Following up on the President’s executive order issued following the failure of ACA repeal efforts in Congress last year, the Labor Department today released a proposed rule under ERISA that would permit small employers and sole proprietors to band together in small business health plans that could buy coverage in the large group market.  The rule is open for public comment for sixty days beginning tomorrow. Count the FEHBlog as a small business owner in favor of this change.

The FEHBlog noted yesterday that prescription drug manufacturer continue to issue periodic price increases for their products. The Wall Street Journal puts this benefit cost issue in perspective with an article reporting that

After years of surging U.S. drug prices, the two largest drugstore companies said some pricey prescription medicines are becoming more affordable. 

CVS Health Corp. and Walgreens Boots Alliance Inc.  said Thursday that their pharmacy revenues are taking a hit from an increase in generic alternatives, particularly for some expensive specialty drugs, along with slowing price inflation for name-brand medications. 

“You’re going to see continued dampening going forward as you think about the pipeline of generics coming into the markets,” said CVS finance chief Dave Denton, who didn’t discuss specific products. 

Lower prices will dent the company’s revenue, but ultimately could lead to increased profits because generics generally have a higher margin than name-brand drugs. “The introduction of generics can really dampen the top line but affect the bottom line in a positive way,” Mr. Denton said.

The Department of Health and Human Services recently issued a report on 2016 medical loss ratio results.  The ACA requires that health insurers spend at least 80% of premium dollars (85% in the large group market) on health care and quality costs. Insurers that fall below these thresholds must refund the difference to employers in the large and small group markets and consumers in the individual market. The medical loss ratio is calculated on a market basis per state. Insurers met the thresholds with respect about 95% of consumers in the employer markets and 90% in the individual market.  It’s an interesting report. The FEHBlog does think that the medical loss ratio has lead to CVS buying Aetna and not the other way around. Nevertheless, the FEHBlog is encouraged by this American Spectator piece on how the private sector can fix healthcare.

Finally Modern Healthcare reports that

Profits at the more than 4,800 U.S. community hospitals rose 3.8% in 2016, climbing to $76.1 billion, from $73.3 billion a year earlier. The trend follows years of steadily increasing profits.  

Total net revenue reached $979 billion in 2016—including nursing home results—and expenses were $903 billion, according to the 2018 edition of the American Hospital Association’s Hospital Statistics report aggregating hospital financial and utilization trends, which was released Thursday. The annual report includes data on all 4,840 registered community hospitals in the U.S.—159 fewer than in 2012.

The AHA data show community hospital profits have risen 15% since 2012, when they were $53.2 billion. 

Govexec.com reports that on December 22, 2017, Sen. Ron Johnson (R. Wisc.) in his role as Chairman of the Senate’s Homeland Security and Government Affairs Committee issues a subpoena to OPM demanding the production documents, including email messages, concerning the development and promulgation of the OPM rule granting a FEHBP level government contribution to members of Congress and their staff who were shifted from the FEHBP to the DC SHOP marketplace. The return date on the subpoena is this coming Friday, January 5, 2018. Sen. Johnson also placed a hold on the President’s nominations to the OPM Director, Deputy Director and Inspector General posts to incent OPM cooperation with this long-standing document request.  Hopefully, the subpoena will speed matters along.

In other personnel news,

• The Hill reports that the Senate Health Education Labor and Pensions Committee will hold a confirmation hearing on the President’s nominee for Health and Human Services Secretary Alex Azar next Tuesday, January 9.
• Former OPM Director Kay Cole James has become president of the Heritage Foundation.  Ms. James was OPM Director during the President George W. Bush’s first term. 
• Prof. Timothy Jost who wrote on the ACA for the Health Affairs blog is retiring. 

January 1 is the day that federal annuitants switch plans if they made an Open Season change as well as the day of the college playoff bowl games. Federal employees generally make that switch this year on January 7, which is the first day of the first pay period in 2018.  OPM transmits employee premiums every bi-weekly and annuitant premiums monthly.

Congress returns in full force to Capitol Hill on January 8. This week, the House and Senate organize this week for the second session of the current two year long Congress. In the second session, the Senate party break down will be 51 Republicans, 47 Democrats and two Independents who caucus with the Democrats. The House lineup as of December 8 was 239 Republicans, 193 Democrats, and 3 vacancies.

The Hartford Courant featured an interesting article yesterday about CVS Health’s CEO Larry Merlo, who started his career as a pharmacist.

In an encouraging development, the Wall Street Journal reported today that

Several [New England] states, including Massachusetts and Rhode Island, are on pace to record fewer overdose deaths in 2017, compared with the year before.

This follows years of fast-rising death tolls in the region, which has long been a hot spot for fatal overdoses. State officials say their efforts, ranging from widespread distribution of an overdose-rescue drug to expanded treatment access, are starting to bear fruit. * * *

The Centers for Disease Control and Prevention recently said nationwide opioid deaths rose nearly 28% to 42,249 in 2016. The annual number of U.S. opioid deaths has about doubled since 2010.  * * * 

The New England states aren’t alone in setting new policies to fight the opioid crisis, but they sometimes lead the pack. The National Conference of State Legislatures has noted that Massachusetts was first to pass a law putting very tight limits on opioid prescriptions last year. By August this year, NCSL counted similar laws in 24 states. 

It’s the last Friday of 2017. The FEHBlog is in a reflective mood. Here are some FEHBP-related items that took the FEHBlog by surprise this year:

• In November, OPM disagreed with the Inspector General’s proposal that Congress delegate prescription benefit contracting to the agency. Throughout this decade, the Inspector General has been pushing this idea which aligns with TRICARE’s set-up. Meanwhile, Congress and expert panels from time to time have been encouraging the Defense Department to use an FEHB model for TRICARE.  OPM’s decision was a pleasant surprise for the FEHBlog who favors the continued use of integrated benefits to control costs. 
• In March, the House of Representatives’ Oversight and Government Reform Committee unanimously approved a postal reform bill (H.R. 756) which would have impacted the FEHBP. The bill had the support of the Postal Service, its labor union, and its customers.  The FEHBlog expected the bill to fly through Congress too, but it went no further than the Committee approval. 
• The FEHBlog expected new political leadership to be in place at OPM by now.  The Chairman of the Senate Homeland Security and Governmental Affairs Committee, Sen. Ron Johnson (R WI) is refusing to move forward with a necessary Committee vote on President’s current nominees for OPM Director, Deputy Director, and Inspector General. Hopefully, this contretemps stemming from actions taken by the past Administration will be resolved soon.  
• The FEHBlog is astonished that the Affordable Care Act’s onerous medical device and health insurer taxes are going back into effect on Monday after being suspended for 2017 (2016 and 2017 for the medical device tax.)  The current suspension occurred as part of an omnibus appropriations bill in 2015.  Congress must pass another omnibus appropriations bill for the current federal fiscal year. We will have to wait and see if history repeats or improves upon itself. 

Kiplinger’s Personal Finance offers an interesting angle on making HSA contributions for family members under a self and family high deductible plan. Of course, check with your personal tax advisor.

A reader requested background on the Affordable Care Act’s high-cost employer-sponsored plan excise tax which is colloquially known as the Cadillac tax.

Premiums paid for employer-sponsored health plan coverage are excluded from income and payroll taxation. During the 2008 Presidential campaign, then Sen. Obama strongly criticized Sen. McCain for suggesting that Congress eliminate this exclusion as part of his health care reform plan. (A commentator in Fortune magazine recently suggested that the Republicans revisit Sen. McCain’s plan as an alternative to the ACA.)

As Prof. Jonathan Gruber, one of the ACA’s architects, explained in the Washington Post in 2009, “The [“Cadillac tax”] assessment proposed in the Senate is not a new tax; it is the elimination of an existing tax break that is provided to exactly these firms [that offer health benefits to their employees.” So instead of ending or carving back this tax exclusion, the ACA creates an enormous administrative burden on employers, including OPM, by requiring them to account for the cost of coverage, e.g., employer and employee contributions, health care flexible spending account contributions, employer-sponsored medical clinics, etc. for each employee and retiree and arrange to pay a 40% excise tax on the cost in excess of a $10,200 threshold for self only coverage and $27,500 threshold for other than self only coverage. The thresholds are subject to certain initial adjustments and to small CPI-U (now chained CPI-U) adjustments for years after implementation.

The Cadillac tax originally was scheduled to apply to tax years beginning after December 31, 2017.  In 2015, the IRS began to issue compliance guidance which makes it clear that compliance with this law will require an army of consultants. However,

The Consolidated Appropriations Act, 2016 (Pub. L. 114-113), signed into law on Dec. 18, 2015, delayed the effective date of the excise tax on high cost employer-sponsored health coverage from taxable years beginning after Dec 31, 2017, to taxable years beginning after Dec. 31, 2019.

With any luck, Congress in the consolidated or omnibus appropriations law that Congress must pass for the current federal fiscal year will further delay this tax perhaps to 2026 and extend the expiring suspensions of the ACA’s medical device and health insurer tax at least for another year.

If implemented, the Cadillac tax would have a dramatic impact on the FEHBP for a goofy reason.  The other than self-only threshold for the Cadillac tax is 2.7 times its self-only threshold.  The FEHB other than self only premiums typically do not exceed 2.4 times the self-only premiums on average. Consequently, FEHB premiums for self-only coverage currently have a Cadillac tax problem particularly when you take into account additional benefits like the FSA.  Other than self and family premiums currently don’t. But OPM or its contractor would have to do the calculation. (OPM would send a tax bill to each affected plan for its share of the assessment.)

There you go, dear reader. With all things ACA, there are unintended adverse consequences because the law is unnecessarily complex.

Yesterday, the U.S. Office of Personnel Management released the 2018 pay tables and calculators for federal employees.

The FEHBlog trusts that his loyal readers are enjoying the holidays.

Last Friday, the Internal Revenue Service (“IRS”) announced that “Insurers, self-insuring employers, other coverage providers, and applicable large employers now have until March 2, 2018, to provide Forms 1095-B or 1095-C to individuals, which is a 30-day extension from the original due date of Jan. 31.” These are the forms that confirm for IRS purposes compliance with the ACA’s individual and employer shared responsibility mandates. The IRS is not extending the deadline for submission of those forms to the agency itself.  Because Congress has zeroed out the ACA individual mandate for tax years beginning after 2018, there will be one more round of full 1095 reporting after this one.

The Wall Street Journal reports today that “Since 2013, the price of a 40-year-old, off-patent cancer drug in the U.S. has risen 1,400%, putting the life-extending medicine out of reach for some patients. Introduced in 1976 to treat brain tumors and Hodgkin lymphoma, lomustine has no generic competition, giving seller NextSource Biotechnology LLC significant pricing power.” Of course, this is nothing new and the Food and Drug Administration is trying to encourage competition in these situations. However, this is not a widely prescribed drug. The Wall Street Journal explains that

In 2015, the most-recent year for which data were available, Medicare Part D prescription-benefit plans paid for 1,694 prescriptions in the U.S., according to the Centers for Medicare and Medicaid Services. But because of the price increase, Part D spending on the drug jumped to about $608,000 in 2015 from $163,000 the year before.

That’s a drop in the proverbial bucket but as the article further explains the Medicare Part D cost sharing on this drug is stiff. The FEHBlog does not believe that price controls are the answer. The federal government already imposes price controls on drugs sold to the Defense Department, the Veterans’ Administration, and the Indian Health Service. There also is a pricing floor for Medicaid sales that other purchasers except for Part D plans can’t drop below. These federal price controls shifts costs to other purchasers such as the FEHB plans.

Waiving cost sharing for the unfortunate members would reward the buccaneer drug company. It’s shameful that those companies cannot find a way to exercise self-control over their pricing. Before long we may see the federal government engaged in the drug manufacturing business, just like in olden times when the federal government ran the arsenals that manufactured weapons.

Finally, the Wall Street Journal tells us about six health stories that readers should follow next year –.targeted breast cancer treatments, advances in genetic-based medicine (via Crispr gene editing),  the conclusion of a five year long trial of the expensive PCSK9 inhibitor drugs to lower cholesterol,  continuing concern about antibiotic overuse and resistance, a new class of injectable drugs under development which has shown promise in preventing migraine headaches, and a focus on flu and measles.  

Federal News Radio reports that on Friday “The president signed a memo authorizing an average raise of 1.4 percent, with an additional 0.5 percent adjusted in locality pay for a total of a 1.9 percent for federal civilian employees, and the 2.4 percent pay raise for uniformed service members.”  The Washington Post adds

The Washington-Baltimore area is to receive the largest of the raises, 2.29 percent. The sprawling “locality” encompasses not only the two cities but also much of Maryland and Northern Virginia, and it reaches into West Virginia and south-central Pennsylvania.  Raises are to be effective with the first full pay period of the new year, which in most cases begins Jan. 7.

FEHBP Open Season changes for federal annuitants take effect on January 1 and at the start of the first full pay period of the new year which the Post tells us is January 7.

Here’s a link to the Week in Congress’s report on last week’s actions on Capitol Hill.  Congress is out of town until January 8.