1

NARFE’s Tenth Biennial Legislative Conference March 3-6,

2007

Health Care Issues

2

Health Care Issues

Health Care Financing Trends President’s FY 2008 Budget Premium Conversion Medicare Employer Subsidy

3

Health CareFinancing Trends

The Erosion of Employer-Sponsored Health Insurance

4

Not Immune To Erosion of Retiree Health Benefits

Share of Employers w/ Retiree Coverage 1988: 66%* 2006: 35%*

Share of Employers w/ Worker Coverage 2001: 81.2% 2005: 77.4%

*Source: Kaiser/Hewitt study of large private-sector employers, 2006.Source: Wall Street Journal 1/19/07

5

President’s FY ’08 Budget Health Savings Accounts (HSAs) in Federal

Employees Health Benefit Program (FEHBP):Expands HSAs in FEHBP, by allowing:

BC/BS to offer HSAs. “Indemnity Benefit Plan” to offer HSAs

Dormant since 1990Aetna former Indemnity FEHBP Carrier

6

FY ’08 Budget: Health Savings Accounts in FEHBP

What’s Wrong with a BC/BS HSA?Most Popular & Largest FEHBP plan.Brand Loyalty & Marketing Clout.BC/BS HSAs could spike HSA enrollment.That means higher premiums/fewer benefits

for comprehensive plan enrollees. Systemwide Indemnity Plan HSA:

Would only make it worse.

7

President’s FY ’07 Budget Base Retiree FEHBP Premiums on Length of

Service:Average Retiree/Worker Share: 29%.Retirees with less than 10 years would pay

more.Discourages mid-career recruitment.Similar to “Operation Offset”

2005 RSC Plan would have cut gov’t share for retirees w/ less than 30 years of service.

8

Setting the Bar High

The Fight for

Premium

Conversion

9

Premium Conversion

Rep. Tom Davis (R-VA) H.R. 1110

56 Cosponsors, including:*

Majority Leader Hoyer (D-MD) Oversight & Gov’t Reform

Committee Chairman Waxman (D-CA)

19 Members of Ways and Means (10 Ds & 9 Rs)

*As of March 20, 2007

10

Premium Conversion

Senators John Warner (R-VA) & Jim Webb

S. 773 7 Cosponsors*

3 Finance Committee members (Rockefeller, Lott & Snowe.

*As of March 20, 2007

11

So What’s New About...

Premium Conversion in the 110th Congress (2007-2008)?

12

What’s New? Committee Chairman

House Ways and Means Committee

Senate Finance Committee

Charles Rangel (D-NY) Chairman

Max Baucus (D-MT), Chairman

Jim McCrery

(R-LA) Ranking Member

Charles Grassley (R-IA),

Ranking Member

13

What’s New?Budget Rule

“Pay As You Go” (a.k.a. “Paygo”) Tax Relief Must be Offset by:

Revenue Increases, orProgram Cuts.

14

What’s Old?

Premium Conversion Costs: $12 billion. $248 billion Federal Budget Deficit – ’06. Unknown costs of Wars & Homeland

Security. The Impending Fiscal Tsunami.

These guys will need a lot of Social Security benefits,

health care & long-term care

15

What Else is Leftover?Politics of Premium Conversion

Many Lawmakers would like to support PC. But, they have to consider how non-feds feel

about Premium Conversion. No retirees anywhere receive PC tax benefit. Under H.R. 1110/S. 773, retired Members of

Congress get PC too. Concern about giving themselves a tax break

other retirees won’t get.

16

How NARFE Should Respond

NARFE & Sen. Warner: Cutting PC’s $12 billion cost: Cap benefit with no affect on relief for 7-8 years. Annuitants get benefit through a “Flexible

Spending Account.” Open PC to all retirees

No retirees private or public have PC. Cost goes up, but PC for all removes one

obstacle.

OMB Director Portman &Senator Cardin (D-MD)

17

Premium Conversion:Our Best Arguments

The cost is not out of line with how the tax code

is being used on health care.

Federal civilian and military retirees should be

rewarded for their sacrifices to our country.

Improvements in health care are incremental: H.R. 1110/S. 773 are a foot in the door for other

retirees.

18

Medicare Employer Subsidy

19

Medicare Part D Drug Benefit

2002 Congressional Budget Office: 1/3 of employers with retiree Rx coverage

would drop it in response to “Part D.” Medicare benefit inferior to FEHBP Rx. Subsidy proposed to encourages

employers to keep Rx drug coverage. NARFE key in making the Fed Gov’t

eligible for the subsidy.

20

Medicare Employer Subsidy: Eligibility

Subsidies of 28% of the cost per enrollee age 65 and older.Employers Eligible for Subsidy:

Drug Benefit = or > Part DFederal, state and local governmentPrivate-Sector

21

Medicare Employer Subsidy

2004: OPM and CMS staff met on FEHBP application for the subsidy.

2005: OMB Tells OPM not to apply for subsidy.

OPM says:Don’t need it: no plans to cut retiree Rx.Government shouldn’t pay itself.

22

Medicare Employer Subsidy: OPM’s Arguments Have No Merit

OPM: “No plans to cut retiree Rx.”Eligibility not set by whether employer

intended to kept Rx coverage with or without subsidy.

OPM: “Gov’t shouldn’t be paying itself.” “Intragovernmental Transfers” not unusual.Example: Agency Payments to CSRDF.No Outlay – No Cost to Government.

23

Result of Forgoing the Subsidy

$1 Billion a year that could have:

Reduced Premiums

Stabilized or Enhance Coverage

24

Result of Forgoing the Subsidy

Jan. 2007 GAO Study (Sen. Akaka):Large FEHBP plan with a lot of elderly would

have had 3.5% to 4% lower premiumsAll FEHBP plans would be more than 2%

lower on average.Premiums more sensitive to Rx cost in the

future.

25

Medicare Employer Subsidy: NARFE’s Response

Persistent Public Pressure on Administration:Press Releases NARFE Magazine ArticlesCalls and Letter from NARFE MembersMeetings w/ OPM Director(s) and Key Staff

26

Medicare Employer Subsidy: NARFE’s Response

Assistance from Key Members of Congress:Rep. Tom Davis (R-VA)Sen. Daniel Akaka (D-HI)Rep. Danny Davis (D-IL)Rep. Eleanor Holmes Norton (D-DC)Sen. Charles Grassley (R-IA)

Rep. D. Davis

Rep. E. H. Norton

Sen. C. Grassley

27

Medicare Employer Subsidy: NARFE’s Response

Conversations with staff of:Then-House Ways & Means Committee Chair

Bill Thomas (R-CA)Senate Finance Committee Chair Max

Baucus (D-MT)House Ways & Means Committee Chair

Charlie Rangel (D-NY)

Rep. Thomas

Sen. Baucus

Rep. Rangel

28

NARFE’s Response in the 110th Congress

Sen. Akaka to hold hearings on the GAO Report this Spring.

President Baptiste will testify. After hearing NARFE will work with Sen.

Akaka on next steps.

Sen. Akaka

29

Health Care IssuesQUESTIONS AND ANSWERS