AFSA Retiree Update -- February 26

AFSA Retiree Update -- April 3

From AFSA Retiree V.P. Bill Farrand for all active and retired members:

Summary: This is not a call to action, but AFSA does want to make you aware of an issue that could put Foreign Service retiree health benefits at risk. As explained in detail below, a recent Office of Personnel Management proposal could reduce prescription drug benefits for Medicare-eligible retirees. AFSA is concerned that this OPM proposal to change FEHBP benefits could be a first step in creating a separate federal health benefits system for Medicare-eligible retirees. Because of a recent Supreme Court action removing any legal impediment to prevent employers from reducing or eliminating health benefits for these retirees, such an OPM change could lead to negative impacts on Foreign Service retirees. AFSA will keep monitoring this and will oppose any changes that would harm our retirees. End of Summary.

Retiree Health Benefits at Risk

In a "call letter" sent March 11 to participating health plans, the Office of Personnel Management outlined its 2009 goals for the Federal Employee Health Benefit Program. The call letter signals the beginning of negotiations for 2009 between health plans and OPM, which administers the FEHBP.

OPM asked the health plans to submit proposals for a pilot program to enhance coordination between FEHBP and Medicare. It also asked the health plans to improve benefits for hard-of-hearing adults (professional services and hearing aids).

OPM explained that the pilot program would be a sub-option for Medicare-eligible enrollees within their existing plan options. Pilot programs would feature “Medicare wrap-around benefits” or “premium pass-through accounts”, so that a part of each retiree's FEHBP premium could be used to pay for Medicare B, C, or D premiums. Participation in the pilot program would be voluntary. Enrollees who opt for Medicare D coverage would continue to pay the same premiums as they did for their high, standard, or basic FEHBP options.

FEHBP health plans are now the primary insurers for prescription drugs; FEHBP enrollees bear the cost of “co-pays” and deductibles. The OPM proposal would designate Medicare D (the federal prescription drug coverage program) as the primary insurer of those participating in the pilot programs, and health carriers would become secondary, paying only the deductibles and co-pays.

According to one knowledgeable source, OPM expects the pilot program to enhance drug coverage for seniors while reducing the cost of prescription drug coverage for health carriers. We note, however, that at least one carrier has decided not to participate in the pilot program on the grounds that it would result in offering retirees a limited list of approved prescription drugs and require prior authorization. It should be emphasized that FEHBP carriers now provide benefits that are at least equal to or better than Medicare D and many provide significantly superior benefits.

The proposal - which has not been subjected to public scrutiny or detailed explanation - raises a number of questions.

First, how will FEHBP carriers and Medicare D plans negotiate differences in formularies (the list of drugs a plan will pay for), prior authorizations, the “doughnut” and other restrictions, both in practice and administratively?

Second, what are the financial implications of coordinating benefits? Who will pay the increasing costs for primary prescription drug insurance coverage - Medicare D carriers, the federal government or, ultimately, we the enrollees?

The Medicare Modernization and Improvement Act of 2003 is a cautionary tale. It created Medicare Advantage Plans (or private commercial alternatives to traditional Medicare) that combined Parts A, B, and C within the traditional Medicare system. These private carriers now receive government subsidies of about $1,000 per year per participant - a matter of growing controversy.

The Supreme Court has denied review of a lower court decision ruling that employers could reduce - or eliminate altogether - health benefits for Medicare-eligible retirees. Like NARFE (the National Association of Active and Retired Federal Employees), AFSA is wary of the OPM proposal because it could open the door to establishing a separate FEHBP plan - with lesser benefits and higher premiums costs - based either on age or Medicare eligibility.

Before any pilot project is implemented, the OPM proposal must be subjected to open explanation and public discussion of its effect on federal retiree health benefits. FEHBP is the gold standard for health benefits, including drug prescription coverage. Any OPM initiative that would reduce benefits for retirees only would be unacceptable to AFSA. We will keep you posted.

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