1 NARFE’s Tenth Biennial Legislative Conference March 3-6, 2007 Health Care Issues

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

3 Health Care Financing 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,  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 1990  Aetna 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 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 Cosponsors* 3 Finance Committee members (Rockefeller, Lott & Snowe. *As of March 20, 2007

11 So What’s New About... Premium Conversion in the 110 th Congress ( )?

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, or Program 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 D  Federal, state and local government  Private-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 GAO Study (Sen. Akaka): Large FEHBP plan with a lot of elderly would have had 3.5% to 4% lower premiums All 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 Articles Calls and Letter from NARFE Members Meetings 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 110 th 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 Issues QUESTIONS AND ANSWERS