Cost-effectiveness of potential FEHBP reforms questioned

Editor's note: This article will appear in the December issue of the magazine.

Enrollees in the Federal Employees Health Benefits Program will see an average 3.5 percent increase in their insurance premiums in 2012, the smallest jump since 2008, when premiums rose 2.1 percent. The Office of Personnel Management has attributed the smaller increase in part to its ability to leverage the program's nearly 8 million participants and is seeking to take that a step further with changes to FEHBP's prescription drug options. But some observers question whether that buying power brings federal workers the best value -- or even the best benefits.

In its fiscal 2012 budget proposal, OPM requested authority to streamline pharmacy benefits available under FEHBP by negotiating prices for all program participants. Currently, individual health plans contract with pharmacy benefits managers, who negotiate with drug manufacturers and pharmacies on behalf of their enrollees. Working directly with a single pharmacy benefits manager would reduce costs to beneficiaries, OPM says. The proposal also appeared in President Obama's deficit reduction package and is estimated to save $1.6 billion over 10 years.

Stricter government oversight of FEHBP prescription drug benefits-with the purpose of lowering costs-has garnered support on Capitol Hill and among employee groups. Rep. Stephen Lynch, D-Mass., last spring introduced a stand-alone bill that would prohibit pharmacy benefit managers from switching patients' drugs without a physician's approval, require pharmacy benefits managers to return to FEHBP most proceeds from rebates and incentives from drug manufacturers, and create stronger disclosure requirements. And several congressional committees and union leaders have expressed approval for streamlining pharmacy contracting practices.

But some observers argue that asking the government to take over prescription drug bargaining on the theory that OPM can negotiate a better deal than private sector plans is a threat to the entire program.

Walton Francis, editor of Consumers' Checkbook Guide to Health Plans for Federal Employees, says OPM in effect would be negotiating and managing two health programs-one for physician and hospital care and another for pharmacy benefits. But whether the government should decide which prescription drugs are available to beneficiaries is up for debate, he adds.

"An alternative that would save money would be to have a very restricted formulary where [FEHBP plans] won't pay at all for name brand drugs," Francis says. "The question then is whether employees and retirees want to be in the system. Plans are reluctant to limit employee choices."

According to Robert Moffit, a senior fellow at the Heritage Foundation's Center for Policy Innovation, the issue is not money, but choice. Saving $1.6 billion over 10 years is a drop in the bucket compared with FEHBP's annual cost of $40 billion, and the proposal ultimately would reduce competition and lead to fewer options for beneficiaries, he says.

"When crunch time comes to secure bigger savings, OPM will, like the [Veterans Affairs Department], resort to a tougher drug formulary, which will reduce workers and retirees' access to a broader range of prescription drugs and therapies," he says. "Today, if you are in the FEHBP and you don't like a health plan's drug coverage, you dump that plan and get a better one."

The U.S. Postal Service also has taken issue with the idea that OPM's bargaining power results in the best deal and most comprehensive benefits for employees. Postal officials are pushing for permission to leave FEHBP in favor of creating a USPS-run health benefits program.

Under the proposal, postal retirees would continue to receive health insurance benefits comparable to those offered by FEHBP at equal or lower cost, in addition to Medicare coverage. Active employees initially would be covered under a simplified plan with benefits similar in value and cost to FEHBP, though the agency eventually would shift to a private sector model. USPS would establish a separate program following private sector best practices to cover all new hires.

USPS Chief Human Resources Officer Anthony Vegliante argues that a USPS-specific program would address employees' unique needs more effectively than FEHBP-and save money for both the agency and enrollees. For example, transitioning to a separate postal benefits program would help the Postal Service cut pharmacy costs by using a systemwide drug benefits plan along with Medicare Part D. The program also would provide "menu choices," allowing participants to choose the benefits they need within a single plan, such as a self-plus-one option, he says.

"There are enough providers to get fair competition and leverage our size to get advantages we don't have in a multiemployer plan," Vegliante says. "It's not about taking benefits away. We believe we could offer more options."

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