The President’s Budget and the FEHBP

The President’s Budget describes the following legislative initiatives for the FEHBP:

EMPLOYEES AND RETIRED EMPLOYEES HEALTH BENEFITS FUNDS
(Legislative proposal, subject to PAYGO)

The health insurance marketplace has changed significantly since the FEHBP was enacted in 1959 and the current governing statute leaves little flexibility for the program to evolve with the changing market. The 2014 Budget proposes that beginning in 2015: 

(1) employees would be given the option to enroll in a self plus one coverage option rather than being limited to just self or family options [Note — the FEDVIP statute provides for three tiers — because the family size in FEHBP enrollment is not large — the savings from three tiers may be small];
(2) domestic partners of Federal employees and new retirees would be eligible for health benefits [Note — even if the Supreme Court strikes down the Defense of Marriage Act, the majority of States do not recognize same sex marriage currently];
(3) OPM would be authorized to contract with modern types of health plans rather than being limited to the current four statutorily-defined plans reflective of the 1950s insurance market;
(4) OPM would be authorized to contract separately for pharmacy benefit management services; and
(5) OPM would be given authority to make adjustments to premiums based on an enrollee’s tobacco use and/or participation in a wellness program [Note — the Affordable Care Act (“ACA”), HIPAA, and the genetic non-discrimination act permit this latitude in the private sector].

In the FEHBlog’s view it is erroneous to suggest that the FEHBP is outdated as it served as a model for the ACA’s exchanges and it operates under a flexible law that — in contrast to traditional Medicare — historically relied on the carriers to keep the Program up to date through private sector initiatives. The carriers continue to offer their initiatives, but the ACA has shifted much control over insurers to the government.

There is a lot of misunderstanding about the FEHBP which the House oversight hearing hopefully will clear up tomorrow. For example, the Federal Times reports today that

The budget would enable OPM to strike is own deals with pharmacy benefit managers, or PBMs, for prescription drugs. PBMs are companies that negotiate prescription drug prices with pharmaceutical companies on behalf of FEHBP’s insurance providers. But PBMs are not considered subcontractors, and as a result, OPM has little oversight of them and cannot be sure they pass on rebates to FEHBP enrollees.

In fact the trend among private sector employers is to carve in their prescription drug program because of the importance of coordinating care, particularly expensive specialty drugs.  In any event, while OPM does not consider PBMs to be subcontractors, it does consider them to be large providers whose contracts are subject to OPM audit. Moreover, OPM amended the experience rated plan contracts in 2011 to require fully transparent pricing and 100% return of rebates and other manufacturer payments to the FEHBP. Around 80% of FEHBP enrollees participated in experience rated contracts like Blue Cross, GEHA, NALC, APWU, Mail Handlers, and SAMBA.  

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