The Federal Health Benefits Program: Is It a Good Value for Federal Employees?

4/11/2013

House Oversight and Government Reform Committee Subcommittee on Federal Workforce, U.S. Postal Service and the Census Subcommittee

Chairman Farenthold, Ranking Member Lynch, Members of the Subcommittee, on behalf of the 150,000 federal employees and retirees represented by NTEU, I appreciate the opportunity to provide this testimony. The Federal Employees Health Benefits Program (FEHBP) provides health insurance coverage to more than 8 million federal employees, retirees and their dependents and is the largest employer-sponsored health insurance program in the country.

In 2012, FEHBP premiums increased by an average of 3.5% and in 2013, they increased by another 3.4%. Some individuals’ premiums increased by much larger amounts, as much as 32% in some cases. With federal pay frozen for 3 years and unpaid furloughs looming, federal employees are finding it increasingly difficult to afford health insurance. Some estimates find that as much as 6 or 7% of the federal workforce is unable to afford health insurance coverage at all. Something must be done to make health care premiums more affordable for federal employees and retirees.

Prescription drug costs account for approximately 30% of claims in the FEHBP program. Under current law, FEHBP plans contract with pharmacy benefits managers (PBM’s) who act as middlemen and negotiate prices with drug companies and pharmacies for individual FEHBP plans. The initial purpose of this arrangement was to control drug costs; however, there is little evidence that it has been effective. Rebates and discounts that the PBM’s receive from the drug manufacturers are retained by the PBM’s instead of being returned to the federal government to help keep FEHBP costs down.

NTEU calls on Congress to reform prescription drug purchasing in the FEHBP which is estimated to save $1.6 billion over 10 years. Legislation (H.R. 1367) has been introduced by Representative Stephen Lynch (D-MA) that would reform prescription drug pricing and contracting in the FEHBP and reduce wasteful pharmaceutical spending. NTEU strongly supports this legislation that would lower total premiums, providing savings to the federal government as well as employees.

Some proposals have been advanced recently that, rather than reducing overall costs, would shift costs from the government to enrollees. One such proposal by The National Commission on Fiscal Responsibility, would turn the FEHBP into a voucher plan. Under a voucher system, the federal government would provide a fixed amount of money each year for the FEHBP. Annual increases would be based on the Consumer Price Index, rather than the much higher annual increases in health care costs. Premium increases that exceeded that voucher amount would become the sole responsibility of the enrollee. Shifting additional health insurance costs to FEHBP plan enrollees, coupled with the ongoing federal pay freeze, would force even more federal employees to forego health insurance. NTEU opposes efforts to shift more costs onto enrollees, including turning the FEHBP into a voucher program.

NTEU also strongly opposes discrimination against same sex couples in the FEHBP program. The Defense of Marriage Act prevents FEHBP from covering even legally married same sex spouses of federal employees. This is a discriminatory denial of benefits to one group of federal families and must be ended. Legislation has been introduced in previous sessions of Congress (H.R. 3485 and S. 1910) that would allow FEHBP to cover same sex partners of federal employees. We expect similar legislation to be introduced in the near future and urge its adoption.

Thank you for holding this hearing on this important issue. Ensuring the availability of quality, affordable health care for federal employees, retirees and their families is critically important and NTEU pledges to work with all interested parties to achieve that goal.