Monday Miscellany

I missed the weekend update because I was travelling back from an enjoyable weekend in beautiful Madison Wisconsin. (Go Badgers!) There is no better day for second guessing than Monday (particularly when you are a Redskins fan like me), and Federal Times took the cue with its lead article on "What OPM isn't Doing to Control Health Rates." According to the Federal Times,

Some experts point to recent successes other plans have had in holding down increases, in part by using tactics OPM has not used or used only sparingly. They are:

• Encouraging and incentivizing enrollees to take better care of themselves through wellness programs, using preventive care, and better managing chronic conditions such as diabetes.

• Saving money on prescription drugs by pushing enrollees to use generic drugs instead of more expensive brand-name drugs whenever possible.

• Discouraging enrollees from getting excessive imaging scans, tests, emergency room visits or other treatments that are not necessary.

This benefit cost containment responsibility principally falls on the FEHB plans, not on OPM. Plan carriers, not OPM, hold the financial risk in this Program.

In my experience, FEHB plans have been engaging in these measures, particularly generous preventive care benefits, disease management programs and generic drug incentives, for many years in my experience. OPM for the past several years has been pushing federal employees to improve their health. Today, for example, the OPM Director announced "the launch of FedsGetFit, a Wellness Awareness campaign over the coming months in preparation for our Campus Worklife Program early in the New Year." The fundamental problem facing the the FEHB Program is demographics -- 50% of FEHB Plan enrollees are annuitants and the active employees tend to be older than the private sector. Older people use more health care services. Although I'm not an actuary, my gut tells me that premium increases would be higher without the Plan's active benefit management practices.

Healthcare reform has moved back to the smoke filled rooms as the House and Senate craft the bills that will be presented on the respective floors of those bodies likely early next month. The National Underwriter reports that AHIP President Karen Ignani offered an olive branch to Senate Majority Leader Harry Reid. AHIP and the Blue Cross and Blue Shield Association released an Oliver Wyman actuarial report on the bills under development. According to an AHIP release, the Oliver Wyman report "is consistent with a recent [PriceWaterhouseCoopers] analysis released by AHIP that found that current health care reform proposals will cause health care costs to increase far faster and higher than they would under the current system." AHIP and BCBSA also posted a copy of their letter to Senate Finance Committee Chairman Max Baucus on the Oliver Wyman report. This portion of the letter grabbed my attention because the $6.7 billion annual fee on insurers would fall on the FEHB Program:

The revised Chairman’s Mark includes a $6.7 billion excise tax described as an “annual fee on health insurance providers.” This tax would make health insurance much less affordable for all Americans, regardless of whether they currently have coverage or are uninsured. This outcome would stem from both the direct impact of this tax and its interaction with other provisions in the Chairman’s Mark, as well as existing federal and state taxes.

In its September 22, 2009 letter, the Congressional Budget Office (CBO) estimated that this excise tax would have the effect of increasing premiums by roughly 1 percent. By our estimates, however, the effect of this tax would be much more significant, since the tax would only apply to fully insured health insurance and excludes self-funded coverage. In addition, unlike most excise taxes, this new tax would be non-deductible and would have the interactive effect of increasing other federal and state taxes which raises significantly the overall effective rate of the tax.

Overall, we estimate that the effect of this tax would be to raise coverage costs as much as three times CBO’s estimate in most instances. It also is important to note that the effect of these new taxes would be borne principally by those obtaining individual coverage in the exchange and by small businesses. These new taxes would not apply to employers providing coverage on a self-insured basis, which would
lead more employers to self-insure, as was reported by Joint Tax Committee staff in Tuesday’s walk-through of the modified Mark. This would encourage a vicious cycle, whereby the taxes are ultimately borne by an increasingly narrow group of consumers, including those purchasing coverage through the exchange.

RAND published an assessment of the idea of opening the FEHB Program to all comers, an idea which as far as I can tell is not under active consideration. Wide open enrollment is incompatible with the employee benefit nature of this Program.