Following are portions of a Congressional Research Service report examining the effects of recently enacted laws on the FEHB program and the potential effects of pending proposed legislation.
In 2010, Congress passed legislation that has an impact on FEHBP. The Patient Protection and Affordable Care Act (P.L. 111-148, PPACA, as amended by the Health Care and Education Act, P.L. 111-152) includes a number of provisions that require certain changes to be made to FEHBP plans or to employing agencies. Previously, the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5) included a number of provisions affecting FEHBP. Both of these laws are discussed below, along with a description of legislation now being considered by Congress.
The American Recovery and Reinvestment Act of 2009 and FEHBP
The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5) was signed into law on February 17, 2009, and subsequently amended several times. ARRA, as amended, includes a provision to provide temporary subsidies of COBRA premiums, and this provision also covers the Temporary Continuation of Coverage (TCC) program offered to federal employees. Under Title III of ARRA, a 65% subsidy is available for up to 15 months to those individuals who meet the income test and whose qualifying event for TCC coverage is based on involuntary termination occurring on or after September 1, 2008, through May 31, 2010. The premium subsidy is available for coverage beginning on or after the date of enactment of ARRA. The subsidy is available for up to 15 months but may end sooner if the TCC eligibility period ends or if the individual has access to other group health insurance. ARRA does not, however, modify the length of time that an individual may be covered under TCC. The full subsidy is available for individuals whose modified adjusted gross income (AGI) during the tax year is no more than $125,000 for single filers (or $250,000 for joint filers). The subsidy is phased out for higherincome individuals with a reduced subsidy for individuals with modified AGI less than $145,000 for single filers (and $290,000 for joint filers).
Health Reform Legislation and FEHBP
PPACA will not require many changes to the benefits of FEHBP, as current employment-based health plans are grandfathered. One new requirement is that unmarried adult children up to age 26 (and until 2014, those who are not offered coverage through their own employer) can remain/enroll on their parent’s plan. Beginning in 2014, Members of Congress and congressional staff may only enroll in health plans created under PPACA, or offered through an exchange.
Another PPACA requirement applicable to grandfathered plans involves the reporting of the ratio of incurred loss (or incurred claims) plus the loss adjustment expense (or change in contract reserves) to earned premiums, typically referred to as the medical loss ratio (MLR). Beginning not later than January 1, 2011, large group plans must provide an annual rebate to each enrollee on a pro rata basis if the ratio of the amount of premium revenue expended on clinical claims and health quality costs, after applicable adjustment (e.g., for taxes and regulatory fees), is less than 85%.This provision will likely have no meaningful impact on FEHBP carriers, because they exist in a competitive program where they are expected to keep premiums down and their profits are regulated and can be reduced for defective pricing or use of defective cost or pricing data. A simple analysis (total hospital and medical expenses divided by total revenues) with no adjustments further suggests that FEHBP carriers will not be affected by this standard, as they collectively had MLRs ranging from 93%-94% from 2006 to 2009.
PPACA also imposes some administrative requirements on employers, which affect federal agencies in their role as an employer. Employers will be required to file a return providing the name of each individual for whom they provide minimum essential coverage, the number of months of coverage, and any other information required by the Secretary. They will also be required to provide notice to employees about the existence of the exchange, including a description of the services provided by the exchange. PPACA also includes a number of provisions to raise revenues, which may have an impact on FEHBP plans.
The law imposes a 40% excise tax on health insurers and health plan administrators for coverage that exceeds certain thresholds, beginning in 2018. The thresholds are $10,200 for single coverage and $27,500 for family coverage, and would be indexed to inflation in subsequent years. Coverage for individuals who are retired and ages 55 to 64, and workers engaged in high-risk professions, will be subject to higher thresholds ($11,850 single and $30,950 families). Looking at just the health insurance FEHBP plan premiums for 2010 (even though the threshold is in effect in 2018), all plans are below the threshold. However, adding in dental and vision plan premiums, contributions to tax-advantaged accounts, and inflation in premium costs could result in the excise tax applying to at least some of FEHBP plans and tax-advantaged accounts. PPACA will also impose an annual fee on heath insurance plans based on their market share, which could affect most FEHBP carriers.
PPACA will lower maximum allowed annual contributions to an HCFSA under FEHBP from $5,000 to $2,500, beginning in 2011. This threshold would be indexed to inflation in subsequent years. Also, the statute modifies the definition of qualified medical expenses, which will affect FSAs, HSAs, and HRAs; the law does not allow over-the-counter medicines to be covered by these tax-advantaged account unless they are prescribed by a physician. In addition, the law raises the penalty from 10% to 20% for those under 65 who make a non-qualified withdrawal from an HSA.
PPACA also includes an option for health insurance coverage offered through an exchange to be overseen by the Director of OPM. The Director of OPM will enter into contracts with health insurance issuers (which may include a group of issuers affiliated either by common ownership and control or by common use of a nationally licensed service mark) to offer at least two multistate qualified health plans (MSQHPs) through each exchange in each state (without regard to statutes requiring competitive bidding). Such plans will provide individual or, in the case of small employers, group coverage.
While administering MSQHPs, the Director of OPM cannot reduce financial or personnel resources to the functions of OPM related to the administration of FEHBP. Enrollees in a MSQHP will be treated as a separate risk pool from FEHBP. The Director can establish separate units or offices within OPM, to ensure that the administration of MSQHPs does not interfere with the administration of FEHBP. The Director can appoint additional personnel to carry out activities under this section, but must ensure than the MSQHP program is separate from FEHBP. Finally, FEHBP plans are not required to offer a MSQHP.
Legislation Under Consideration
H.R. 4489, the FEHBP Prescription Drug Integrity, Transparency, and Cost Savings Act
On January 1, 2010, Congressman Stephen F. Lynch introduced in the House of Representatives H.R. 4489, the FEHBP Prescription Drug Integrity, Transparency, and Cost Savings Act (hereafter referred to simply as H.R. 4489). On March 24, 2010, the Subcommittee on Federal Workforce, Postal Service and the District of Columbia of the House Committee on Oversight and Government Reform held a mark-up session. The marked bill would seek to address the concerns of some stakeholders over quality, cost, and safety issues related to PBMs in FEHBP. H.R. 4489 would require that OPM only contract with insurance carriers that follow certain standards when using a PBM. In summary, these standards would include, among other requirements, the following for PBM arrangements:
No pharmaceutical drug manufacturer or retail pharmacy would have a controlling interest in the PBM, and a PBM would not have a controlling interest in a retail pharmacy.
A carrier that has a controlling interest in a PBM would not be permitted to earn a profit from such interest with respect to an FEHBP contract.
PBMs would be restricted from making prescription drug substitutions.
PBMs would be required to use “pass-through pricing” by paying a carrier at least 99% of the sum of all FEHBP related compensation that the PBM receives from a pharmaceutical drug manufacturer, such as market share incentives, rebates, and discounts and any other forms of compensation such as the sale of utilization and claims data.
PBMs would disclose to the carrier and OPM data, in a manner to be determined by OPM, related to the pass-through pricing of prescription drugs used by FEHBP enrollees.
PBMs would not charge the carrier more for a drug that is covered under the PBM carrier arrangement than the amount that the PBM reimburses a pharmacy which dispensed the drug.45 PBMs would disclose to the carrier and the OPM the methodology that the PBM uses to compute reimbursements to retail and mail order pharmacies that dispense the drug.
PBMs would be prohibited from charging a carrier a dispensing fee for mail order pharmacy that is greater than the amount the PBM charges other health plans outside of FEHBP.
Not later than 90 days after the date on which a pharmacy dispenses a prescription drug, the PBM would provide (by mail or electronically) to the enrollee an explanation of benefits statement that contains the date the claim, the name, strength, and quantity of the drug dispensed to the enrollee and the amounts paid to the pharmacy (by the PBM) and paid by the carrier (to the PBM) for the drug.
PBMs would not be permitted to require that a pharmacy participate in a pharmacy network managed by the PBM for an FEHBP carrier in order for the pharmacy to participate in another network managed by the PBM.
PBMs would be required to be transparent by providing to the OPM full access to information relating to contracts entered into by the PBM relating to corporatewide rebate receipts; methodologies used to calculate and allocate rebates between the PBM’s lines of business; information on average wholesale prices, wholesale acquisition costs, and maximum allowable costs; information on dispensing fees paid; and information and methodologies used to calculate additional administrative and service fees charged to the carrier.
H.R. 5200, the FEHBP Dependent Coverage Extension Act
On May 4, 2010, Congressman Van Hollen introduced H.R. 5200 in the House of Representatives. On May 11, Senator Cardin introduced the same bill in the Senate as S. 3341, both known as the FEHBP Dependent Coverage Extension Act. These bills would explicitly apply the dependent coverage requirements of PPACA to FEHBP plans. The FEHBP Dependent Coverage Extension Act would not change PPACA’s requirements for FEHBP plans to cover dependents up to age 26, but it would give the Director of OPM the authority to implement these provisions sooner than required by PPACA.
