MEDICARE CATASTROPHIC LOSS PREVENTION LEGISLATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90M00005R000100160025-2
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 11
• Document Creation Date: December 27, 2016
• Document Release Date: May 28, 2013
• Sequence Number: 25
• Publication Date: January 19, 1988
• Content Type: MEMO

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OCA 0319-88
DENIS F. GORDON
JAMES R.. BARNETT
FRANK PETRAMALO, JR.
DAVID M. ERMER
BRAD W. SPENCER
ANNE E. SEGREST ?
?Admiued only in Louisiana
LAW OFFICES
GORDON 8 BARNETT
Two LAFAYETTE CENTRE
1133 21ST STREET, N. W.
SUITE 450
WASHINGTON, D.C. 20036
[phone]
V
MEMORANDUM
January 19, 1988
TO: Board of Directors of the
Association of Federal Health Organizations
?? FROM:
Gordon & Barnett
MARILYN S. ERMER
Of Counsel
'Also admitted in Maryland
RE: Medicare Catastrophic Loss Prevention Legislation
We have attached for your review and comment our draft
letter to Senator David Pryor relating to the Association's
position on the Medicare catastrophic loss prevention
legislation, H.R. 2470. Should you have any comments or
suggestions regarding this letter, please contact David Ermer no
later than the close of business on Thursday, January 21, 1988.
Unless you object, we plan to circulate the final version of this
rettei- to the Conferees and Mr. Ed Gleiman on Friday, January 22,
1988.
We also have enclosed for your information a copy of the
General Accounting Office's latest report on this legislation.
Thank you for your attention to this matter.
G&B:cpm
Enclosures
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DME:cpm AFHO 5/43
January 19, 1988
Honorable David Pryor
United States Senator
Chairman, Subcommittee on Federal Services,
Post Office and Civil Service of the
Senate Committee on Government Affairs
SR-264 Russell Senate Office Building
; Washington, D.C. 20510-0402
Dear Senator Pryor:
The Association of Federal Health Organizations ("AFHO")
appreciates this opportunity to supplement the record of the
September 23, 1987, hearing which the Subcommittee on Federal
Services, Post Officeand Civil Service held regarding the impact
of the Medicare catastrophic loss prevention legislation, H.R.
4
2470, on federal annuitants. AFHO is a non-profit association of
organizations which are carriers of Federal Employees Health
Benefit ("FEHB") plans. AFHO's current membership consists of 12
employee organization carriers of FEHB plans and a national
association representing approximately 140 health maintenance
organizations providing health care to federal employees and
annuitants. In combination, AFHO's constituent organizations
provide FEHB coverage to more than 3,000,000 federal employees
and annuitants and their families, accounting for approximately
25 percent of all persons covered by FEHB plans.
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AFHO and its member organizations have been monitoring
carefully the course the Medicare catastrophic loss prevention
legislation as i winds ts way through Congress. H.R. 2470 as
it passed the House on July 22, 1987, mandates that all Medicare
participants accept and pay for catastrophic loss prevention
coverage which principally would cap out-of-pocket expenses for
Medicare covered services at approximately $1,800.00 annually and
would cover 80% of prescription drug expenses over $500.00
annually. This additional coverage is to be financed by the
Medicare beneficiaries themselves through an income based
Medicare Part A premium and a supplemental, flat rate Medicare
Part B premium.
A number of Senators and Representatives, as well as
federal employees organizations and unions, and this Association,
-recognized that such mandatory coverage would have a significant
adverse impact on Medicare eligible federal annuitants for the
following reasons:
1. Federal annuitants would have to pay more than
their private sector counterparts for such
Medicare coverage because the Medicare Part A
catastrophic illness premium is tied to
taxable income, and federal annuities, unlike
Social Security payments, are fully taxed
after employee contributions to the Civil
Service retirement program have been exhausted
in benefit payments.
2. Federal annuitants already have and pay for
adequate catastrophic illness coverage under
their FEHB plans.
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These concerns were aired both before your Subcommittee at the
September 23, 1987, hearing and before Congressman Ackerman's
Subcommittee on Compensation and Employee Benefits of the House
Committee on Post Office and Civil Service at a hearing, held on
October 7, 1987.
When the Medicare catastrophic loss prevention
legislation reached the Senate floor in late October, two floor
amendments to S. 1127 (later redesignated H.R. 2470) were adopted
for the purpose of remedying these federal annuitants' problems.
The Pryor-Domenici-Chiles amendment (No. 1049) (discussed at 133
Cong. Rec. S 15132-38 (Oct. 27, 1987)) altered the basis for
calculating the Medicare Part A catastrophic protection premium
so as to eliminate the disparity between premiums charged to
federal and private sector retirees. The-Stevens-Pryor amendment
(No. 1050) (discussed at id., pp. S, 15138-40) directs the U.S.
Office of Personnel Management ("OPM") to study and report to
Congress no later than April 1 on a legislative plan for
offering so-called Medigap plans in the FEHB program.
Furthermore, the Stevens-Pryor amendment mandates a "flat"
premium reduction "figured program-wide" for FEHB plan members
with primary Medicare coverage (id., p. S 15, 139 (remarks of
Sen. Stevens)) based on "the estimated cost of medical services
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and supplies which but for the [new Medicare] catastrophic
coverage benefits . . . would have been payable by such [FEHB]
plans" (Amendment No. 1050, Section 21(a)(1)).
A related -- and with respect to the FEHB program
evidently redundant -- amendment to the Senate bill (No. 1043)
(discussed at 133 Cong. Rec. S 15,022-23 (October 23, 1987))
requires all employers including the Federal Government to return
to their Medicare eligible retirees, through refunds or
additional benefits, any cost savings that accrue to them through
duplication of Medicare and employer-sponsored catastrophic loss
prevention benefits. This amendment, which Senators Riegle and
Grassley introduced, provides in pertinent part, that
? . if an employer provides health care benefits
to an employee or retired former employee
(including a federal employee or retired former
employee) that are ddplicative of new or improved
health care benefits provided under this Act or the
amendments made by this Act, the employer shall --
(1) provide additional benefits to the
employee or retired former employee that are at
least equal in value to the duplicative benefits;
or
(2) refund to the employee or retired former
employee an amount equal to the actuarial present
value of the duplicative benefits.
r\A
AFHO doesAomprehend the insistence on coercing federal
annuitants to accept and pay for catastrophic illness coverage
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which they already have under their FEHB plans. Under both the
Senate and House bills, Medicare catastrophic illness coverage
would cap out-of-pocket expenses for Medicare covered charges at
approximately $1,800 annually and would offer some form of
prescription drug benefit with a large annual deductible. A
recent General Accounting Office report entitled "Medicare
Comparison of Catastrophic Health Insurance Proposals -- An
Update," pp. 3-4 (HRD-88-19BR, Oct. 16, 1987) warns that
Medigap policies primarily cover only the
deductibles and coinsurance for Medicare-
coyered services rather than expand coverage
to other services; therefore, neither they nor
S. 1127 would relieve the elderly from out-of-
pocket costs for services not covered by
Medicare. H.R. 2470 would provide some relief
through the added coverage of prescription
drugs and in-home personal care.
And finally, according to the Bowen report,
for the estimated 7 million beneficiaries who
incurred from $2,000 to $4,999 in
out-of-pocket costs for Medicare-covered
services in 1983, 32.4 percent of those costs
4 were for physician charges above the
Medicare-approved rate. Similarly, for the
estimated 1 million beneficiaries incurring
$5,000 or more in out-of-pocket costs for
Medicare-covered services, 21.9 percent of
?those costs were for physician charges above
the Medicare-approved rate. Because of
increases in the percentage of physicians
accepting the Medicare determination of
reasonable charges as payment in full, these
percentages of out-of-pocket costs probably
have decreased somewhat since 1983. Neither
S. 1127 nor H.R. 2470 would relieve Medicare
beneficiaries of these charges in excess of
Medicare-approved rates by physicians not
accepting the Medicare-determined reasonable
charge. Although the majority of Medicare
beneficiaries have Medigap policies to pay the
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coinsurance for part B services, Medigap
policies generally will not pay for charges
above the Medicare-approved rate.
Contrast this comparatively anemic "catastrophic loss .
prevention" coverage with that currently available to federal
annuitants with Medicare and FEHB plan coverage. Because FEHB
plans generally waive their deductibles and co-payments for
Medicare covered expenses, such annuitants have 100% coverage of
those expenses. They are not at risk for $1, let alone $1,800,
of acute care medical expenses. Moreover, FEHB plans, unlike
Medigap policies, generally offer coverage of significant acute
care and long-term expenses which Medicare does not cover such as
prescription drugs, dental care, and private duty nursing care.
Indeed, all AFHO member sponsored FEHB plans cover these
expenses.1/ Furthermore, FEHB prescription drug benefits
generally have no deductible and/or only a very modest co-payment
-- especially those plans offering maintenance-type prescription
4
drugs which most often are used by annuitants. Finally, FEHB
plans, again unlike Medigap policies, generally cover physicians:
charges in excess of the Medicare approved amount, provided, of
course that such charges do not exceed the plan's reasonable and
customary fee levels.
1/ Admittedly few, if any, group health insurance plans
adequately shelter their members from nursing home costs. FEHB
plans are no exception. Nevertheless, FEHB plans generally do
provide significant coverage of home health care expenses, such
as private duty nursing care.
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Notwithstanding the adequacy of this current
arrangement, the House bill would force all Medicare
beneficiaries, including federal annuitants, to pay for
overlapping Medicare catastrophic illness coverage. The Senate
bill would permit federal annuitants and other Medicare
beneficiaries to opt out of such coverage but only by declining
Medicare Part B coverage. The Senate bill also attempts to make
this Hobson's choice more palatable by temporarily reducing FEHB
plan rates for federal annuitants (Stevens-Pryor amendment) or by
giving them either premium rebates or additional benefits for one
year (Riegle-Grassley amendment).
The Stevens-Pryor and Riegle-Grassley amendments
although well intentioned are infeasible for OPM and FEHB plans
to administer and simply unfair to federal
benelit increase/premium reduction/premiuri
amendments mandate wrongly presume that it
estimate the cost of Medicare services and
annuitants. The
rebate which these
is possible to
supplies which, but
for the new Medicare catastrophic illness benefits, would have
been payable under these plans. FEHB plans simply do not keep
the statistics necessary to make such calculations. Moreover, no
crystal ball exists which accurately can predict how many federal
annuitants will drop Medicare Part B coverage if the Senate
version of H.R. 2470 is adopted.
Neither the Stevens-Pryor nor Riegle-Grassley amendments
will prevent the cost burden of catastrophic loss prevention
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coverage from being shifted from the federal government to
federal annuitants. Currently, federal annuitants contribute an
amount sufficient to cover between 25% and 40% of the premium of
FEHB plan which they select,1/ and postal annuitants contribute'
less than 10% of such cost. In contrast Medicare beneficiaries
are expected to cover the entire cost of their new Medicare
catastrophic illness coverage. See GAO Report, supra, pp. 42-44.
Indeed, the Administration supports the Senate version of S. 1127
principally because it is self-financing. See "President could
sign Senate Version of Catastrophic Care Bill, Bowen Says," 14
Pen. Rptr. (BNA) 1582 (Dec. 7, 1987). In short, even assuming
for the sake of argument that FEHB plans accurately can prepare
the estimates necessary to make the premium reduction or rebates
called for by the Senate bill, federal annuitants will end up
paying for the federal government's current share of the cost for
providing them with catastrophic illness coverage./ .
1/ The statement that a 40/60 split between employees and the
government contribution toward FEHB plan premiums is an
oversimplification. Under 5 U.S.C. { 8906, the Government
contribution is equal to 60% of the average premium charged for
the high option of the so-called Big Six plans or 75% of the
plan's premium rate whichever is less. Thus, in low cost plans,
the government contribution is closer to 75% of the plan's
premium.
2/ In this regard, it must be understood that the Government and
employee or annuitant necessarily must share any premium
reductions or rebates on a pro rata basis.
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All of these problems may be avoided simply if Congress
would permit federal employees to opt out of Medicare
catastrophic illness coverage without penalty. If federal
annuitants are not so exempted, they may very well be forced tip
drop their FEHB plan coverage because of the additional costs
involved. This indeed would have catastrophic consequences for
federal annuitants because as previously discussed FEHB plans
cover significant expenses which Medicare does not cover. Health
,e insurance issues already are sufficiently complicated for all
senior citizens. It simply is not necessary or desirable to
complicate such matters unnecessarily for federal annuitants.
In sum, successful analysis of this issue can be
accomplished only if the catastrophic illness coverage issue is
not confused with the more general issue of coordinating Medicare
-and--FEHB benefits. The Stevens-Pryor amehdment requires that OPM
study and report to Congress on the issue of creating within the
FEHB program Medigap plans that comply with the National
Association of Insurance Commissioners guidelines regulating such
plans. This requirement stems from a concern expressed by
certain organizations that federal annuitants with Medicare
coverage may be subsidizing costs for other Plan members.
Although AFRO has no objection to such a study, Congress must
understand that FEHB plans provide insurance benefits on a group
basis, and that cost sharing is the very essence of group
insurance. Under the FEHB program, federal employees pay either
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the rate for self only coverage or self and family coverage.
Thus, healthy plan members who submit low dollar or no claims
subsidize the cost of insurance for ailing plan members who
submit high dollar claims. Establishing different rates for
Medicare eligible persons eventually will lead to the
establishment of different rates for other classes of persons.
Congress thus must realize that such changes will impact most
harshly on federal annuitants without Medicare coverage.
AFHO therefore urges Congress to permit federal
annuitants to exempt themselves from the proposed Medicare
catastrophic illness coverage without penalty at least until
#
Congress receives and acts on the OPM study on creating Medigap
plans within the FEHB program. Should Congress decline to adopt
AFHO's position, then, at the very least, it should exempt the
federal government from the Riegle-Grassley amendments. It
simply is illogical to subject the FEHB program to the
conflicting requirements of the Stevens-Pryor and Riegle-Grassley
amendments.
AFHO appreciates this opportunity to express its vies on
this important matter.
Respectfully yours,
Thomas J. Feeney, Jr.
Chairman
TJF:cpm
Enclosures
cc: All AFHO Board Members
Gordon and Barnett, AFHO Counsel
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