FEHBlog

In its recent call letters, OPM has placed the FEHB Program squarely in the forefront of the consumer driven health plan movement. OPM was the first large employer to promote health savings accounts in December 2003, and the current call letter requires plans to empower consumers through, for example, price and quality transparency.

Last week, the consulting firm Watson Wyatt Worldwide released a report with these interesting — but not very surprising — findings:

“[A]ccording to the analysis of health benefit plan expenditures, the 4 percent of participants with serious health conditions account for nearly half of health benefit spending in any given year. This group is unlikely to be won over by financial incentives or plan design features, such as high-deductible health plans paired with health savings accounts, which allow employees to save for health care expenses on a tax-advantaged basis. Such plans are likely to be attractive only to healthier employees. “Those who are not as sick — the roughly 25 percent of participants in the early stages of chronic conditions or with acute health episodes — account for 40 percent of spending. In contrast, those who are healthiest — 72 percent of participants — account for just 11 percent of health care spending.” (I wonder if those percentages would vary materially in the FEHB Program because it tends to be a demographically older group.)
Watson Wyatt draws the conclusion that high deductible health plans alone will not control health care spending. According to the company’s analysis, “It’s up to employers to understand the varying needs of employees and to respond with targeted consumerism — an approach that uses different strategies to engage different segments of the population covered by health benefit plans.” For example, promote continuing good health for the 72% who do not use much health benefits and direct plan members who are high utilizers to obtain the best care for their chronic conditions, even if those providers are higher priced than others.

Albert B. Crenshaw writing in today’s Washington Post analyzes the Watson Wyatt report. He encourages workers to take advantage of preventive care and disease management programs offered by their health plans. Of course, OPM has been pushing the same message through, for example, its healthierfeds campaign.

The Crenshaw article includes a Watson Wyatt suggestion that employers examine the relationship between absenteeism and health care. I recall attending an OPM carrier conference in the late 1990s where a health care provider encourged OPM to adopt mental health parity because it would reduce employee absenteeism. Of course, OPM did mandate mental health parity (subject to managed care requirements) in 1999 (effective with the 2001 contract year). In March 2006, a study of the FEHBP mental health parity initiative was published in the New England Journal of Medicine. The study focused on whether managed mental health parity materially increased FEHB Program costs (it didn’t). The study did not consider whether managed mental health parity improved worker attendance at federal agencies. The study promotes the interests of the mental health community that wants expanded mental health parity, but it does not really help the federal government as an employer, in my view.

I live and work inside the Beltway, which skews my perspective on many matters. I am always interested to read the Federal Government’s semi-annual regulatory agenda or unified agenda. The Semiannual Regulatory Agenda is, of course, published twice a year (usually in April and October) in the Federal Register, and it summarizes the rules and proposed rules that each Federal agency expects to issue during the next six months.

The most recent sem-annual regulatory agenda was published on Monday April 24, 2006. The agenda included no noteworthy FEHBP or Federal Acquisition Regulation (FAR) developments. The agenda did disclose that OPM is developing an interim rule for the new Federal Employees Supplemental Dental and Vision Benefits Program. OPM expects to issue the interim rule this December when the Program kicks off.

Last week, OPM published its 2005 edition of the Fact Book on the Federal civilian workforce which “contains statistics on employee demographics; compensation, payroll, and work years; performance management and the Senior Executive Service (SES); retirement and insurance programs; and student employment programs.”

In 2004, there were 2,713,200 federal employees (basically flat employment this decade). 767,700 of this group were US Postal Service employees (number of USPS employees down approximately 100,000 this decade). The average age of a federal employee was 46.8 in 2004 (vs. 46.3 in 2000) . (The average age of a FEHB enrollee is about ten years older because 1/2 of FEHBP enrollees are annuitants.) In 2004 56% of federal employees were men, and 44% were women (roughly the same gender mix over the past decade). 42% of federal employees had college degrees; 23% were veterans, and 5% were military retirees. The average base salary of a federal employee was $61,714; in the DC metro area, it was almost $80,000. 33% were white collar administrative; 24% were white collar professional; 32% were other white collar, and 11% were blue collar.

In 2004, 2,202,543 employees, 1,842,489 annuitants, and 4,006,295 dependents (est.) were enrolled in the Federal Employees Health Benefits Program (FEHBP). There were approximately 500,000 federal employees who were not enrolled in the FEHBP. The Fact Book indicates that there were 244,188 temporary federal employees (9% of the total workforce) who may not be eligible to enroll in the FEHBP. But it appears that approximately 10% of the federal workforce may have decided not to enroll in the FEHBP.

FEHBP premiums totalled $29,140,000,000 in 2004. This report is just chock full of fun facts to know and tell.OPM

The recent OPM call letter for 2007 benefit and rate proposals encouraged carriers “to pursue the advantages of specialty pharmacy programs aimed at reducing the high costs of infused and intravenously administered drugs.” Specialty drugs are now a huge market, approximately $40 billion in 2005, and all of the major PBMS, e.g, Caremark, Medco, offer specialty drug programs.

Medicare has a new specialty drug program. Medicare generally covers specialty drugs through the Part B program (rather than Part D) because they are physician administered. The Medicare Modernization Act modified Medicare’s reimbursement methodology for Part B drugs — switching from average wholesale price to average sales price. This week, CMS announced that it has entered into a contract with “BioScrip as the vendor for the initial phase of the new Competitive Acquisition Program (CAP) for certain Part B drugs and biologicals that begins on July 1, 2006. The CAP is a voluntary program that offers physicians the option to acquire many drugs they use in their practice from an approved CAP vendor thus reducing the time they spend buying and billing for drugs.”

CMS released this week Medicare Part D enrollment figures by plan. It turns out the United Healthcare, which had purchased Pacificare, a major Medicare Advantage player, and then teamed with AARP, and Humana, another major Medicare Advantage player that relied heavily on grassroots marketing at Walmart Stores, gobbled up nearly half of the market.

OPM prepares an FEHBP enrollment report by plan as of March 31, which is used to calculate the following year’s government contribution (72% of the enrollment-weighted average premium capped at 75% of the plan’s actual premium for civil service employees and all annuitants pursuant to 5 U.S.C § 8906 / a higher Postal Service contribution is negotiated for actively employed USPS employees) . The 2006 report should be issued in the second quarter of 2006. Anyone who wants a copy of the 2005 report can email me.

It turns out that Wall Street Journal columnist Danied Henniger attended the Supreme Court’s oral arguments on Monday, the day before McVeigh was argued. He wrote an engaging column in yesterday’s paper (subscription required) which concluded as follows: “[T]o enter the Supreme Court and encounter the place, the people and its essential purpose is to feel carbon-dated to 1789. Though often maddening, its majesty remains intact.” That is so true. I am so glad that I took my high school age daughter along to see the McVeigh argument on Tuesday (my own little Take your Daughter to Work event). It was impressive.

I had the pleasure of attending the oral argument before the Supreme Court in the McVeigh case (No. 05-200) on April 25 (see my April 22 post). This was only the second or third time that I had witnessed Supreme Court arguments, and this was the very first time that the Supreme Court has interpreted the Federal Employees Health Benefits Act so I will not engage in any prognostication based on the oral argument.

Tony Shelley of Miller & Chevalier, counsel for petitioner Empire Blue Cross, and an attorney for the U.S. Solicitor General’s office, Sri Srinivastan, argued the FEHB Program’s position that federal courts possess jurisdiction over carrrier lawsuits to enforce plan provisions, here the subrogation provision. Both Tony and the Solicitor General’s representative argued the case very well.

The Justices posed many questions to Tony, the Solicitor General’s representative, and McVeigh’s counsel. Chief Justice Roberts, Justice Breyer, Justice Souter, Justice Scalia, and Justice Ginsburg were the most active participants in the argument. The other Justices (with the exception of Justice Thomas) interjected points occasionally. (I am amazed at how well Justice Stevens looks at age 86.) The transcript will be posted in a few weeks at the Supreme Court’s website.

In retrospect, the key exchange from my perspective occurred at the end of the Solicitor General’s presentation when Mr. Srinivastan made the point that ultimately this case concerns money to be reimbursed to the federal treasury. McVeigh’s counsel then began to present his argument and Justice Breyer asked him to distinguish this case from the Supreme Court’s decisions in Clearfield Trust and Kimbell Foods. In Clearfield Trust, the Supreme Court held that “The rights and duties of the United States on commercial paper [in that case an employee paycheck] which it issues are governed by federal rather than local law. When the United States disburses its funds or pays its debts, it is exercising a constitutional function or power federal employee paychecks. ” McVeigh’s counsel was never able to answer this question, and Justice Breyer’s point (which, of course, was made in the Empire Blue Cross and SG briefs) resonanted with other justices, particularly Justice Souter.

I came into the argument with the opinion that the Supreme Court will rule for the Program’s position, and I came out of the Supreme Court holding the same opinion. The decision will be rendered before the end of the Supreme Court’s term in June.

Today is National DNA Day, which commemorates the completion of the National Human Genome Mapping Project in April 2003. I wonder whether I will still be alive when someone makes a breakthrough discovery about how to use the genome map to improve/prolong human health. I think that I will, and I was encouraged by a recent article in the Wall Street Journal (subscription required). The article ( New Genetic Tools May Reveal Roots Of Everyday Ills, April 14, 2006, p. A1) explains that
“DNA is composed of repetitions of four chemical building blocks, which are known by the letters A, G, C and T. The full human genome consists of a combination of three billion letters and the code is nearly identical among any two people. However, about 0.1% of the letters commonly vary. Those variations are believed to lie behind many of the differences amongst people — what they look like and how vulnerable they are to particular diseases. “The gene variants are called “snips,” shorthand for single-nucleotide polymorphisms, or SNPs. A few years after Dr. Risch’s 1996 article, government and industry launched a major effort to catalog them. It turned out to be costly and slow. In the most recent phase of the effort, the U.S. government, along with China, Japan and other nations, spent nearly $139 million cataloging how more than one million SNPs varied among several groups, including residents of Nigeria, Tokyo and Beijing, and Americans of European background. “The next step is to compare SNPs from hundreds or thousands of sick individuals with those from healthy people. That will theoretically allow scientists to zero in on genes that underlie disease.”Until recently, this comparison has been a very expensive process but according to the Journal last year two U.S. companies “Affymetrix Inc. of Santa Clara, Calif., and Illumina Inc. of San Diego” each introduced miniature chips that can detect more than 300,000 genetic markers, or SNPs, at once. This development “has spurred a frenzy of” genetic research activity. “The Broad Institute, in Cambridge, Mass., is tackling genetic research that “five years ago you couldn’t do…for $10 billion,” says David Altshuler, a geneticist there.”

The purpose of DNA Day is to encourage young scientists to tackle this project. If there’s any magic bullet for our health care cost problems, this may be it. Let’s keep our fingers crossed and keep rooting for the scientists.

We are approaching the end of the initial Medicare Part D open enrollment period on May 15. In anticipation of that event, CMS released today Creditable Coverage Guidance and Model Notices entities can use when disclosing creditable coverage status to beneficiaries after May 15, 2006.

On April 20, 2006, HHS announced that 30 million Medicare beneficiaries now have prescription drug coverage. 8.1 million voluntarily have enrolled in Medicare Part D prescription drug plan; 5.8 million voluntarily enrolled in a Medicare Part C (Advantage) plan offering a drug benefit, and 5.8 million with dual Medicare/Medicaid eligibility were enrolled automatically in Part D plans. 6.8 million are enrolled in employer sponsored plans receiving the Medicare Part D subsidy, 1.9 million are enrolled in TRICARE for Life, and 1.6 million are enrolled in the FEHB Program.

At the OPM Carrier conference held on April 6, Abby Block, the director of CMS’s Center for Beneficiary Choices, informed the attendees about the following breakdown of Medicare beneficiaries who voluntarily enrolled in Medicare Part D plans:

16% of standalone Rx plan and 5% of Medicare Advantage with Rx plan beneficiaries are enrolled for defined standard coverage (e.g, the $250 deductible, 25% coinsurance, the so-called donut hole, etc.)

46% of standalone Rx plan and 18% of Medicare Advantage with Rx plan beneficiaries are enrolled for basic alternative coverage (actuarially equivalent to standard coverage but offers reduced deductible or first dollar coverage.)

26% of standalone Rx plan and 76% of Medicare Advantage with Rx plan beneficiaries are enrolled for enhanced alternative coverage (higher premium but improved coverage, e.g. reduced donut hole).

12% of standalone Rx plan and 4% of Medicare Advantage with Rx plan beneficiaries are enrolled for actuarially equivalent coverage (tiered coinsurance levels based on the formulary).

On April 25 at 11 AM, the U.S. Supreme Court will hear oral argument in Empire HealthChoice Assurance Co. v. McVeigh, No. O5-200, on review from the U.S. Court of Appeals for the Second Circuit. This is the first Federal Employees Health Benefits (FEHB) Act interpretation case ever to reach the Supreme Court.

The Supreme Court will consider whether federal question jurisdiction (28 U.S.C. § 1331) exists over a suit by a federal government contract / FEHB plan carrier (in this case Empire) to enforce, on behalf of the United States, a FEHB plan provision, specifically in this case the reimbursement/subrogation provision, that is part of a government contract established pursuant to the FEHB Act, 5 U.S.C. § 8901 et seq. The principal merits briefs are available here.

Anthony Shelley from Miller & Chevalier will argue the case for Empire, and he will split his 30 minutes of argument time with the Solicitor General, who has filed an amicus brief in support of Empire’s position that the plan can sue in federal court to enforce its reimbursement/subrogation provision. That’s a self-evident proposition to me, and I trust that the Supreme Court has taken the case in order to reverse the Second Circuit, which reached a contrary result. The Second Circuit opinion is the outlier here. For example, the Seventh Circuit in the Cruz case reached the result that Blue Cross is advocating before the Supreme Court. I know that Tony will make a great argument, and I wish him well.