frankly, to be an
honest broker with the plans. You know, Blue Cross Blue Shield
may be about to squander the huge advantage it has had. It is a
nonprofit health care plan. And one of its chief advantages is
that it has seemed to offer people the ultimate choice, fee-
for-service, while being a preferred provider. But this very
unfortunate revelation casts--will make subscribers look very
closely at Blue Shield and whether or not the almost automatic
renewal has been worth it.
Obviously, this is a more expensive plan, but the very
educated Federal worker has trusted Blue Shield--Blue Cross
Blue Shield, and has been willing to pay for what seemed to be
to many of them worth it. The cost of the standard option,
however, has been increasing faster for Blue Cross Blue Shield
and is now considerably more expensive than for others.
Particularly in these hard times, Blue Cross Blue Shield
really stands to lose market share, and perhaps should. They
shouldn't be making mistakes now. And they shouldn't be making
mistakes in a plan that employees have favored, and now I think
will make employees far more skeptical. Whatever the
explanation, you don't bury this kind of potential cost
increase in the fine print. You don't do it when you are
dealing with Federal employees, because they do read. They
finally get it. They perhaps got it too late, and I hope that
there will be an opportunity for people to consider beyond
December 8th whether or not they ought to stay in this plan,
particularly since most people didn't get it, I bet. And to the
extent that they get it at all, it is because the chairman has
come all the way from Chicago to hold a hearing so that OPM and
Blue Cross Blue Shield can explain themselves.
As for OPM, we are very disappointed. OPM seems not to be
able to itself keep up with the complexity that attends health
care plans today. I think everybody who is in a plan better
take a much closer look at these plans. And the notion that the
fine print may be burying costs is extremely troubling because
transparency has been the hallmark of the FEHBP.
We hope that in the course of this hearing we will
understand what was at the bottom of this, because we are left,
you see, to speculate as to why this simply wasn't made
clearer, particularly since it involves itself some complexity
in order to be understood by one who is enrolled. And we need
to know whether or not this kind of change is emblematic of
what we can expect and what OPM intends to do about it. Again,
I thank you very much, Mr. Chairman, for believing that this
was important enough to come and hold this hearing this
morning.
Mr. Davis. Thank you very much, Delegate Norton.
We will now go to our witnesses. I will introduce the first
panel, and then we will swear them in and proceed.
Our first panel of witnesses: Mr. Walton Francis is a self-
employed economist, policy analyst, and expert in the analysis
and evaluation of public programs. He pioneered the systemic
comparison of health insurance plans from a consumer
perspective. And for 30 consecutive years, Mr. Francis has
authored the annual CHECKBOOK's Guide To Health Plans For
Federal Employees.
We thank you for coming, Mr. Francis.
And we will then also ask if Dr. Peter E. Petrucci will
come to the table. Dr. Petrucci is board certified in general
surgery and is a fellow in the American College of Surgeons. On
several occasions, the Washingtonian Magazine has named Dr.
Petrucci one of the top surgical specialists in the region. He
also has been awarded distinction as one of the best doctors in
America, having been selected by a consensus of physician
colleagues as being among the top 4 percent of all physicians
in his specialty.
Gentlemen, I want to thank you very much for coming. And if
you would rise and raise your right hands, it is the procedure
of this committee that all witnesses be sworn in.
[Witnesses sworn.]
Mr. Davis. The record will show that the witnesses answered
in the affirmative.
Gentlemen, will you try and take 5 minutes? We don't always
necessarily hold to that. But we try to have a 5-minute
statement. The light sort of indicates the beginning, green go.
Yellow means that you are down to 1 minute. And of course red
is an indication that you stop. We try not to curtail
witnesses' testimony, especially if they are wrapping up.
But if you would begin, and we will begin with you, Mr.
Francis. Thank you very much.
STATEMENTS OF WALTON FRANCIS, AUTHOR, CHECKBOOK'S GUIDE TO
HEALTH PLANS FOR FEDERAL EMPLOYEES; AND PETER E. PETRUCCI,
M.D., PRESIDENT, MEDICAL STAFF, SIBLEY MEMORIAL HOSPITAL
STATEMENT OF WALTON FRANCIS
Mr. Francis. Thank you, Mr. Chairman, Ms. Norton.
I think this hearing and the prior reporting in the
Washington Post are examples of the bests of the private and
public oversight in America. And I congratulate you on having
this hearing. I think it is extremely important.
I am wearing two hats today, both as a consumer advocate
and as a health care economist. And I am going to make some
larger points about some of the problems of the FEHBP program
that I think contributed not just to this particular benefit
change that provoked this hearing, but as you already said, Mr.
Chairman, there are a number of benefit changes and large
premium increases in the Blue Cross plan. And the question is,
why is that happening, and is it necessary? And are there
forces at issue that could have prevented some of this?
By the way, I am here speaking solely in my own personal
capacity, not for CHECKBOOK magazine, and not for the Centers
for Medicare and Medicaid Services, where I consult.
Focusing first just on the Blue Cross benefit changes this
year, the key point is, the cutback in out-of-network surgery
is not the only negative change. There are a number of others;
increase in prescription drug co-payment, for example. There
are also a few benefit improvements. But the benefit reductions
greatly outweigh those.
Important to understand though, is, that had Blue Cross not
cut back some of these benefits, its premium would have been
greater, could have been several hundred dollars greater; could
have been, instead of 13 percent, it might have been 20
percent.
The specific change that I think is most problematic this
year is this ceiling on--it is not even clearly described in
the Blue Cross brochure. Is it a deductible? Is it a co-
payment? Or is it just a maximum? It is never fully described
or categorized, which itself creates problems I will come to in
a minute. But this increase of paying up to $7,500 for surgery
using non-preferred providers presents--it is a massive benefit
reduction, though there is an offsetting saving for some people
because it does reduce potential balance billing problems. And
I think that may have been a major factor in the decision to do
this.
Second, it is a major reduction in catastrophic protection.
The promised maximum you will have to pay out-of-pocket if you
use nonpreferred providers of Blue Cross is $7,000. But
actually, it is $7,000 plus $7,500. It is $14,500 with this
change. And that is a big, big difference.
It is inconsistent I think with the promise and the premise
that Blue Cross does remain fundamentally a fee-for-service
plan and ought to have a good fee-for-service benefit. It is
described on the cover its brochure as a fee-for-service plan
with a preferred provider network. But it ought to have good
fee-for-service benefits.
Finally, and most problematic, it is a gotcha trap. There
has already been one clarification as to what happens in
emergencies, because it wasn't clear earlier, if someone might
involuntarily be exposed to the $7,500, not even realizing that
was happening. I do a lot of consumer advice. Last night I
answered e-mail, and it shocked me. A woman's 88-year-old
mother is going to get surgery from a non-preferred provider,
and she can't get a straight answer from Blue Cross as to
whether or not--this mother has Medicare parts A and B--as to
whether or not she will be exposed to this payment. I looked
carefully last night at the Blue Cross brochure, which has a
separate promise for people on Medicare, and it is unclear to
me. But the better reading of it, it seems to be that, for the
first time, there is not a hundred percent you-will-pay-nothing
promise to people on Medicare parts A and B. I am not sure I am
reading it correctly, but the point is this shouldn't be
ambiguous. It shouldn't be debatable. Blue Cross
representatives shouldn't be giving conflicting answers.
Most importantly, there are other alternatives that could
have been used no matter what problem was being addressed. For
example precertification for certain kinds of surgery could
have been used or prior approval. Let me stop there. That is
sort of what happened here and my take on it.
Now let's talk about why it happened. There are some very
important flaws. I go into these in great detail in my
testimony. I won't belabor them here. But the aging of the
Federal work force has created tremendous cost pressures,
particularly and disproportionately on plans like Blue Cross
that have loyal members who joined at age 30 when they were
cheap; and they are still there at age 50 when they cost twice
as much on an actuarial basis; and they are still there at age
70 when they cost twice as much again. So that is a tremendous
pressure on Blue Cross.
The premium design of the FEHBP program is flawed in a
particular way. When I pick a cheaper plan, I only get 75--I
only get 25 percent of the savings. The government gets 75
percent. Medicare Advantage, it is the other way around. So my
incentive to find a cheaper plan is greatly reduced. I don't
get most of the savings. And the incentives of the plans to
offer less expensive benefits is greatly reduced.
Then we have premium conversion added to this. Premium
conversion, however nice it might have been as a little added
twist to fringe benefits, and it did after all merely put the
Federal work force in the same status as the Fortune 500 work
force in terms of tax preferences on health insurance premiums,
but premium conversion eroded all the incentives for cost
saving on both plans and enrollees in this program. And it is
no coincidence that the performance of the FEHBP has worsened
dramatically in controlling costs in the last 10 years since
premium conversion went in place. I think the Obama
administration is going to deal with that issue in a broader
context, but it is there.
There is a serious Medicare coordination problem. Neither
program has addressed it appropriately. I think that the
current legislative prohibition, statutory prohibition against
plans paying the costs of the Medicare Part B premium should be
lifted, and plans should be encouraged and maybe even required
to pay part of that premium before they go into this you won't
have to pay anything out-of-pocket mode, which is a huge cost
driver. There's a lot of economic research that shows that
situations where you pay nothing for medical care are
situations where there is a great deal of waste and over-
utilization, which costs the taxpayer a ton of money, and other
enrollees in the program a ton of money.
There are solutions to all these things. I discuss them--I
just want to talk a moment, though, and then I will end my
testimony, about consumer information. There is a longstanding
problem in the FEHBP consumer information relating to the
statement and description of catastrophic protections. And it
has gotten worse. It has gotten worse in part because plan
complexity has grown. But the fact is, if you pick up a
brochure today and it says this plan guarantees that you won't
pay more than 5 or 6 or $8,000 out-of-pocket, that is not true.
Buried in the small print you are going to find, oh, well, this
didn't include the deductible, or this didn't include the
$7,500 out-of-network surgery, or it didn't include your
prescription drug co-payments. Whatever it doesn't include, and
that varies from plan to plan, it makes it impossible for an
ordinary human being to compare those stated catastrophic
limits. And it means there's lots of loopholes in them. There
is no reason this has to happen. There is no reason OPM can't
require that the catastrophic limits include all the
significant costs to which you might be exposed that can be
measured ahead of time. That doesn't include, unfortunately,
balanced billing, but it includes just about everything else.
There is no reason why prescription drugs shouldn't be in those
catastrophic limits. We don't need a separate catastrophic
limit, which to OPM's credit they have insisted that all the
plans give you some protection against specialty drugs, that
can reach tens or even hundreds of thousands of dollars, that
should be in the regular catastrophic limit.
Then there is a question, do consumers even learn about
this stuff? Every Medicare beneficiary in the country gets
mailed to them ``Medicare And You,'' a 100-page booklet written
in clear English, big typeface, that explains Medicare benefits
and describes in some detail the Medicare Advantage plans for
which they are eligible. OPM publishes a similar booklet. I am
holding up the one for annuitants, ``Guide To Federal Benefits
For Federal Retirees and Their Survivors.'' But this is not
mailed. Nobody gets this. They can download it on the Internet,
but it is not mailed to them. And of course, in the aging
population, retired population, there is a very large fraction
that don't use the Internet any way. Why isn't it mailed?
Because OPM salary and expenses account won't--isn't big enough
to pay for the postage costs. It is absurd. And there is no
reason why retirees shouldn't get this information.
Then, however, if you look at what is in it, OPM no longer
publishes the catastrophic limit on these plans in its summary
description of benefits. That is probably a good thing, because
until they fix it, those limits are misleading. But they do,
and I will say this for them, the $7,500 maximum, you know, the
surgery cutback is shown in this document, which nobody gets.
The summary page of the Blue Cross brochure itself, the last
page summary of benefits, does not show the $7,500 reduction
for out-of-network surgery.
So let me stop there and simply say, there is--there are
administrative actions that could be taken. There are
legislative steps that could be taken within the jurisdiction
of this committee, and there are legislative actions which may
be primarily in the jurisdiction of Ways and Means, but they
also could be taken relating to Medicare coordination. That
concludes my testimony.
[The prepared statement of Mr. Francis follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis. Thank you very much, Mr. Francis.
And we will go to Dr. Petrucci.
STATEMENT OF PETER E. PETRUCCI, M.D.
Dr. Petrucci. Thank you, Mr. Chairman, distinguished
members of the committee. Thank you for the opportunity to be
here today. My name is Peter Petrucci.
As you have heard, I am a board certified general surgeon
and currently serve as the president of the medical staff at
Sibley Hospital. I've practiced medicine in the District of
Columbia since 1975, and am here today representing my patients
and my colleagues. On January 1st, 4 million Federal employees,
nearly half of the Federal work force, will face drastic
changes to their health insurance policy. In addition to a 13
percent increase in premiums, out-of-network benefits for
Federal Blue Cross Blue Shield standard option plan holders
will be severely curtailed, affecting anesthesia, emergency,
and surgical services, and placing a significant financial
burden on patients.
These changes are particularly relevant for Federal
employees already signed up with the Federal standard option
plan as their health insurance provider, since they will
automatically be renewed for 2009 unless they switch to another
plan. With expiration of the open enrollment period on December
8th, there is little time to explore these options, and an
immediate extension of the open enrollment should be
implemented.
As a senior member of our medical community, I understand
the need to control our large and growing health care costs. I
also understand that establishing equitable and affordable care
will be a complex process and will require compromise on the
part of consumers, providers and insurers. But the new policy
change by Blue Cross and Blue Shield adds an alarming wrinkle
to cost containment by eliminating choice and putting the
financial burden squarely on the patient. This is a denial of
choice by deception.
Most egregious of the 2009 plan's so-called benefits has to
do with patients' choice of physician. Effective January 1st,
any patient who has surgery or any other of the so-called
surgical procedures by an out-of-network or nonparticipating
provider is 100 percent responsible for the first $7,500 of
charges. This is not a one-time deductible. The $7,500 patient
responsibility clock is reset with each surgery or procedure.
More surprising, and buried in the 135-page plan document, is
the policy's definition of surgery. It includes the treatment
of fractures and dislocations, including casting, biopsy
procedures, removal of tumors and cysts, treatment of burns,
obstetrical care, including childbirth, and diagnostic
colonoscopy, and other endoscopic procedures. This new policy
change in effect converts the Federal standard program and
point-of-service care plans to an HMO plan by making out-of-
network costs prohibitive and limiting choice for the vast
majority of patients.
Another disturbing provision of the new policy is a $350
deductible for emergency services when they are provided by a
nonparticipating physician. Patients will be financially
responsible for consultations rendered in an emergency even if
the doctor was not chosen by the patient. Acutely ill patients
do not usually have the luxury of selecting their provider. Yet
that is precisely what will be expected and required. This $350
fee is passed onto the patient for each consulting provider who
does not participate in this plan.
Most importantly and with rare exception, patients are
being caught unaware of the significant benefit cuts.
Regrettably, the Office of Personnel Management appears to have
contributed to this confusion by having abdicated their
responsibility to the 4 million Federal employees and their
families covered under this plan. The 2009 Blue Cross Blue
Shield standard plan eliminates choice and transfers financial
responsibility directly onto the patient, even during an
emergency and without legitimate and transparent disclosure.
There are already a substantial number of patients who,
finally informed about these changes, have become angry and
frustrated. Only in the last few days, after mounting pressure
from angry patients and concerned physicians, were minor
clarifications posted on the Federal Blue Cross Blue Shield Web
page.
On behalf of our patients, I would like to make the
following recommendations: Restore to patients the right to
choose their doctor without making it financially prohibitive.
This can be achieved by Blue Cross and Blue Shield rolling back
the changes for out-of-network providers to the 2008 standard
option plan.
Immediately extend the open enrollment period to ensure the
rights of Federal employees to explore and fairly exercise
their right to choose a health plan that is best for them.
Have OPM establish a transparent and comprehensive outreach
information program that ensures clear explanation of various
plan benefits and the difference between plan costs and
services.
Explore the process by which OPM, directly responsible for
representing their employees, betrayed that charge by acting to
negotiate and purchase as well as regulate the provision of
health care benefits. These rules put OPM in a conflict of
interest position. There should be a separate body, including
consumers and physicians, which would oversee the products
submitted to OPM and determine if they fairly represent the
plan benefits and any changes, and ensure that all Federal
employees are aware of proposed changes. Without such
separation of purchasing and oversight powers, the
opportunities for continued and future abuses remain.
Instead of legitimately engaging the medical community to
explore ways of lowering costs, Blue Cross and Blue Shield has
taken a hammer to this problem. In so doing, they will hurt the
very patients they are supposed to serve.
Thank you for your time.
[The prepared statement of Dr. Petrucci follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis. Thank you gentlemen very much.
Let me also acknowledge the presence of Representative
Elijah Cummings, who has joined us.
Thank you very much, Representative Cummings.
Let me ask, listening to both of your testimonies, how
important, and perhaps I will begin with you, Mr. Francis, how
important is it that patients or consumers have the choice of
selecting physicians for treatment?
Mr. Francis. That is a great question, Mr. Chairman. And
the answer is, it is extremely important for some and not
important for others. And we don't know ahead of time which
people are in which category.
For example, a very large fraction of the Federal work
force, not of retirees but of the active workers, over a third,
enroll in HMO's where the deal is you must use HMO
participating physicians or we don't cover anything. That is a
choice they make. They get certain benefits for that. They get
typically a better benefit package, and they get lower
premiums.
But for other people, it is vital that they be able to
choose their physician without any constraint. So the FEHBP
needs to provide plans that offer both kinds of packages. And I
think the problem here, and it really is, is that the Blue
Cross out-of-network benefit, and it is not significantly worse
or different than those in most of the other national plans,
they typically pay only 75 percent of an allowance. And that
allowance is less by far than many physicians or surgeons
charge. But at least the deal is sort of clear, and you are
going to have something covered, typically half or more of your
cost. But $7,500 is a mighty hefty penalty to pay to go out of
network.
Mr. Davis. Dr. Petrucci.
Dr. Petrucci. I can't really improve on that statement. The
choice really depends on the patient. Many patients choose to
pick a physician that they have had a longstanding experience
with. Some physicians choose to decide to become
nonparticipating after patients have been with them for many
years. And so that choice becomes one that they cherish.
Mr. Davis. There is a cost savings when individuals limit
their choices in some way.
Dr. Petrucci. There is a cost savings to the patient, yes.
There is no difference for the insurance company, however.
Mr. Davis. Well, given comparisons, given the changes that
Blue Cross Blue Shield are making, are there other comparable
plans that employees may want to consider?
Dr. Petrucci. The Federal panel, and you know this better
than I do, certainly has other insurance companies in the
program that allow the choice that patients want so that they
can go out of plan easily and have a significant portion of
their expenses covered.
Mr. Davis. Do they compare favorably, though, with----
Dr. Petrucci. I think so.
Mr. Francis. In the Consumers' CHECKBOOK advice that we
publish, we find that there are a number of plans, quite a
number, that offer benefits as good or better than the Blue
Cross standard option benefit and premiums that are
considerably lower. Now, you know, no plan is better in every
category. And no plan is worse in every category, but there are
lots of very good choices out there, including, by the way,
Blue Cross Basic, whose main distinguishing characteristic is
that you can't go out of the network and get any coverage. But
people can make that choice and save a good deal on their
premium.
So, yes, there are alternatives, and we always recommend
people consider alternatives. That is the beauty of open
season, a chance to think through your choices and consider
options. I just wish the information that were out there were
more available, especially to the retirees all over the country
who don't get sort of the hot house attention that this issue
gets in Washington, DC.
Mr. Davis. Well, Blue Cross has said that it will take
another look or reexamine its 2009 benefit options. Do either
of you have any idea of what that might mean? And if they were
to reexamine, what other options or what changes might they
want to look at?
Mr. Francis. The suggestion, Mr. Chairman, I make in my
testimony is that OPM and Blue Cross consider--whether or not
they can do it now, I think probably they could, but I will
leave that to them to address--that is right away could they
change their 2009 situation--but certainly they could have put
in a requirement for pre-approval of certain kinds of surgery,
particularly where out-of-pocket expenses might be very high if
people were balance billed. Or whatever problem they are after,
they could require pre-approval. They did a--there is a pre-
approval requirement for morbid obesity surgery that I believe
was just added this year, if my memory serves. So it is not as
if there aren't other tools in the arsenal that could be used
that aren't so draconian in their financial impact.
Dr. Petrucci. Our concern is that there doesn't seem to be
a clear benefit--I mean the patient understands when they come
to us, that is nonparticipating providers, that they will have
a cost outside of their plan. The issue is, this doesn't seem
to save Blue Cross anything by just adding that deductible.
They are basically saying, we are not going to pay anything for
your--in other words, if they come to me now, they have an
operation, I have a charge, Blue Cross will pay a percentage of
that charge and the patient pays the rest. That costs Blue
Shield nothing. And so the question is, why the change? What
difference does it make to them to take away that benefit that
is already there and not allow patient choice?
Mr. Davis. I will just ask a last one. Why would a patient
want to go out of network say to have surgery?
Dr. Petrucci. Well, most patients are referred by their
primary care doctor. And they also have patient family members,
friends, who may have had operations by a certain physician, or
they could be being taken care of by a certain physician. It
has to do with a number of factors: Reputation, experience with
a procedure. There are a lot of different reasons why a patient
may choose to come to me rather than somebody else or somebody
else rather than me. That is, again, patient choice. And that
is really all we are saying is, they should be able to make
that decision. They understand up front that they will have an
additional cost, and we work with them on that process.
Mr. Davis. And the network activity is not coordinated in
such a way that in all likelihood a primary care physician or
primary provider would not necessarily refer someone to another
member of the network, I mean to a surgeon that is part of the
network?
Dr. Petrucci. It works both--it can work both ways. It can
work either way or both ways.
Mr. Davis. Well, gentlemen, thank you very much. My time is
up.
Delegate Norton.
Ms. Norton. Thank you, Mr. Chairman.
Well, Mr. Petrucci, you say it doesn't save them anything.
Why do you think they did it? If this large increase for
consumers doesn't----
Dr. Petrucci. I am sorry, I didn't quite----
Ms. Norton [continuing]. Doesn't save Blue Cross Blue
Shield anything, why do you think they did what they did?
Dr. Petrucci. You know, I don't know. We've been--that is a
question we would love to ask them ourselves. It is not
something that is very clear to us.
Mr. Norton. You know, people can understand some of the
increases.
You spoke of some of them, Mr. Francis, increasing co-
payment and the like. You know, I don't know if it has ever
been tested, but certainly there is a policy rationale that
people think before they run to the doctor.
The failure to even understand what is happening here is
what bothers me most.
Now, and I ought to be clear, Mr. Petrucci, I am--is it
Petrucci or Petrucci.
Dr. Petrucci. Petrucci.
Ms. Norton. Petrucci. I believe that one of the problems
with the American health care system is people can say, hey,
you know, I want the same person who did your operation to do
mine. So I am--the HMOs have managed to, in many ways, buildup
some real prejudice against themselves, but one of the problems
we have in this country, frankly, is that everybody wants
Cadillac health care, and so we are leaving, you know, 50
million people with nothing, and an increasing number of
people, including Federal employees who say, even though you
are willing to pay part of it, I am sorry, this is even before
we got to these hard times, I am going to have to take my
chances. And so part of the problem--so I don't--when people
say--when we see developing countries, for example, where
everybody gets health care, do understand that when that
happens it is because the society has agreed that, for the
benefit of the many, some of us agree, unless we are going to
pay for it, that we will not indeed demand what frankly in some
ways Blue Cross Blue Shield looks like it wants to provide,
because it is a preferred provider, something of an HMO-type
saving there for the consumer. And yet there is fee-for-
service. And here you have America writ large in health care:
Hey, you can have it all.
Then what we get is this humongous increase. And of course,
Blue Cross Blue Shield says it is not an increase at all. And
they are going to have to explain themselves about that.
I want to ask you, Mr. Francis, because I am sympathetic
with what you say, that Blue Cross Blue Shield--because you
discuss very fairly, it seems to me, the pressures on Blue
Cross Blue Shield, as of course is the case given the nature of
the health care system in this country, the have-it-all system
in this country. I understand that. And particularly for a
provider that turns out to be preferred by many Federal
employees throughout their work life, my question to you is
does this huge advantage in volume or loyalty not make up in
some way for the disadvantage which comes with the fact that
the work force ages over time and therefore may cost you
somewhat more?
Mr. Francis. Yes, it does make up in a major way. For
example, the plan, just being very narrowly business about it,
it is to the advantage of the plans to have people who sort of
don't exercise their right in open season to change plans, but
stick with it, OK. That makes for predictability in expenses,
predictability in enrollment.
Looked at from the consumer point of view, if I am in a
plan for a long period of time, it is sort of like wearing an
old shoe. I get comfortable with it. I understand the paperwork
and the bureaucracy, and I understand the benefits.
And of course, that is one of the problems that leads to a
situation where I know the benefits of my plan, I am not going
to reread that 100-some page brochure every year. It is awful
hard reading, let me tell you. I read them all. It is
distressing. So people tend to get pretty lazy about it, with
good reason, because they expect continuity, and they expect no
surprises. That is my main concern here; it is the gotcha
aspect of this change. Some people aren't going to realize what
has happened to them until they go get that surgery.
Dr. Petrucci mentioned that he works with his patients to
warn them and so on. And I often advise people when you go out
of network, try to negotiate--I tell them to try to negotiate
the Medicare rate. And sometimes it works with people who have
no health insurance at all that I counsel.
But some people don't do that, and some doctors don't warn
them. So there are surprises. And it is unfortunate. And I
think what we ought to worry about most in oversight of these
plans is that those kinds of gotcha surprises be minimized. It
is not that Blue Cross and the other plans shouldn't take cost-
saving steps, it is just that the cost-saving steps should not
be ones that lead to unfair and total surprises that are
financially unfair.
Ms. Norton. Dr. Petrucci, I was surprised; I am looking in
your testimony now for the--here it is--for the list of so-
called surgeries in your testimony. I would like you to explain
to me whether or not perhaps they are trying to keep--perhaps
they should--surgeons from doing some of these procedures. For
example, it says ``fractures and dislocations'' in your
testimony. Is that normally a matter for the surgeon?
Dr. Petrucci. Well, I think that is one of the problems we
have is the term ``surgery'' is very loosely defined in this
dialog. Technically speaking, there is no surgery involved in
the setting of a fracture. Basically, the orthopedic surgeon
sets the fracture, can sometimes do it in their office, put a
cast on. And that is part of the care for that particular
problem.
Ms. Norton. So if a surgeon is present, then, of course,
this would apply.
Dr. Petrucci. Well, this applies to all surgeons. So an
orthopedic surgeon falls into the category of surgeon, even
though that particular procedure does not actually involve an
operation. And that is one of the problems we have with this,
is the list of things that are included really aren't
technically surgery in many respects.
Ms. Norton. So it is going to be up to Blue Cross--so as
far as you are concerned, if a surgeon does the--does any part
of the work, this $7,500 cost increase applies?
Dr. Petrucci. Yes, any nonparticipating--patient goes to a
nonparticipating physician surgeon and casts their fractured
wrist, Blue Cross and Blue Shield will pay nothing, and the
$7,500 deductible applies in that setting. Now, obviously, the
charge won't be that high, but whatever it is, the patient will
be responsible for.
Ms. Norton. Mr. Chairman, I am through for the moment.
Mr. Davis. Thank you very much.
Mr. Cummings.
Mr. Cummings. Good morning. You know, I am sitting here and
I am listening to this, and I think the thing that bothers me
more than anything else is when people think they have one
thing with regard to coverage and then find out they have
something else. Illness is nothing to play with. We are talking
about people's ability to take care of their families, to take
care of themselves, to go to work, to do the things they need
to do on a daily basis, and to live a quality, a certain level
of quality of life.
And I am just trying to figure out how concerned you are as
to whether people are informed. We got people, we got busy
people today that get--they are like me, and they get 50 pieces
of mail, all kinds of stuff. And you separate some of it. You
try to go through the most important stuff, and you might miss
something. But I am just trying to figure out how informed do
you think these Federal employees are and retirees with regard
to these changes? I mean, do you have any clue?
Mr. Francis. Yes, sir, I have a clue. Except for the
publicity that attends to this hearing and the publicity that
the Washington Post has chosen to put in its Federal Diary page
and a couple of radio shows that I have been on, and you know,
some people read the Federal Diary, but most people don't. Some
people hear my radio show, but certainly most people don't.
There is word of mouth. But by and large, people do not know
about the benefit changes in their plans. They don't pay
attention.
They rely, precisely, sir, as you said, we are all very
busy. We get a ton of mail. We get a ton of documents. The
thought of me as a sort of average Federal employee picking up
this 134-page document and sort of reading through it, no one
does that. Now, what they do in some cases, but only a minority
of cases, is do what OPM advises them. And OPM is pretty good
about most of this, right on the cover it says: Go to page 9 to
see the changes in benefits. The trouble is, you go to page 9,
and it is a long laundry list. And buried in that long laundry
list is, to take this example, this $7,500 change along with a
lot of others. And people tend not to do that.
So I think what is incumbent on the program as a whole--I
am not blaming anybody; in fact, I think in general the program
does very well at what I am describing--is to try to prevent
people from having unpleasant surprises because something
doesn't work the way it used to work or something doesn't work
the way an ordinary person would expect it to work. And I think
by and large this program does very well at that. So I think we
all need to be a little bit careful taking Blue Cross to the
wood shed here, I guess. But it is not all bad.
Mr. Cummings. All right.
Let me ask you this. Let me just play the devil's advocate,
because I think this is what OPM, maybe Blue Cross and Blue
Shield, is saying: People have a choice. Cummings, why are you
worried about folk when they have a choice? There are probably
some things that are better out there, and so why are you so
concerned? They will go--that is how, you know, the free market
is. That is what competition is all about.
And but just let me give you this little footnote on the
question on what they would say. I think Blue Cross and Blue
Shield knows that people see them as the gold standard. And
there are people who will say to themselves, if I get sick, I
don't want to have to worry about anything. I don't want to
have--I don't want to have to ask any questions. I just want to
be able to go to the hospital, don't want any problems. Just
want to get treatment. So the question becomes, how do we make
sure that folk, I mean, if they want Blue Cross and Blue
Shield, that they are informed and do you think we need to
extend the time for them, the enrollment period so that they
can hopefully become informed? What kind of procedures would
you like for Blue Cross or OPM or whoever to go through to make
sure people are informed of these things? Because there may be
people that look at this and say this is fine. This is great.
My problem is that if they don't know and then they end up in a
situation where they have their back against the wall and there
is no way that they can get around it and they are stuck. And
see, it wouldn't bother me if you were talking about stuck
because you are stuck in traffic, but I am talking about stuck
with regard to your health. And so, I mean, what do you all
recommend? Because I want the OPM and Blue Cross and Blue
Shield people to be ready for this question, too. I mean, what
do you all recommend? Again, there are people that probably may
be fine with this.
Mr. Francis. Well, if I may answer, Dr. Petrucci already
did, he can speak for himself, but he already suggested
extending open season. I'm----
Mr. Cummings. For how long?
Mr. Francis. I am inclined to recommend against that. I
don't think that is the right answer to this problem. You can
extend open season another week or 2 weeks, and still 90
percent of the people aren't going to know, you know, and they
are still going to be potentially subject to the gotcha. I
think reverse this around a little bit.
First, in general the choice among plans is extremely
important in this program. OPM, the key to running the program
is that all the plans, all the choices be good ones. OK. Then
we don't have to worry as much about competition. So OPM serves
a regulator role, a cop role. And it serves it in general very
well. I think this is just one of those blips. I think it is
just one of those blips; I think it is one of those things that
people, is sort of the forest and the trees. I don't think
people quite realized what they were doing when they did it.
That may be unfair, and I am sure OPM and Blue Cross can expand
that better.
My suggestion, frankly, if I were Blue Cross, what I would
do, if OPM would let me, is I would simply make a benefit
change, and I would restore the outpatient--the out-of-network
surgery benefit to what it was in the year 2008. A real simple
change. Almost no financial consequence to the plan, if any.
And a gotcha is gone.
And then over the next year, both parties could consider
how in the future they want to handle whatever problem they are
trying to deal with, whether it is balance billing, or network
discipline problems, or just what was going on, because there
are other and better alternative ways to deal with it.
Mr. Cummings. Suppose they say no.
Mr. Francis. You know, I don't know how to answer that. I
don't think----
Mr. Cummings. Which they probably will.
Mr. Francis. The basic philosophy of this program is that
the plans make their benefit choices. And as long as they are
not sort of beyond the pale, the government is going to bless
them. Government is not trying to set detailed benefit design--
make detailed benefit design decisions. So I don't know the
answer, sir. My guess is that one way or another, they are
going to find a way to ameliorate this problem. OPM has already
issued a clarification that there is not an emergency room
gotcha. OK. I hope they could do a little more than that. And
the simplest way, in my view, is simply to restore things to
the status quo ante in terms of this particular benefit.
Dr. Petrucci. I think I would like to respond also, because
I think you speak to a larger issue. And that is our experience
in the office setting is that patients really don't know what
their plans cover many, many times, even though they have
signed onto this plan, they have had it for a long time. When
they come to our office, it is very common for them really not
to understand the nuances. And I think that is part of the
problem. These plans have some very detailed nuances which are
not easily spelled out, or they may be spelled out but they are
not easy to understand, even for us and some of our staff. I
think that needs to be clarified and improved.
Mr. Cummings. Thank you, Mr. Chairman.
Mr. Davis. Thank you very much, Mr. Cummings.
Mr. Sarbanes.
Mr. Sarbanes. Thank you, Mr. Chairman.
I am leaning over here to this mic, so hopefully you can
hear me.
I wanted to pick up on what Congressman Cummings was saying
about, you know, this is supposed to be the gold standard. And
in fact, it is the one often pointed to in the debates about
how we are going to improve the health care system. Everyone
says, well, you know, we want to have the same system for
everybody that Federal employees have and so forth. So to me
the fact that Blue Cross is resorting to, or having to resort
to, and we will get their testimony on it, I guess, these kinds
of changes may just be further evidence that the health care
system and the coverage models that we have in place are
continuing to break down. And I was curious to know if you know
what percentage now of patients who are seeking surgical
treatment are going outside of the network versus choosing the
option of in-network surgery? Do you have any idea?
Mr. Francis. I don't know the answer, sir. I am sure Blue
Cross does. But it is a very small percentage, because I think
the ordinary consumer advice I render to people is stay in the
network. You join a plan, you use network physicians; it is
kind of a no-brainer, if you possibly can. And but certainly
use network physicians for anything very expensive. And I
think, I don't know whether it is 98, 99 percent of the time,
for the expensive stuff, people do that. For minor things, they
may, you know, if you want to take your kid to a pediatrician
who is not in the network, it is probably still just a hundred
bucks, and people will do it. But the overall majority of the
surgery in this program, I am sure, out of all the services of
people who are enrolled in the Blue Cross plan or any of the
other plans, they really all operate in the same way, they
encourage you to use network physicians, and people do use
network physicians. But it is this small percent who either--it
might be ignorance. It might be a very important choice. OK,
there are lots of important reasons people may choose to use a
nonparticipating or non-network physician. But, as Dr. Petrucci
said, you don't expect to have the particular medical procedure
that is listed on page 87 of your brochure. Maybe you got hit
by a truck. So people walk into their doctor's office, they are
not going to know necessarily what faces them. That is
unavoidable. What isn't unavoidable is that what faces them is
not something disproportionate to the offense, so to speak. And
that is the point here about this $7,500 cap.
Mr. Sarbanes. So if, as you are speculating, the percentage
is very small of people that would want to go outside for their
surgery, then it translates, and I guess you have made this
point already, that the savings aren't so great to the plan for
implementing this new policy.
Mr. Francis. I don't think there are any savings to Blue
Cross that are--any direct savings that are consequential one
way or the other.
It may be of some benefit to them in--remember, it's very
important, the preferred provider system, part of the deal is,
you're going to accept a lower rate that, the plan's allowance
is going to be lower than we otherwise charge, but you're going
to get more business because you are going to get people
enrolled in the plan.
So all the plans have to make balancing decisions to
attract enough physicians into the network to get some of the
business going their way, and I think Blue Cross can answer
this much better than I, but it's a small percent of people who
go out of network for expensive procedures, but a small percent
could be a lot of people in a plan like this which enrolls
somewhere around 4 million of those 8 million lives in the
FEHBP.
Dr. Petrucci. Well, I think--I would like to respond to
that as well because I think that what happens is that, in the
new plan, Blue Cross Blue Shield pays nothing for that surgical
procedure where currently they would be so that even if it's a
small percentage, there is a significant savings in that
setting. Now, I don't know whether that was intended or not,
but that is certainly the outcome of that happening. So they
pay nothing at all for that first $7,500 of service.
Mr. Sarbanes. Well, we'll wait to hear from them, and I
would just say that this line, this distinction between what
happens to you when you go in or out of network, obviously,
there need to be incentives to encourage people to stay in, but
I don't think you want to create a situation where you're
basically fencing people off from the kind of choice that they
ought to be able to make. And when it's such a dramatic
distinction, that can happen, and of course that is undermining
this gold standard profile that the plan has had before now.
Thank you Mr. Chairman.
Mr. Davis. Well, let me just ask, how does one know whether
or not they're using a physician or a provider that is out of
network? I mean, let's say, if you are in surgery, and there
might be three, four, five, six different people who will come
into the surgery room, and they do different things?
Dr. Petrucci. Let's talk about two different circumstances.
The first is in an emergency. And that is the one that is
easiest to answer because the individual doctors who are
involved in that emergency situation, whether it be an
orthopedic surgeon, a general surgeon, a urologist, a thoracic
surgeon, may or may not be in the plan. And the patient ahead
of time usually doesn't know that. I think that I can speak for
most of my colleagues, maybe not all of them, but most of my
colleagues recognize that the patient is in a bad position in
that situation, and therefore the charges are kept more in line
with what the standard allowances are to a certain extent.
There may be charges higher than what the standard allowances
are, but the balance billing for emergency care is much less
than it would be for a patient who comes to my office to have
an operation scheduled.
Now in that setting, in most physicians offices, a patient
will be told on the phone when they call that we do not accept
your insurance but we will be happy to see you, we will file
your insurance for you, we will do whatever you need to do for
that, but we don't accept your insurance. That is the usual
mechanism whereby they would find out that the physician is not
participating.
Mr. Davis. Are you a----
Dr. Petrucci. I am a nonparticipating physician.
Mr. Davis. And was there any particular reason or reasons
that you may have----
Dr. Petrucci. There were a number of reasons, and they go
back a number of years. Part of it is that the current
requirement for Blue Cross Blue Shield participation means
that, based on the Care First oversight of that, is that you
have to participate with all of their plans, including the
HMO's, and we do not want to have to do that. Our choice is not
to have to do that.
And second, the single most important point was that
administratively these plans are a nightmare for us because
they're all different. They all have different requirements for
the physician. Some require pre-certification for various tests
and surgeries. Some don't. And it's impossible to keep track of
that process as part of our regular office procedure. And as a
busy group with five surgeons and a lot of patients coming for
surgery, that was a nightmare for us.
Mr. Davis. Let me just ask my last question. For the last
40 years that I'm aware, much of the discussion around health
care has been cost containment and everything has been driven
in that direction, at least conversationally, and at least in
discussions. Could it be that the costs are simply continuing
to escalate to the extent that there is just no way around
these increases?
Mr. Francis. I think, Mr. Chairman, there are ways around
these increases. They're painful. They're not going to happen
over night. The Medicare trustees forecast dramatic insolvency
for that program starting--actually, by some measures, it has
already started. The Hospital Trust Fund is not collecting as
much as much money as is going out. It's living off its
balances right now.
There are ways, there are lots of ways to change the
practice of American medicine and the mechanisms by which we
insure and reimburse for treatment that can over time reduce
costs. I mentioned earlier the tax treatment. I think every
health care economist agrees that the current tax treatment of
health insurance is a terrible mistake, not just because it
encourages ever more increasing spending, but because it's--the
rich get the bigger benefit, OK. The higher your tax bracket,
the better benefit you get out of the current tax treatment of
health insurance. And if you are someone who pays no or very
little income taxes, you get almost none of the tax preference
benefit. And there is no question in my mind that the Obama
administration is going to look at that issue and propose some
significant changes. But the Medicare wrap-around situation,
it's not just the FEHBP that has this golden wrap-around where
you get 100 percent coverage of, hey, you want two CAT scans?
Go for three. Why not? It doesn't cost you anything and so on.
This is just a continuing problem. It's not a problem when you
break an arm in an emergency. It's a problem when there's all
kinds of very expensive elective treatments out there and if
they're free, ``why not?''
Clearly, there are ways to deal with that. One of the ways,
the economists favorite way is, charge people a little bit, but
there are other ways, paying for the least costly alternative,
for example, all kinds of ways to manage care, some of them
unpleasant, but some of them not so unpleasant. Managing care
can actually be good for the patient.
I think there's a lot of struggling, quality measures,
another aspect of this, CMS where I consult is a leader in
developing new and better measures of quality and increasingly
trying to make reimbursement of both hospitals and physicians
and other providers for that matter depend in part at least on
the quality of their care. Quality of care includes not too
much care or the wrong kind. I will stop my--I think there are
methods, but they are not easy and they are not fast.
Dr. Petrucci. I would like to believe there is a system,
and I don't know enough about the system to try and say that I
could solve this problem today. I wish I could. But I will just
comment on one point that was made in terms of managed care.
We've seen the managed care model. And it can be good, but it
can be disastrous, because what it frequently does is it
becomes an impediment for the patient to obtain care because
there is a layer of bureaucracy between the patient and their
care, which may be good, but it can often be bad. And so
managed care by itself is clearly not an answer.
And I just want to reemphasize another point that I missed
previously, and that is that--you picked up on it--and that is
the issue of surgery. Surgery is a lot of different things as
defined by the Blue Cross Blue Shield hand book. Most of them
aren't actually surgery. They are procedures of various types
required for good care. Thank you.
Mr. Davis. Delegate Norton.
Ms. Norton. I had one further question, Mr. Francis, that I
would like to ask you. There has been something of a debate
raging for some years now about the fact that Blue Cross Blue
Shield, which is very much unlike other companies inasmuch as
it has tax advantages as a nonprofit, has notwithstanding the
market today because I don't know the effect there, but has
built, indeed required, very large surpluses of its members,
huge surpluses. And since it's nonprofit, you have people
looking to see, well, are you behaving like a nonprofit? Do you
distribute any of that surplus?
And their standard answer is one that would convince me if
you could show me. Their standard answer is that, well, we give
this back to the subscribers. Well, if you were to ask any
member of the public, even those who are concerned about the
tax-exempt status and not getting very much frankly from Blue
Cross from that status, they would say, well, if that is what
you are doing with it, that is what we meant you to do with it.
Do you see any evidence that Blue Cross Blue Shield is
using this huge surplus it has mounted and these requires--I'm
not talking about reserves; I'm talking about sheer surplus--do
you see any evidence that this surplus is plowed back to the
benefit of consumers?
Mr. Francis. I have to confess I don't know an answer; that
is just simply beyond my knowledge.
Ms. Norton. When you compare their value and their rates
with other--with the commercial companies?
Mr. Francis. I think I would say this with respect to--the
issue you're raising I think has more to do with some of the
Blue Cross plans have attempted to convert from nonprofit to
for-profit status. That has been very controversial, and part
of that controversy has been, what happens to those surpluses
they have? That was a big issue in Maryland recently, for
example.
Ms. Norton. No, no. I'm not talking about that. I'm talking
about, if you are a nonprofit and you do not distribute--and
you mount a big surplus that is not distributed to where people
can see it, then a question is raised, since you are exempt
from certain kinds of taxes, whether in fact the public is
benefiting from that.
Now the public could be, either the subscribers--I'm not
talking about the conversion issue. Yes, we would have another
issue if they then have to talk about how they get distributed.
I'm talking about right now, if you're sitting in competition
with commercial providers who don't have a tax advantage, and
because of that nonprofit status, typically the government
expects that surplus will be used or at least some portion of
it, no one knows how much, nobody is going to say that there is
any percentage, but some portion, some significant proportion
should be used for the public benefit. And I described--leave
aside the conversion. I'm not talking about conversion. I'm
talking about these people are not seeking now--they were at
one point. They're not seeking now to become something else.
I'm saying, if you're sitting as a tax-exempt provider or a
provider with some tax advantages, and you look, as you
apparently do, at all of these plans, my question to you is, in
your judgment, do you see such cost differences or other value,
such that you could say that perhaps the surplus is of value to
the subscriber because we can see it in the value or in the
cost to the consumer?
Mr. Francis. Couple of quick comments, and then I will
defer to Blue Cross and OPM. First, it's very important, this
program has a pretty rigorous degree of oversight in terms of
the finances, and it is the case that the Blue Cross premium
reflects the cost experience to the people enrolled in the
plan. And there may be an issue of, you know, on the very
margin as to sort of where one sets those rates exactly and how
reserves and other funds are treated, but basically, I think
people are getting value in terms of the--they're getting the
services they're paying for, OK, in this plan and in the
others.
Ms. Norton. I'm not talking about that. Compare
commercially, if they have--if they are nonprofit and they
claim that money should not be distributed the way other
nonprofits do but should in fact go back into their plan, you
could say, for example, that it does because there are more
people who have--because they're older, for example, you could
say that their subscribers are older, as you indeed said. All
I'm doing is looking for some evidence that the surplus which
has become controversial in fact is having the effect they say
it has. Sure you're getting value, but if the fact that you
have a surplus, you would expect the surplus to get you more
than value. You would expect that since you have money to put
back, that money would in fact distinguish you from others or
at least that is what they claim, that is why they don't want
to distribute it elsewhere, something I would accept if
somebody can just show me some evidence of it and simply to
say, when you compare them to commercial guys, they are indeed
reflecting the experience--then that of course doesn't show it
because that is what everybody does. I'm just trying to find
where this what I would amount to excess capital that
commercial providers don't have, I'm trying to find where it
goes and whether the subscribers of Blue Cross Blue Shield feel
it in any way.
Mr. Francis. I simply can't speak to the financial aspects
of that. I will say that the Blue Cross program has over the
years served a number of very important call them public good
functions in this program that go sort of beyond what a
narrowly conceived insurance program would have to do. I will
give you two examples of that, and this was Blue Cross and OPM
together making these calls, but a number of the union plans
went out of business over the years. Plans closed down for
various reasons. They just couldn't hack it. Some of the people
or options would close down. Some of the people enrolled in
those plans were very old and weren't kind of with it mentally,
and the question--if they made a mistake and let their
membership, their enrollment in the FEHBP lapse, even for 1
day, they would be out of the program forever. OPM went to
great lengths working with Blue Cross to make sure that people
were what is called auto-enrolled in Blue Cross standard as a
default, so they wouldn't lose their eligibility for the
program, and those were expensive people. So that is an
example----
Ms. Norton. Well, that is a good example.
Mr. Francis. Of the kind of service this plan provides.
I'll give you one other example, I'm not sure it is quite
as good a one. It was the case for many years before we had
mental health parity that the best mental health benefit in the
program was in the Blue Cross plan, and that meant they were
going to disproportionately attract the heavy users of
psychiatric services, and of course, you know, those costs got
reflected in the premiums, but the fact is people were taken
care of who otherwise wouldn't have had a home. And I think, in
general, Blue Cross is the plan of--we've been calling it the
gold standard. I don't want to call it the plan of last resort,
but it has been the plan that has provided the benefits and the
coverage that people needed; if they had nowhere else to turn,
they could always sign up for the Blue Cross plan. I think it
has over the years been a great service to Federal employees
and retirees in that respect.
Ms. Norton. Thank you, Mr. Chairman.
Mr. Davis. Thank you very much.
Mr. Sarbanes, do either you or Mr. Cummings have any other
comments? Mr. Cummings.
Mr. Cummings. I have a question Mr. Chairman.
Mr. Francis, you held up a book talking about the health
plans. Do you have that book?
Mr. Francis. I held up, Congressman, several books. I don't
know if I held up my book.
Mr. Cummings. This is something that describes the health
plans.
Mr. Francis. Yes, there is a Medicare book that describes
the health plans in Medicare called ``Medicare and You,'' and
there is an OPM book. We call them booklets. It's called, ``The
Guide to Federal Benefits for Federal Retirees and Their
Survivors.'' This is published by OPM. It's about 100 pages,
plus or minus--yeah, it's exactly 100 pages.
Mr. Cummings. Is that the one you said was difficult for
you to understand and get through?
Mr. Francis. No. The other one I held up was the Blue Cross
Blue Shield brochure. This is the description of the Blue Cross
benefits. It's 134 pages long, and it's very detailed and
technical. OPM has set standards for these brochures. They try
to get them written in pretty clear English. They have them
organized the same way, so you can turn--for example, we've
been talking about the surgery benefit. You can go to a certain
page in every brochure and you will find the surgery section
described. Another section is on the prescription drug benefit
and so on. It's done pretty well.
Compared to the way private health insurance plans
generally describe their coverages, it's a masterpiece of
clarity and explanation. That said, it's 134 pages of very
detailed small print, and nobody in the world reads every page
or can understand every nuance, as Dr. Petrucci gave several
examples of that and----
Mr. Cummings. But is there anything that OPM can do to try
to help simplify some of this? On the one hand, you said it's a
great book. Then you come back and say it's not so great. So,
help me with this.
In other words, can they make it more consumer friendly? I
guess what bothers me is sometimes I think we don't have a
realistic view of what people go through every day and how they
live their lives. And to me, if I am, I tell my staff when we
do an event, don't do it the way you like it done; do it the
way the customer needs it done so we can be most effective and
efficient, period. Other than that, I'm wasting my time. And
time is short. So I'm trying to figure out, are there things
that OPM can do to help employees to better understand and
navigate this system so that they can come up with whatever is
necessary, what they feel, deem appropriate and necessary for
their family and for themselves? Do you have any--do you think
it's fine just as it is?
Mr. Francis. Congressman, I 100 percent agree with what you
said. It's actually my main interest in this subject, is
helping consumers to understand and benefit from their
understanding in choosing health plans and in using those
health plans.
I think, by and large, OPM has done a very good job on
this. I would give them a B-plus. They have a very good and
well organized and clear and useful Web site.
I think the brochures, as I mentioned, they're long and
complicated. And I wish they were less long and less
complicated, but under the circumstances, they do a pretty good
job on those.
They do have these summaries of benefits, such as the one I
held up. That isn't as good as it should be for the reason
that, No. 1, it could present a little more information like
what is the catastrophic benefit and, No. 2, because they don't
standardize the way benefits are described. I want to
emphasize, I don't mean you have to standardize the benefit
itself, but because, for example, the catastrophic promise of
each plan isn't--there is an apples and oranges comparison
because they aren't actually defined the same way and they can
be, I think there is work to be done.
And I think this example, this problem we were talking
about today is a wonderful example of, if OPM had a rule in
place that said any significant deductible copayment or other
maximum, including this $7,500 whatever it is technically
called, it's not very clear, must be included in our
catastrophic promise. That is, you can't put it in a footnote
that there is this $7,500; it has to be part of that number
that everybody sees, so that number would have been in $14,000
instead of $7,000, I think they wouldn't have done it.
Mr. Cummings. I've got to cut you off, because I want to
ask Dr. Petrucci a question, but I'm sure OPM is listening to
you, and we want a friendly, a user-friendly document for our
employees.
Dr. Petrucci. We see it from the patient side as well. As I
said earlier, patients will come to the office and think one
thing about their plan, and it will be completely different.
Mr. Cummings. Doctor, let me tell you what concerns me
about what you just said. You were talking about the definition
of surgery and how, I guess, it's Blue Cross and Blue Shield
may or OPM--Blue Cross and Blue Shield I think it was defines
surgery one way, and you see surgery another----
Dr. Petrucci. Well----
Mr. Cummings. Wait a minute. Hold on, hold on, let me ask
the question.
You're a surgeon, is that right?
Dr. Petrucci. Yes.
Mr. Cummings. Oh, OK, and is there anything that OPM can do
to straighten that out? Because where you were just about to go
I think before I rudely cut you off, is you know we need--I
mean, if there are things that we can clarify, and I'm sure--
I'm not a doctor, and I know certain things get kind of murky
and grayish maybe, but it seems to me surgeons ought to be able
to figure out what surgery is. And I don't know who is making
the decisions at Blue Cross and Blue Shield. I guess they're
doctors. But my point is that sometimes it seems to me that
there should be some kind of clear understanding, if that is
possible and practical, of what surgery is, because it seems to
me when I look at the information, if you have a dispute about
what surgery is or is not, that is a problem.
Dr. Petrucci. I agree completely. I think the list of
procedures, the list of conditions that are included under the
surgery mantra, if you will, includes a lot of things,
including procedures which are typically not considered
surgery, but for example, childbirth obstetrical care and child
birth is included in that list. There is usually not surgery
there unless the patient has Caesarean section obviously. It's
a definitional process which doesn't make any sense. It's
certainly not medically the way we would think of surgery.
Mr. Cummings. What would you recommend with regard to
clearing that up? I mean, if you had a magic wand and if
government worked the way you would like for government to
work, what would you like to see government do on that issue?
Dr. Petrucci. Well, I think, obviously, the first thing
here with that issue, I think Blue Cross has to be up front
about what they're saying, and that issue, what they're
basically saying is, there are a whole group of procedures here
that we do not want patients to go out of the plan for, for
whatever reason, and that includes all these various treatment
types. They list them as surgery. They're not really surgery.
So they need to be more up front about what this issue is.
Mr. Cummings. Thank you, Mr. Chairman.
Mr. Davis. Thank you very much.
Gentlemen, thank you very much for your testimony. We
really appreciate it.
And we will go to our next panel.
Our second panel will consist of, you have heard a lot
about OPM, Ms. Nancy Kichak. She is the Associate Director for
the Human Resources Policy Division for the Office of Personnel
Management. In this position, she leads the design,
development, and implementation of innovative, flexible merit-
based human resource policies.
Thank you very much, Ms. Kichak, for being with us.
Mr. Stephen W. Gammarino is senior vice president of
national programs for the Blue Cross Blue Shield Association,
the Blues as they're called. Mr. Gammarino oversees the Blues
Federal employee program, which administers the largest
privately underwritten health insurance contract in the world,
with premium income exceeding $18 billion. The Blues have
approximately 50 percent of the Federal market.
Thank you all both for coming. And if you would stand and
be sworn in.
[Witnesses sworn.]
Mr. Davis. The record will show that the witnesses answered
in the affirmative.
Ms. Kichak, it's good to see you again. And thank you very
much for being here. We will begin with you.
STATEMENTS OF NANCY H. KICHAK, ASSOCIATE DIRECTOR, STRATEGIC
HUMAN RESOURCES POLICY DIVISION, OFFICE OF PERSONNEL
MANAGEMENT; AND STEPHEN W. GAMMARINO, SENIOR VICE PRESIDENT,
NATIONAL PROGRAMS, BLUE CROSS AND BLUE SHIELD ASSOCIATION
STATEMENT OF NANCY H. KICHAK
Ms. Kichak. Mr. Chairman and members of the subcommittee,
thank you for inviting me here today to discuss the benefit and
premium changes for the Blue Cross Blue Shield benefit plan.
The FEHB program annually provides $34.9 billion in health care
benefits to over 8 million Federal employees, retirees, and
their dependents. In January 2009, enrollees nationwide will
have 269 health plan choices from which they may select their
coverage.
At the end of this year's negotiations, Blue Cross and Blue
Shield and OPM signed a contract that realigned benefits at no
increase in cost to the program for nonemergency surgical
procedures performed by nonparticipating physicians. The
agreement was that enrollees would pay the full cost of the
procedures up to $7,500, and then Blue Cross would pay the
additional charges.
This provision was included in the plan because OPM's
review of disputed claims over the last several years revealed
a hardship to Federal employees and retirees. Time and again,
disputed claims were submitted to OPM by patients with
skyrocketing out-of-pocket costs due to the current policy for
elective surgeries, which requires enrollees to pay 25 percent
of the plan allowance plus any difference between the allowance
and the billed amount. Because there was no limit on the amount
that could be collected from Federal employees and because non-
par doctors charged substantially in excess of allowable
amounts for their out-of-network surgeon services, in some
cases, the enrollees costs totaled tens of thousands of
dollars.
For example, we reviewed a case in which one Federal
employee who had back surgery ended up being responsible for
paying the doctor over $55,000 of his own money. Now this would
be a gotcha, where you go to a non-par doctor and you have to
pay the difference between the allowable and the billed amount.
Once the 2009 policy becomes effective, the maximum out-of-
pocket will be defined for enrollees who obtain surgeries from
nonparticipating doctors while reducing costs for Federal
employees and annuitants using the most expensive services. The
set copayment of $7,500 enables members to know, should they
choose a nonparticipating provider, that they will be
responsible for paying only up to that amount, Blue Cross Blue
Shield pays any amount in excess of the fixed copayment.
Alternatively, Federal employees can choose to stay in
network, and by far most do, at which point this policy does
not apply, or they can enroll in a plan other than Blue Cross
and Blue Shield. The $7,500 copayment does not apply to
surgeries resulting from accidental or emergency situations,
and it is not subject to the annual deductible.
Blue Cross's testimony suggests that these benefits should
now be reconsidered. OPM stands behind the contract as agreed
to. Continuous negotiations and benefit changes would create
confusion in the program and make it virtually impossible to
provide sufficient information for enrollees to make an
informed open season decision. We remain committed to
protecting the interests of the Federal employees whose
disputed claims presented evidence of an overwhelming financial
burden.
Also, from a competitive standpoint, it would be unfair to
reopen negotiations with a single plan without making that same
opportunity available to competitors. Each year, OPM works with
insurance companies to negotiate a package of benefits that
provides comprehensive coverage at the lowest possible cost. We
work diligently to strike a balance of protection against
catastrophic events without shifting a high premium burden to
enrollees and firmly believe the negotiated copays for out-of-
network surgeries achieve that balance by limiting costs for
users of expensive surgeries without transferring more costs to
enrollees who stay within network.
Mr. Chairman, we are 6 days away from the end of the time
period for which Federal employees can choose their health care
plan for next year. If changes are made at this late date, all
of the information posted on our Web site, sent to the
agencies' human resources benefit officers, and to the
employees and retirees themselves, who need this information in
order to make an informed decision about their health care
options, would need to be revised. We encourage enrollees to
take the opportunity during open season to review their health
insurance coverage needs and any change in their plan's
premiums and benefits, and then decide if they should consider
a change in plans or options. I appreciate this opportunity to
testify before the subcommittee on this very important issue,
and I will be glad to answer any questions.
[The prepared statement of Ms. Kichak follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis. Thank you very much, Ms. Kichak.
And we will go to Mr. Gammarino.
STATEMENT OF STEPHEN W. GAMMARINO
Mr. Gammarino. Good morning, Chairman Davis and members of
the subcommittee.
I'm Steve Gammarino, and I'm proud to represent the Blue
Cross Blue Shield plans who make up the independent plans who
both underwrite and administer Blue Cross Blue Shield
governmentwide service benefit plan.
I'm also proud to indicate that we serve more than 4.9
million active and retired Federal employees and their
dependents under this plan.
Through our participation in the FEHBP, we've made
available to active and retired Federal employees and their
families the deep provider discounts and broad networks that
our local plans have developed on the basis of their extensive
commercial business. An estimated 95 percent of eligible
providers participate in our nationwide Blue Cross Blue Shield
network. That is over 400,000 physicians today.
Mr. Chairman, today's hearing provides a welcome
opportunity to address changes that we've negotiated for 2009
and to specifically address the benefit for surgery provided to
standard option members by nonparticipating surgeons and to
explain the problem that it intended to address.
Much concern has been generated about this change, even
though it affects a relatively small population. It has become
evident to me, however, that some of this concern is justified.
And we do need to reexamine the benefit design for 2009.
The service benefit plan offers Federal employees and
retirees two options from which to choose, standard and basic
option, which have become the two most popular choices in the
FEHBP today. I will continue my remarks today and focus on the
standard option plan, because the issue before us does not
relate to basic option.
Standard option covers professional services provided by
three categories of professional: providers, preferred,
participating and nonparticipating. Preferred and participating
providers have agreed to accept an amount that we have
negotiated with them as payment in full for their services. As
a result, members cannot be billed for the difference between a
negotiated amount or the allowances we call them and the
providers' charge, a practice known as balance billing. Members
can generally save the most money by using preferred providers,
and we make them aware of this fact. When using either
preferred or participating providers, service benefit plan
members are responsible only for their deductible, co-insurance
and copays.
Today, our experience shows that 96 percent of all medical
services are provided by in-network doctors, and 98 percent of
all surgeries are. Nonparticipating providers, on the other
hand, have no contractual relationship with us so they're not
obligated to accept our allowances for their services as
payment in full. Instead, they are free to balance bill the
member, and many do.
Ironically, it was to protect our members from having to
pay exorbitant balances that we worked with OPM to negotiate a
different benefit for surgery performed by nonparticipating
providers. We reasoned that if we cap the members out-of-pocket
costs, we could relieve some of the burden placed on members
who choose nonparticipating providers for what is typically the
most expensive type of professional service that they're going
to receive. Members will pay 100 percent of the amount billed
by nonparticipating surgeons up to $7,500 per surgeon, per day
on which the surgery is performed. After that, we will cover
the rest.
The benefit, as you already heard, does not apply to
emergency surgery or surgery for accidental injuries. In
reexamining the benefit initially negotiated for 2009 and in
view of the express concerns that we've already heard, we will
be pursuing an alternative that would allow us to administer
the benefit in a way that is consistent with other services
that are covered out of network. We would do this in a way to
ensure that the alternatives do not result in an increase in
our premiums.
Mr. Chairman, we take very seriously our obligation to
offer Federal employees and retirees high quality affordable
health insurance through the FEHBP. Blue Cross Blue Shield
members have access to the deepest discounts and most extensive
networks, and we strongly encourage standard option members to
use preferred or participating providers to lower their costs.
In order to keep our products competitive in the program, we
are going to continue to make difficult decisions and develop
benefit designs that meet the members' needs and keep our
premiums competitive. We appreciate your interest in the
program and look forward to working with you and the
subcommittee to address this and other issues that are so
important to Federal employees and retirees who rely on the
FEHBP for their health care coverage.
This concludes, Mr. Chairman, my prepared statement. I look
forward to answering any questions that you and the
subcommittee may have.
[The prepared statement of Mr. Gammarino follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis. Thank you both for your testimony, and I will
begin with the questioning.
One of the major concerns that has been expressed by
enrollees, and of course we also heard that concern expressed
by Dr. Petrucci and Mr. Francis, testified that the 2009
changes create this gotcha trap for people who just simply
don't know, did not know, were not aware and are not aware. In
addition to that, the brochure, that is the Blue Cross brochure
summary description, nor the OPM Web site adequately discloses
seemingly the 2009 benefit changes.
The question, actually, to both of you, as you look back at
this or in hindsight, do you think that enrollees were
adequately notified? And if they were not adequately notified,
is there any way to correct this? Or does this give us some
information for future negotiations and especially for ways of
trying to make sure that the consumers are aware of what
they're getting?
Perhaps, I will begin with you, Ms. Kichak.
Ms. Kichak. First of all, the major change was described on
the change page of the Federal employees benefit brochure. The
Federal employees benefit brochure was standardized in a plain
language initiative in which the change pages were moved to the
front of the brochure so that they would be easily found by
every Federal employee. They have, even when they were not in
the front, even when they were the back page of the brochure,
they have been known by Federal employees to be the source for
looking at how every--how the plans are changed. And everybody
gets a copy of the brochure for the plan they're in. That is
provided to them. The $7,500 was also in the comparison chart
posted on OPM's Web site.
Now, we have changed our Web site this year to make it more
user-friendly. We are continuously working on improving the
information, and we will continue to do so. But that
information was there, and it was available.
I would also say that, again, this problem, this benefit
was designed because of the folks who were subject to balance
billing. I would expect that those folks who use--have been
subject to balance billing would know to check for that in the
brochure. The brochure is well indexed. I understand it's a
very long brochure, but you can very easily find which section
of that brochure deals with benefits that you're accustomed to
using. So if you had been using nonparticipating physicians
before, you can find that in the brochure by using the index.
So the material is good. Yes it can be better. We are
working on it. We're working on it in our Web site, and we can
also work and will work to make those brochures more clear. But
it is a very, very complex program. It's complex benefits, we
agree. And we're not just starting that. We've been working on
that for a very long time.
And I think Mr. Francis mentioned that we've standardized
the layout of brochures to help people do more comparisons.
Mr. Davis. Let me just ask quickly, though, new enrollees,
individuals who are just coming in, will they get the benefit
of the proposed changes that are being worked on?
Ms. Kichak. Well, if they're new, the plan is new to them,
so the change page won't matter. They can look at the
comparison chart to see how a new employee gets to choose their
coverage when they enter. And they can get the comparison
chart. They can look at the Web site. There are plan selection
tools on the Web site that you can use to put your benefits in
and get some recommendations. If you're new, you might miss the
open season fairs we have at the agencies, but the agencies
send--the plans send representatives to the agencies to discuss
benefits also.
Mr. Davis. Mr. Gammarino.
Mr. Gammarino. Yes, I think OPM does an excellent job in
terms of educating the changes, as Ms. Kichak has discussed.
I think, as the other panel has already indicated, although
we educate and educate, that doesn't mean that everybody
understands those changes. Because of this particular issue, we
are mailing out to every one of our members clarification
regarding this particular issue right now. So we recognize that
everybody didn't quite understand what the changes were. And
we're trying to improve the education by having increased
information go out at this time.
Mr. Davis. Now, I think I heard Ms. Kichak suggest that if
there were changes, that it would be very difficult to
implement, and of course, if there are changes with one
contract, then that necessitates taking a look, opportunities
for other contracts. But I'm hearing you say that Blue Cross
Blue Shield is open and is, in fact, looking at and working
toward a different option relative to the surgery benefits and
the way that is handled.
Mr. Gammarino. Yes, there are two tracks that we would like
to pursue with the agency. One is, if no benefit changes can be
made for 2009, that we take a look at how we're going to
administer this. I think the previous panel indicated some
issues associated with this, and I would like to followup with
them and understand those issues better so that we can make
sure if we do implement this the way it's defined right now,
that we do it in a way that is sensitive to our members.
Additionally, I do think that what we traded off, we
improved one part of the benefit in terms of these excessive
billings by some of these nonparticipating providers, and we
have a great protection now that we didn't have before. So from
that advantage point, I think the OPM has done a very good job
in terms of protecting their employees and their retirees.
As I look at it, I think you could say we could have done a
better job associated with the other side of the coin, in terms
of people that had costs that were--that weren't excessive, but
there is an expectation. We talked about the gold standard, and
I take that to heart. When you take a look at the program and
you take a look at complexity, one thing that I will be looking
at in terms of options, and there are primarily two, one is
from the member perspective, could they readily understand
this? And is it consistent with the overall intent of the
product? And I think that is some of what you're hearing is
everything else works one way; this works another. And no
matter how much you educate, if you have those types of
aberrancies, it's very difficult for the member to feel
comfortable with the coverage that they have. So that is
something I do intend to address, either through administration
or some type of recommendation associated with 2010 benefits.
The other thing is cost. The tradeoff we made here results
in less money going in one pocket and more in the other. And
it's important as we look through this that we do it in a way
that doesn't raise premiums. Affordability is an issue we've
already addressed. And it's my intent to ensure that as we look
for ways to improve how we administer this particular area that
we do it in a way that is sensitive to the cost of care.
Mr. Davis. Thank you very much.
Ms. Norton.
Ms. Norton. Thank you, Mr. Chairman.
What changes are you considering, Mr. Gammarino?
Mr. Gammarino. What I'd like not to do here at the hearing
is discuss the specifics behind that.
Ms. Norton. That is a problem. Transparency has been a
problem here. To the extent that we can't learn anything from
you even about what you're considering, that problem remains,
sir.
Mr. Gammarino. Let me try to help out there without
negotiating here. Because that is what I don't want to do. If
you just take a look at our benefit design, if you just take a
look at the consistency of the cost sharing with in-network and
out-of-network benefits, basically what you will find, you will
see that the number in terms of the cost sharing is consistent
regardless of the service rendered. And it's that type of--what
would happen in this case is that consistency was broken. The
cost sharing that is consistent with other medical services was
broken. And it's that type of thing that I want to look at and
try to restore that type of consistency regardless of the
service.
At the same time, I think it's important to protect the
member against egregious charges and billing for out-of-network
services.
Ms. Norton. One thing you might want to consider is the use
of the word ``surgery.'' We were stunned to see the across-the-
board use of that word, some clarification there to limit----
Mr. Gammarino. That is exactly the type of thing I want to
focus on relative to how we administer this.
Ms. Norton. You know, if you cut somebody, that is surgery.
You know, you put a cast on, and you still have the same $7,500
per, ``surgery.'' That is going to give Blue Cross a really bad
name, particularly since the language that was used and here I
would like to hear you justify it since you, Ms. Kichak, you
like it just the way it is.
OK since you're supposed to be the watchdog here, do you
approve of the fact that the language used to reveal this
change was as follows: Some costs do not count toward this
protection.
Do you consider a $7,500 additional cost per surgery not
worthy of some greater mention than that from Blue Cross Blue
Shield.
Ms. Kichak. First of all, most of the folks using the out-
of-patient surgery--the nonparticipating provider surgeries
will not pay $7,500.
Ms. Norton. That is not my question. If you have to pay it
once, and you didn't have to pay it before, Ms. Kichak, please
don't minimize what it means to the consumer. That is not your
role. You are not Blue Cross Blue Shield. You're supposed to be
the person that monitors this for us all. So whether it's one,
whether you have to pay $7,500 or $15,000, you know, it's what,
it's a cost you didn't have last year and did not expect this
year. So I wish you would respond to my question. Do you think
the language used was sufficient to inform consumers of an
increase of this kind?
Ms. Kichak. Can I ask which language you're reading? Are
you reading from the change page or the brochure?
Ms. Norton. I'm reading from the language, the only
language that was used that gave people, reading from the
summary, an indication of this cost increase.
Ms. Kichak. I think we should work on the language.
Ms. Norton. I appreciate that. If we can learn from this
experience, we will be fine. But if the point is simply to
justify what has happened, then, of course, we're not going to
please consumers and we're going to think we're not getting
anywhere.
Indeed, I was surprised, because it's not in your oral
testimony, here you have Mr. Gammarino--this is a difference
maybe between bureaucrats and somebody who has to be in
business. And we're going to have to have government respond
the way somebody in business has to. What Mr. Gammarino says,
he is considering changes. You say you like it the way it is.
At least you say it in the oral testimony. I had staff look. I
said I don't see that in her written testimony.
If that is your view, I would like you to explain why you
think it should remain. As it is, as best I could pick up,
there were bureaucratic reasons that might be good and
sufficient reasons.
Ms. Kichak. I don't think protecting enrollees from $60,000
and $70,000 worth of costs is bureaucratic. I mean, we have
numerous----
Ms. Norton. $60,000 or $70,000 worth of costs in what way?
Ms. Kichak. That is what our enrollees, our Federal
employees and retirees, were paying under the benefit as it is
today, because they were totally at risk between what is
allowable and what the balance there was.
Ms. Norton. So you think that the underlying change is a
good change, and you prefer to let it remain that way.
Ms. Kichak. We constructed it to protect the extreme, and
in that process, the people with the lower-level, lower-cost
surgeries are paying more and we----
Ms. Norton. Do you believe surgeries should have been, a
distinction should be made among surgeries?
Ms. Kichak. I believe----
Ms. Norton. Putting on a cast and doing a major surgery
where you have to cut somebody, to be blunt about it?
Ms. Kichak. We are using--surgery has been categorized the
same way in all the plans using----
Ms. Norton. That is what I mean by bureaucratic
explanation. Because we have always done it that way, that is
the way, that is the reason we did it even though there was a
substantial increase in cost to the consumer. That is the
source of my impatience.
Ms. Kichak. But there is not, in aggregate, there is not a
substantial increase in cost to the consumers. On average it
works out. Some people pay more. Some people pay less. And we
were trying to deal----
Ms. Norton. But the person who has to pay more does not
have all the people who have to pay less before them or care.
So I am not taking issue at the moment with the underlying
decision. I am taking issue with your notion that nothing
should be done even though the language did not warn consumers
that there was a change that could have an effect and, if I may
say so, a negative effect on them. And you have, I think,
already conceded that the language needs to be used, if not
looked at.
Ms. Kichak. I did not mean to give the impression nothing
should be done. I was addressing the benefit which was
constructed, we thought, to provide a level of protection to
our members. We are issuing additional information. We have
sent things to the benefit officers. We have clarified the
brochure. We have made Web changes. We are trying to improve
the information.
Ms. Norton. And I appreciate that, Ms. Kichak, nor do I
have generally a problem with your materials. But then we
haven't seen this kind of change for employees, the majority of
whom are in this plan.
Indeed, I would like to ask you, Mr. Gammarino, and you,
Ms. Kichak, in considering this, did you consider other ways?
Because I am not, as you can see from the way I was questioning
the last witnesses, I am not in favor of the American approach
to health care, which is that we shouldn't worry about costs,
we, the individual. And therefore, I'm very much for your
network notion, your making people stay in the network and, to
the extent that it is fair and possible, pay more for going out
of the network.
Did you consider other ways, particularly given the figures
that you have named, some 96 percent, virtually everybody stays
in the network, did you consider other ways other than this
cost? I don't know, second opinions or some kind of permission
before you used someone outside the network, rather than to
throw this very large payment on those accustomed to doing so,
understand, and now are told they can't? Aren't there other
ways to perhaps get the result you want other than through a
large increase, per surgery, reset every time, per surgery, it
goes up?
Mr. Gammarino. And those are the types of things I want to
explore. Did we consider them through negotiation? I don't have
any specific examples, but I can just tell you, normally what
happens during the process is there are a number of things
considered. In this case, the balance came down on the side of
these egregious----
Ms. Norton. But were second opinions considered?
Mr. Gammarino. Not to my knowledge.
Ms. Norton. Would you agree to consider second opinions, if
not now in the future?
Mr. Gammarino. I would like to consider any and all options
because this, in my opinion, is not where I want to be in the
long run on this coverage.
Ms. Norton. Thank you, Mr. Chairman. I may have further
questions, but I will pass on to others.
Mr. Davis. Thank you very much, Ms. Norton.
Mr. Cummings.
Mr. Cummings. Mr. Gammarino, I have been around here a few
years, and we get a lot of promises. And I have no--some of
those promises are kept. Some of them are not. What happens is
that, what I have noticed is that people will make promises,
and then they wait, either for a new Congress and/or
circumstances change, whatever, and the promises sometimes
disappear.
But people still have problems, the people we represent. So
I just want to nail you down a little bit here. What are we
talking about timetable-wise? And by the way, your reputation
is impeccable. But I am telling you, the people that I
represent, they like to have answers, because they have to make
decisions. In 6 days, I think, it is, a few days, a decision is
going to have to be made. You talked about reconsidering,
reexamining certain things. And I am just trying to figure out,
what is your timetable? I mean, how do you see that happening?
Mr. Gammarino. Let me give you I guess what I would
consider the outside time, OK? And that is if--remember that I
can't act unilaterally.
Mr. Cummings. I understand.
Mr. Gammarino. And so, in this regard, at a minimum, I am
going to be seeking changes for the next calendar year when we
go through benefit negotiations. That is a minimum, depending
upon what I can achieve between today and in a very short time
period. I do want to do something. This is not consistent with
how we want to deliver products to our members. And I can
just--I have been before you many times before. And this is
something I want to change. In the short run, at a minimum, if
the benefit cannot be modified for 2009, then I want to look at
all I can do on the administrative front to ease the burden on
members that are affected by this change.
Mr. Cummings. Now let me--let's come to my constituents.
Let's say these folks back here are my constituents here. And
there is somebody here who is considering a non- network
surgical service. They want to have that done within the next 6
months. How does--I mean, and they are looking at Blue Cross
Blue Shield. They love you. They think you have done a great
job, but now they are facing a decision. And this sounds nice,
but they got to make a decision. So what do you say to them?
Mr. Gammarino. What they have to do is go by the brochure
as it stands today. I would not expect them, with what I have
put on the table so far, that they may get the type of change
that they would expect. So I think you have to go by the
negotiated brochure as it stands today. And at a minimum, you
would expect something in 2010. And then, if we can pursue
other options that are agreeable with the agency, I want to
implement them.
Mr. Cummings. Ms. Kichak.
Ms. Kichak. Uh-huh.
Mr. Cummings. Do you feel like your constituents, our
employees, know about these changes?
Ms. Kichak. We think that we are getting the information
out, yes. And we think it is--again, because these claims with
nonparticipating providers have been so damaging to people who
use non-par doctors, not just in this instance, but this is the
first time anybody has tried to deal with the balance billing
problem; these folks are paying the full balance bill. And so
we think, certainly if they have been subject to it, they are
looking at this kind of thing. We are sending out more
information. As Mr. Gammarino said, they are sending out more.
We have changed our Web sites. The information is getting out.
Mr. Cummings. Did you consider having an extension of the
enrollment period?
Ms. Kichak. No. 1, it is very difficult to extend the
enrollment period. And the other thing is that creates extreme
challenges for the operation of the program because we are
already getting to mid-December. We are in the first week in
December. Anybody who changes has to get their enrollment card,
possibly get new doctors, learn new benefits. We have to get
that information from the places where the changes occurred,
whether it was in the HR office or on the Web site, out to the
plans. And there is always a struggle at the beginning of the
year around January if an enrollee needs new services and they
don't have that enrollment card yet. And if you extend the open
season, that jeopardizes that even further. So we don't think
that is a good idea. Now, there is an opportunity for people
who learn this over the next week to go to their HR office and
say, I need to make a belated enrollment for this reason. But
we do not want to extend the open season.
Mr. Cummings. Mr. Chairman, I just have one last question.
Mr. Gammarino, I appreciate your testimony. And you talked
about the surgery benefit charge with regard to the 2009 option
plan. But let me just ask you about this. You know, that change
was not the only thing that we were concerned about.
Catastrophic out-of-pocket limits for 2009, for example, will
increase by $500. Further, monthly premiums will increase 13
percent to $152.06 for individuals and $356.59 for families.
These are real dollars. And you know, thank God, gas has come
down, but people see their paychecks shrinking, shrinking,
shrinking. And can you help me and explain to me why that is? I
mean, that 13 percent increase is quite substantial. And I
think it is a little bit above what it has been in the past. I
think it was like around 8 percent in the past.
Mr. Gammarino. Well, it has actually been lower than that.
Mr. Cummings. Yeah, so help us to understand that.
Mr. Gammarino. Sure.
Mr. Cummings. Because you can imagine when people see that
coming out of their paycheck, and they are used to--people that
I represent, a change of that amount of money can throw their
budgets completely off, or some of these young people getting
their families started or whatever. So can you help us with
that?
Mr. Gammarino. Right. I would like to just go back and
level set, the increase we had this year was greater than our
competition, and it was greater than what we had put through
the last few years.
Mr. Cummings. Your increase was greater than your
competition?
Mr. Gammarino. Sure.
Mr. Cummings. OK. I just wanted to make sure I understood.
Mr. Gammarino. So I appreciate your question, you know,
why? Why did that happen? There is a couple of things going on.
One thing that you will see in the FEHBP, you will see dynamics
where carriers are going up and down and changing benefits. We
don't do it in lockstep. Actually, if you just take a look at
what our premiums have been on standard option, that is our
flagship product, over the last 5 years, our average has been
5.8 percent, the last 4, 4. So we have--last 4 years, 5
percent, and in the last just couple years, 3.5. So we were
holding our rates down actually lower than our competitors on
average in previous years. So, in one sense, we are catching
up.
The other thing that was happening is our coverage really
hadn't changed much over the last 5 to 6 years. Our copays on
drugs, for example, really, if you just take a look back in
previous years, they really hadn't changed since 2002. And what
was happening is a lot of our competitors have been making
changes. They have been making benefit modifications. They have
been introducing new lower cost products.
And additional to that is the demographics of the standard
option Blue Cross Blue Shield. And this is something that, you
know, the country is seeing. The FEHBP sees even greater. And
then the standard option Blue Cross Blue Shield sees it even
more. And that is the aging of the American population. The
average age in our standard option product now is 61. OK. That
is not your typical plan. And the fact that we have been able
to hold down our premiums and keep our coverage relatively
stable for the last 5 years I think has been a great
accomplishment. But that safety valve we had to let go of. The
fact of the matter is the last couple years, our expenses are
running at a rate that is slightly greater than the premium
income.
And Ms. Norton, to your question about reserves, that is
one thing that we do at Blue Cross Blue Shield. It allows us to
stabilize things year to year. Normally we can draw down
sometimes our reserves and sort of cushion some of the things
that go on from year to year. So it is a combination of the
demographics of the population. It is a combination of the
dynamics of the FEHBP, where price is king in terms of people
looking at benefit plans. People are very price-sensitive. And
in many cases what you are going to see over probably the next
couple of years is more and more cost-effective plans and
probably enrollees making that choice through open season to go
to lower cost plans. The Federal employee and retiree are very
astute shoppers. You know, we talked about the educational
issue. That is true. But I will put these shoppers in health
care up against anybody in the country in terms of overall
understanding of their benefits and in getting value for their
dollar.
Mr. Cummings. Just one real quick thing. Following that
logic then, it seems to me then that you probably--I would
almost have to predict that premiums will continue to sky
rocket for Blue Cross and Blue Shield. And let me tell you why,
based upon what you have just said. Younger people are going to
probably go for the plans that are cheaper, figuring they are
not going to get sick; they are not going to need whatever.
Older people will go more I guess toward Blue Cross and Blue
Shield because they feel like they can get the things that they
need. So that 61 may go up even higher. That average age of 61
may go up even higher. Is that a reasonable assumption?
Mr. Gammarino. That is a hypothesis that might play out.
What I think you are going to find is, No. 1, everybody in the
FEHBP, if you want to play in this market, you are going to
have to be able to service and manage an aging population.
Nobody is going to get out from underneath that. If you just
take a look at demographics, No. 1, it is one of the few
employer groups now that also the retirees get exactly the same
coverage at the same price. So from that--you know, that is a
little bit out of the--so when you take a look at, you know,
other employers, a lot of them just cover their actives. In
this case, the band is a lot bigger. And so it is just
something I think we are in it for the long run, so we are
going to find solutions and value propositions that even if
they may be paying more for our plan, but they are going to get
a value proposition in terms of what they need to navigate for
their medical care that we believe that they are going to be
willing to pay for.
Mr. Cummings. Thank you, Mr. Chairman.
Mr. Davis. Thank you very much, Mr. Cummings. Mr. Sarbanes.
Mr. Sarbanes. Thank you, Mr. Chairman.
This is a great panel presentation, just because it shed a
lot more light on the issue. What is intriguing to me is,
normally when you have proposals for these changes in the
benefits and the costs that go with them, it is driven by the
plan's concern about, you know, protecting the economic model
and solvency and so forth. And many of the changes proposed
fall into that category. But it seems like the one having to do
with the out-of-network surgery was based on a much different
premise. And so my first question is, it sounds like OPM went
to Blue Cross to initiate this change, not the other way
around. Is that true?
Ms. Kichak. That is correct.
Mr. Sarbanes. OK. You said that there is an exception with
respect to this change for emergency surgery and another
category. What was the other category?
Mr. Gammarino. Accidental injuries.
Mr. Sarbanes. So how come? Why is there an exception for
those two?
Mr. Gammarino. I think the thinking is the member had very
little choice in terms of where they had to go for the care.
And therefore, we weren't going to--we were going to safeguard
their interest because they are in an ambulance; they are going
to the nearest facility, being treated by the best available
physician at that time. And----
Mr. Sarbanes. So they might have to go out of network----
Mr. Gammarino. They might.
Mr. Sarbanes [continuing]. Is the point.
Mr. Gammarino. Yes, it happens.
Mr. Sarbanes. That is the reason, right?
Mr. Gammarino. Yes.
Mr. Sarbanes. OK. But if they go out of network, then they
are still going to get hit with that balance billing issue that
you are trying to protect all the other people from. So I don't
understand, if that is the underlying rationale, why you are
not trying to protect those people, too, Ms. Kichak.
Ms. Kichak. Yeah, I think, first of all, this is the first
time that balance billing has been addressed in any way,
frankly, I think in any of our plans. And we have been trying
to get our hands around this for a couple of years. This was
not a casual, easily arrived at benefit. And yes, we initiated
it, and we worked with Blue Cross, and we have been trying to
deal with this issue. So I think one of the reasons it started
this way is this is where we saw the most egregious claims, and
so we were starting to address what we saw the most of, which
was elective surgeries with nonparticipating providers; balance
billing is a concern, but nobody is addressing that.
Mr. Sarbanes. I understand. I am just pointing out it seems
a little bit contradictory, because you could say that the
person who is in the most gotcha position is the person who,
through an accidental injury and an emergency, went to a
nonparticipating provider and then ends up with this huge
balance billing issue again, which if that is the basis for
your concern and wanting to push this change, it is a little
odd that you exempt them from it. That is all I am----
Ms. Kichak. We get at OPM about 2,000 what we call disputed
claims a year. And that is where we start to see where our
enrollees are having difficulty. And we were not getting those
disputed claims on the emergency side. And you heard the doctor
earlier say that, on emergency conditions, he was saying that
their balance billing is not as large because they recognize it
is an emergency. So maybe the doctors haven't been balance
billing in those situations. We were not experiencing--we were
not getting the concerns from our enrollees. And so that is not
where we started with this.
Mr. Sarbanes. OK. So let me ask this question. You know,
again, this is not a change that is being forced by the
economics, which is what I----
Ms. Kichak. Right, it is not.
Mr. Sarbanes. And I apologize because I hadn't read ahead
to some of the testimony, but was the assumption I was going on
when the first panel was before us. But if it is not forced by
the economics, then there is much more flexibility to try to
fix this problem, maybe rethink it as others have been
suggesting.
One question I had, and this would follow on the
observation that the Federal employees are astute shoppers, had
you thought about making it an option? Because it is about
protecting the consumer here. That was your goal. When I say an
option, in other words, that you would say to people, if you go
out of network, there are two options that could be available
to you. One is the one you have had, which was the 25 percent
plus the exposure to the balance billing, or you could pick
this option, which would be a cap at $7,500 through the
deductible, where you won't have any exposure to the balance
billing. Beyond that, and you being astute shoppers and trying
to judge, particularly if it is applicable to elective surgery
only, where presumably you could try to ascertain ahead of time
what the costs might be and the charges might be, you can
choose as a consumer. Now, I understand you might end up in a
situation which you don't want to have, which is where you have
people with different results hollering at each other and
hollering at you because they are wondering, well, how come the
person over here made out better than I did? And I didn't
realize when I picked one that I was getting foreclosed from
this better scenario over here. But I just wonder if that was
considered at all.
Ms. Kichak. That wasn't considered. I don't think in the
past we have ever had an option for allowing folks to choose
their benefit at point-of-service. And that has some negatives
in that people are obviously going to choose what is
financially the best interest to them. And then it is hard for
us to predict the costs. But we are trying to find the right
solution to provide the broadest protection for our Federal
employees. And we will definitely work with Blue Cross on
examining a multitude of options.
Mr. Sarbanes. Again, the only reason I offered that, and I
will close my questioning, but the only reason I offered it is
because you alluded to the costs, you can't predict the costs.
Ms. Kichak. Right.
Mr. Sarbanes. But this particular change, as we have all
agreed, has not been driven by the cost concerns on the plan's
side. It is being driven by a desire to protect the consumer in
some instances from him or herself is what I am hearing. So if
that is what is driving it, then you could offer the option to
the astute shopper to decide, well, you know, I want to take
the chance on the balance billing thing because I think this is
where I am going to end up, or I want that comfort of knowing I
will be capped out at the $7,500 if I have to go for this out
of network. And there may be other reasons why that is not a
good idea. But it seems to me that it at least is something to
look at, given what is driving the proposal here.
Ms. Kichak. Of course, the better thing for the enrollee is
to try to find a participating provider. Since participating
providers were introduced into the program, there has always
been a financial incentive for people to use them. And that
affords them the most protection in these instances. Because
those charges that are not covered then are part of the
catastrophic, too. But again, we are willing and happy to
explore as many options as possible. Because we did not like to
see what was happening to our enrollees.
Mr. Sarbanes. Thank you, Mr. Chairman.
Mr. Davis. Thank you very much, Mr. Sarbanes.
Mr. Gammarino, let me try and make sure that I understand
why the Blue Cross premium for the standard plan increased more
significantly than other plans and why that increase took
place.
Mr. Gammarino. The experience of this group over the last
couple of years exceeded the premiums coming in. So we were
drawing down the reserves. And we got to a point where we had
to not only increase, but for the long run health of the
product that so many people rely on, we had to make benefit
changes and actually keep this product in line with a lot of
the competitive products out there. We don't stand on an island
alone. So when other people have products that allow them to
price a product lower than ours, and this is a very price-
sensitive market, that type of alignment can't go on too long.
And that is part of the reasons why you saw the types of
changes that we put in place for 2009.
Mr. Davis. Do you know how much reserve you had to draw?
Mr. Gammarino. Our reserves right now stand at about 4.7
months, about $8 billion. And for the comfort of our enrolled
population, particularly for these troubled times we are in, it
should be noted for the record that these reserves are held by
Uncle Sam and are dedicated only to this product and can only
be used for this. And they are held in U.S. Treasuries, so it
is a very safe financial instrument.
Mr. Davis. Ms. Kichak, we are up against the wall in a
sense in terms of there only being six additional days for
employees and beneficiaries to know what they are facing. Are
there any statutory reasons that we cannot extend the
enrollment period?
Ms. Kichak. Well, there is a process to go through. I mean,
it is not--and not created by me--but we are required to do
public notice to extend it. So there is a process, but there is
no statutory bar from extending the open season.
Mr. Davis. And do you know how long the public notice----
Ms. Kichak. No, I don't. I think--I don't know. I could
certainly get that information for you quickly.
Mr. Davis. It would appear to me that while there isn't
much that could be done, that it could be very beneficial and
very helpful if the enrollees had additional time to really
look at the instruments that they were going to be buying into
and where they had as much information. And I would suspect
that many people are just beginning to take notice. I am
saying, prior to now, they probably had not given much thought
to it, and they were more than likely ready to re-up. I am just
thinking of my own situation, where my primary care physician
is making some changes. And we have been together for 15 years.
And I have some considering to do before I decide if I am going
to follow with him or if I am going to maintain what I already
had. I knew that he was leaving, so at least in my case, I have
had some time to think about it. But I am not sure that, you
know, hundreds of thousands of our enrollees have had that
opportunity. I think if we could look at that. And I am trying
to determine what harm, if it is possible, might actually----
Ms. Kichak. The harm is, and there is harm, the harm is
trying to get the information out to the carrier, to the
carriers as to who they are covering in 2009. And we want to
make sure that if something happens on January 1, 2009, and the
person needs to go to the hospital, they have that card that
says this is the coverage I have. And by extending open season,
that is what we jeopardize. Particularly for our annuitants, a
lot of this, they are not in the office, they have to get
information, and it is a risk to extend the open season.
Mr. Davis. But would not the enrollees maintain the same
coverage that they had until they exercised the option to
change?
Ms. Kichak. No. The effective dates for coverage are in the
contract. Coverage for any open season change becomes effective
on January 1st for retirees. And I believe, and we have talked
about--I believe it is the Monday of the first pay period of
the new calendar year for employees.
Mr. Davis. I think I would certainly, as chairman of the
subcommittee, appreciate a hard look at any possibility that
there might be to give employees and retirees as much of an
opportunity to be as informed as they could possibly become.
And I would certainly appreciate that.
Ms. Kichak. We will get back to you very quickly.
Mr. Davis. Ms. Norton, do you have any----
Ms. Norton. Yeah, Mr. Chairman, I think that I would like
to question Mr. Gammarino about other ideas, too. This would
seem to be the easiest idea.
Of course, you are covered if you choose before January
5th. Even if you don't, as you indicate, have your enrollment
card, you are covered.
Ms. Kichak. You are covered. It is just very stressful for
the enrollee if they go someplace for service, and they don't
have that card, and there is a question. You are definitely
covered.
Ms. Norton. I can understand. The problem, Ms. Kichak and
Mr. Gammarino, comes from what amounts to a huge reliance on
the carrier to not do these kinds of increases very suddenly.
And so that you depend upon your carrier, because your carrier
has a good reputation for not putting large charges on you
quickly, then you have a reliance problem and a reliance trust
I may say, Ms. Kichak, which could be broken, which is
something I don't think we want to have happen. And we do want
a solution that takes into account all concerned, the
government as well as, of course, the provider.
Now, it is important that it has come out that you
initiated this idea. And I can understand your concern if there
were what amounts to, I understand it a rather small number,
but some providers who found themselves with a bill very much
larger than they expected. You would want to somehow prepare
them for this up front rather than have this come after the
surgery. Did you suggest a large amount might be in fact in
order?
Ms. Kichak. Did----
Ms. Norton. Did you, who brought this idea to Blue Cross
Blue Shield, suggest that, in order to get the attention of the
subscriber, a large amount per surgery might be in order?
Ms. Kichak. No, we did not suggest a large amount to get
people's attention. This was strictly, when I answered the
question, it wasn't cost driven; we did not make this change to
increase costs or to save money. But what we did was we priced
from an actuarial point of view how much it would cost to cover
these charges over X amount and how much would be saved by
billing under X amount. And $7,500 was where the people at the
low end were contributing enough money to fund the people in
the catastrophic situation.
Ms. Norton. I see.
Ms. Kichak. So we did not----
Ms. Norton. It is important to understand where this amount
came from.
Ms. Kichak. Right. And we probably----
Ms. Norton. As you looked at this, if you are not in
business, but you are looking at this simply by doing the math,
you may not consider that there might be other ways to do it.
Did you consider, Ms. Kichak, in your discussions with
Gammarino, that there might be alternatives to simply pricing
the amount in light of the figures that were before you?
Ms. Kichak. Absolutely. This was--I do not know all the
back and forth, but this was not a simple, how about this, and
let's do it. This was a negotiation in which we asked for
proposals to resolve this question. They responded. We went
back and forth.
Ms. Norton. But you looked like you knew exactly what the
amount was, because you said it was about $7,500 per----
Ms. Kichak. Well, that was when we came to the let's do the
cost-neutral within this benefit.
Ms. Norton. Yeah, again, there is a difference between
somebody who doesn't have to worry about customers and
providers and somebody who can sit in the government and say
this is what the figures are.
I mean, Mr. Gammarino got the point, Ms. Kichak. You showed
him some figures, and it sounds to me as though those figures
were highly suggestive and did not in fact encourage Mr.
Gammarino to think of other ways that might have accomplished--
and I have no idea--but might have accomplished something of
the same purpose. And I really do think it is going to be very
important, particularly for OPM, if this is what you are in the
business of doing. The one thing that I have learned from my
work in chairing another subcommittee is what I don't know
about business. And my approach would certainly not have been
to say here is the cost, you come up with what you are going to
do about it. It would have been to say, here is the cost, now
how can we make sure that cost is not borne across the----
Ms. Kichak. This was a bilateral negotiation back and
forth.
Ms. Norton. All negotiations are by definition bilateral. I
think you get my point, and I want to go on. I think the fact
that a concrete figure from the government is before the
provider sends a very strong message. And I am suggesting that
you play a dual role here that more and more I find in conflict
with one another. Because you are--I am not sure who you are in
fact representing here. When all the alternatives, which in a
real sense isn't your job--you don't know how to consider all
the alternatives. That is what Mr. Gammarino is in business
for. And if he were made to show why some alternatives he might
suggest would or would not accomplish the same end, then I
would be convinced. That is what I call a bilateral
negotiation, where I am in the position of the government, I am
not in business, and I know that anybody who is in business
does not want to raise anything. He doesn't want to raise a
cent. So if it looks like the government's giving him
permission to do it, then of course, it makes it far easier
than it would be if the government said, look, I know you don't
want to put what people will see as additional cost. This,
however, is what it costs your network, therefore show me how
you might accomplish the cost saving for all involved, because
I am with you on that, through either imposing a cost up front
so people know in advance or through an alternative you might
name. That, in my judgment, where one side knows a whole lot
more than the other, you know a whole lot more about what it is
costing across the network; he knows a whole lot more about
alternatives that might be useful.
Mr. Gammarino, I don't know, I am not convinced that
extending the time would be catastrophic. I think it would be
something that is not in your hands. I think it would, if I
were OPM, I wouldn't like to be the government here saying I,
the government, who did not in fact--who in fact allowed this
summary to go forward, which said that there will be some
additional costs, I, the government say, because I have saved
you money, be happy, and to ignore the transparency matter,
which is what the government is there for.
So I don't understand her role, but I do understand your
role. And I do understand the difficulty this raises for you.
It seems to me that there are a number of things you could do.
You could go back to the status quo ante right now. Because I
am only interested in remedies here. You could say, OK, we are
going to try to make up for at least some of this next year,
but there wasn't the kind of fair notice that subscribers are
used to from Blue Cross. So, OK, I don't think that makes you
less competitive. You could do it after it closed, and not
throw everything up for people trying to shift everything one
way or the other. You could distinguish among kinds of surgery
very sharply, keeping in mind what we in the law call the
reasonable man theory: What does the average person mean by
surgery? And you could, if there are costs, and you go back to
the status quo ante, you could, in 2010, try to make up for
those costs in a more transparent way. Do you find any of those
unreasonable suggestions?
Mr. Gammarino. I think they are all something that we
should evaluate. I mean, I think I have been pretty clear that
I don't want to stick with the status quo. And I think I have
been clear about the reasons for that. And they are focused on
the member. This is not how I want our members to see our
product going forward. And it is not what I want the brand to
stand for.
Ms. Norton. And of course, we didn't--we don't see that it
is going to save you a lot of money.
Mr. Gammarino. This is not a money issue for me.
Ms. Norton. I am just looking for some sense that anybody
in business is looking for--you got a lot of goodwill out here.
Now, you know, Ms. Kichak doesn't care about your goodwill.
She is doing her job. And she does it very well but in my
judgment quite too bureaucratically. You got to care about
that. And therefore, I am looking for some way to send a
message to the consumer that the reliance you have had on Blue
Cross Blue Shield is still intact.
I do want to ask you something about your surplus. You
mentioned reserves. My question did not go to reserves.
Mr. Gammarino. OK.
Ms. Norton. It went to surplus and your nonprofit status. I
don't touch the notion of reserves, especially for health care
insurance companies. And frankly, I don't touch much the notion
of surplus. But of course, Blue Cross Blue Shield is unique in
the business as a nonprofit. And there have been some concerns.
Let me ask you, would you prefer to be a nonprofit--the company
had some issues with that before--or not, and why not? Or why?
Mr. Gammarino. Well, the plans that are independent
companies that are licensed for the brand, there are 39
independent companies, they have chosen to collectively
underwrite the cost--underwrite the FEHBP product we have. But
outside of that, they are independent companies. Most of them
are not-for-profit. There is one for-profit. So the brand
itself doesn't dictate one or the other.
Ms. Norton. By the way, which one is the for-profit one?
Mr. Gammarino. It is WellPoint. WellPoint is the parent
company. When you see it aligned with Blue Cross Blue Shield,
you normally see it aligned with Blue Cross Blue Shield Anthem
of Ohio or Blue Cross Blue Shield----
Ms. Norton. Isn't it true that Blue Cross Blue Shield
sought to get rid of its nonprofit status in recent years?
Mr. Gammarino. Which? Was there a particular plan when you
say Blue Cross Blue Shield?
Ms. Norton. CareFirst, for example.
Mr. Gammarino. I think CareFirst a couple of years ago went
down that path, but I think they clearly didn't----
Ms. Norton. Why was that? Why is that better for some
plans?
Mr. Gammarino. I think that--and I am not a proponent on
either business model, because they both work under the brand.
The brand licensure requires fiscal accountability----
Ms. Norton. So why would some prefer one and----
Mr. Gammarino. I think, from what I see, a lot depends upon
your market. A lot depends upon your need for capital. A lot
depends upon the competitive models up in your particular
market that are successful. And certainly depending upon
sometimes your relative financial health, capital may be easier
if you are a for-profit to obtain.
Ms. Norton. There has been some testimony before from the
prior witness and from you about the use of, you indicated,
reserves. I need to know whether the surplus, the very large
surplus that--and by the way, I am agnostic on a surplus,
particularly since there are no standards for how much surplus
or not surplus a company like yours should have. But you know,
as it continues to grow and to get very large, then people
began to look at Blue Cross Blue Shield because it is
nonprofit. And if you had a large surplus, you are supposed to
distribute some of it. And then people got hungry about your
surplus, and they had their hands out for your surplus. And the
standard answer, as I have indicated, is, well, we use it to
keep down the costs for our subscribers. That is a perfectly
satisfactory--in fact, that is the best use of it, as far as I
am concerned. Is, in fact, your answer--I mean, when you
referred to my question before you mentioned reserves. I am
asking you, is the surplus being used, instead of being
distributed the way nonprofits do it, is the surplus being
used, let us say in this region, for example, to keep down the
cost of health care here relative to what other companies face?
Mr. Gammarino. I think you are talking outside of the
FEHBP, is that correct?
Ms. Norton. Yeah.
Mr. Gammarino. You are talking about outside of that?
Ms. Norton. Yes, I am speaking about the surplus.
Mr. Gammarino. And I am not prepared really to address
that. You know, every Blue Cross Blue Shield plan is regulated
by the State that they are licensed in. And those definitions,
as you just pointed out, Ms. Norton, they probably vary in
terms of what is considered a surplus. I think also the
economic times probably may cause people to rethink what a
surplus is. I know today collectively Blue Cross Blue Shield is
very proud of the fact that our 100-plus members nationwide can
feel very secure in the fact that financially, collectively and
independently, we have sufficient capital to ride out with our
members this economic downturn.
Ms. Norton. Yeah. It is hard to be an enemy of surpluses,
even before the present turn down. But what of course Blue
Cross Blue Shield has to be aware of, as a nonprofit, it gets
more scrutiny from government because of it. And just this
year----
Mr. Gammarino. Sure it does.
Ms. Norton [continuing]. There was a big controversy
involving CareFirst here when a large payment to an executive
who was leaving was paid, and the Maryland insurance
commissioner required that it be cut in half, citing the
inconsistency of such a large payout of severance, the
inconsistency with the nonprofit mission. So I just remind you
of this not to beat up on the surplus; I am where you are. I am
not even sure what the surplus, anybody's surplus is today. But
to say that one of the reasons we are looking at Blue Cross
Blue Shield is that so many Federal employees, but the other
reason is that you are very different because of the nonprofit
status you enjoy or not, considering whether or not you would
rather be a commercial company.
Thank you very much, Mr. Chairman.
Mr. Davis. Thank you very much. And it appears to me that
maybe you are being warned that there are individuals who are
seeking ways to tax everything that may not be taxed, including
religious institutions, including hospitals, including probably
Blue Cross Blue Shield. Hopefully, we won't get to the point
where, you know, Russia got one time when they didn't have
anything to tax, and they ended up wanting to put a tax on the
air. But we wouldn't want to get to that point I am sure. Thank
you both very much.
Yes, Mr. Gammarino.
Mr. Gammarino. Mr. Chairman, I was wondering if I could
just clarify one thing that I heard. There was a question of
Mr. Francis related to Medicare B and the issue with the
nonparticipating physicians, the $7,500, and where does that
fit? If they have Medicare B, are they still required to pay
that? And I did want to indicate that when our members have
Medicare B as primary and we are secondary, any type of cost-
sharing, whether it be deductibles, co-insurance or copayments
would be waived. So, specifically in the case of that $7,500,
it will be waived. So I wanted to make sure the committee
understood that.
Mr. Davis. Thank you very much. Thank you both. And thank
all of those who attended.
This hearing is adjourned.
[Whereupon, at 12:47 p.m., the subcommittee was adjourned.]
[The prepared statement of Hon. Elijah E. Cummings
follows:]
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