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November 12, 2009


The House of Representatives considered and passed the House Leadership bill H.R. 3962, the Affordable Health Care for America Act, on November 7, 2009.  NARFE’s evaluation of this legislation and all other health care reform legislation is guided by the following key planks in our Legislative Program for the 111th Congress (2009-2010):
•    “NARFE supports access to comprehensive health care for all Americans.”
•    “NARFE supports protecting the nation’s most efficiently administered and cost-effective employer-sponsored health insurance program, the Federal Employees Health Benefits Program (FEHBP), for federal employees and annuitants.”
•    “NARFE opposes broadening participation in the FEHBP, unless separate risk pools are created.”

While NARFE continues not to endorse any of the bills in either the House or Senate at this time, we have taken positions on specific parts of this legislation.  For example, of particular concern are proposals made during the Senate Finance Committee consideration of S. 1796 that would have required FEHBP participants to go into the new Health Insurance Exchanges or permitted non-federal civilian employees to enter the FEHBP system.  Although H.R. 3962 contains neither proposal, NARFE remains concerned that they could be added to this legislation at another point during congressional consideration of the bills.  For that reason, we continue to ask NARFE members to use our Legislative Action Center to urge their lawmakers to oppose such amendments.

We have not supported any specific bill because it could limit our ability to effect change in the outcome of any final measure.  NARFE remains concerned about provisions that would threaten the integrity of FEHBP.   We believe this concern is well founded, as evidenced by consideration of an amendment by Sen. Charles Grassley, R-IA, that initially would have effectively eliminated the FEHBP in any final bill.

Under H.R. 3962, federal employees and annuitants would be able to keep the insurance in the system they have now.  However, FEHBP is an employer plan, and like other employer plans, FEHBP utilizes private insurance and private doctors and hospitals to deliver health care to its enrollees.   Much of the health insurance reform bills are focused around (1) new regulation of the private insurance market (see below for further explanation), (2) providing subsidies to those lower income individuals who now must carry insurance and (3) cost savings from doctors, hospitals, pharmaceutical companies and other health providers.  If private insurance plans and providers make changes in the way they operate due to health insurance reform, FEHBP, as a part of the total health care system, will be a part of that environment too.   However, nothing in the bill specifically impacts FEHBP.  FEHBP is considered an “employer plan” for purposes of H.R. 3962.   

Health care reform could have a positive affect on FEHBP if overall health care costs are contained and such efficiencies and savings help to lower the double digit FEHBP premium increases that have become commonplace during the last decade.  Indeed, in 2010 alone, Blue Cross/Blue Shield Standard option premiums will jump by 12.4 percent for family plans and 15.1 percent for self-only coverage.   Absent cost containment, such rate hikes in FEHBP are unsustainable for both enrollees and the government/employer.

New Regulation of the Private Insurance Market

FEHBP and other public and private employer sponsored health insurance programs would be subject to several insurance reforms under H.R. 3962.  However, for the most part, FEHBP plans currently comply with the proposed requirements.  For example, the bill contains the following reforms that would be effective on the date of enactment or soon after:
•    Insurance carriers could not rescind coverage, except in instances of fraud.
•    Insurance carrier justifications for increasing premiums must be transparent.
•    Health plans would be required to cover dependent children until age 27 (part of the NARFE legislative program).
•    Employers would be prohibited from reducing retiree health benefits below what was offered to retirees at the time of their retirement unless reductions are also made to active workers’ health benefits (part of the NARFE legislative program).
•    Limitations would be placed on the use of pre-existing condition exclusions.
•    Lifetime aggregate limits on health insurance spending per enrollee would be eliminated.
•    Former employees would be permitted to remain in their “COBRA” policy until the Health Insurance Exchanges are created or they obtain acceptable coverage.  (The 1986 COBRA law allows former employees to continue their coverage under an employer-sponsored health insurance plan up to 18 months after their departure and if they pay 102 percent of the cost of their premiums.)

In 2018, employer-sponsored plans like FEHBP would be required by H.R. 3962 to:
•    Have an “essential benefits package” (see Health Benefits Advisory Committee below),
•    Guarantee issue (no one can be denied health insurance, particularly for individuals with pre-existing conditions) and renewal of insurance policies and cease the use of rescissions except in instances of fraud,
•    Limit age rating to a ratio of 2 to 1,
•    Be in compliance with mental health and substance use disorder parity and genetic nondiscrimination laws,
•    Ensure adequacy of provider networks,
•    Provide at least 90 days notice in advance of any increase or decrease in coverage,
•    Offer preventive services and treatments with no additional co-payments or coinsurance, and
•    Comply with a federally mandated coverage appeals process (see Health Benefits Advisory Committee below).

With exception of provisions that would require preventive service coverage with no enrollee cost sharing and coverage of dependents until age 27, FEHBP plans currently, or are likely to, meet the requirements that would be applied to all employer-sponsored health insurance.  

Preventive services coverage without cost sharing and extending coverage to dependent children until age 27 could result in a premium increase.  However, there is debate among health care economists on whether preventive services lower or increase health care costs.

Health Benefits Advisory Committee

Under the House bill, the Department of Health and Human Services’ (HHS) Health Benefits Advisory Committee, a group of up to 27, more than half of whom would be appointed by the President and led by the Surgeon General, would recommend what coverage should be provided in the essential benefits package and which preventive services and treatments enrollees would be offered without paying co-payments or co-insurance. They would also establish a uniform coverage appeals process.  In consultation with the Advisory Committee’s recommendations, the HHS Secretary would make the final decisions on standard benefits and the appeals process.

The essential benefits package would only affect FEHBP if it includes coverage not currently offered by the federal employees program.  That is unlikely to happen since most FEHBP plans offer comprehensive benefits.  Like the law which authorizes the FEHBP, the House bill requires that the essential benefits package contain broad categories of benefits, including hospitalization, outpatient care, prescription drugs, rehabilitative services, mental health and substance use services, maternity and well baby care. If the essential benefits package were to exceed current FEHBP coverage, insurance carriers could raise premiums and/or increase enrollee cost sharing.

Since 1977, FEHBP has had a disputed claims process which ensures an independent review of disputes between participating insurance carriers and enrollees.  A federally mandated process would only affect FEHBP if its consumer protections were greater or less than those practiced by the federal employee program.  NARFE would prefer retaining the existing appeals process or enhancing it.

Employer Mandate

With the exception of small businesses (firms with total payrolls of $500,000 or less), employers would be required by H.R. 3962 to either provide their workers with health insurance or contribute to a fund that would help finance coverage for the uninsured through the “Health Insurance Exchange” system (described below).  The effect of this requirement on the federal government should be minimal since nearly all federal employees, retirees and survivors are eligible to enroll in FEHBP.  However, some temporary and seasonal federal workers are not currently eligible, and as a result, their agency may either be forced to insure them or pay into the Health Insurance Exchange Fund.  

Individual Mandate

Under the House bill, all individuals would be required to have “acceptable health coverage” or pay a penalty of 2.5 percent of their adjusted income above the filing threshold up to the cost of the average national premium for self-only or family coverage under a basic plan in the Health Insurance Exchange.  Exceptions would be granted for dependents, religious objections and financial hardships.  Federal workers or retirees who choose not to enroll in FEHBP, a spouse’s employer-sponsored plan, Medicare, TRICARE, veterans health care or some other form of coverage would pay a penalty.

Workers and retirees sometimes decline FEHBP enrollment because they cannot afford to pay their share of premiums.  Beginning in 2014, H.R. 3962 addresses this problem by allowing individuals who pay 12 percent or more of their income on employer-sponsored health premiums to enter the Health Insurance Exchange program.  In addition, they would be eligible to obtain income-based “affordability credit” to help pay for premiums for plans offered by the exchange, but not in FEHBP.  

Federal workers under age 65 and who earn up to 150 percent of the federal poverty level ($33,075 in 2009) would be eligible for Medicaid (see Medicaid below).

Health Insurance Exchange System

H.R. 3962 would create a “National Health Insurance Exchange” to provide a central location in which individuals and small employers could purchase health benefits, either private health insurance or coverage through a public option.  In addition, states would be allowed to operate state-based exchanges if they demonstrate the capacity to meet the requirements for administering the exchange. In 2013 and thereafter, only those workers or retirees who spend 12 percent or more of their income on health plan premiums would be eligible to participate in the exchange program (described above in the “Individual Mandate” section).  Persons with income at or below 400 percent of the federal poverty level ($73,240 for a family of three in 2009) would be eligible for an income-based sliding scale affordability credit, which would pay part of the premium for a basic private or public health plan offered by the exchange.

Although H.R. 3962 would not require federal workers and annuitants to join an exchange system in lieu of FEHBP, members of Congress would have the option of joining.  In the Senate, Sen. Grassley offered an amendment during the Senate Finance Committee mark up of S. 1796 in September to mandate that members of Congress, congressional staff and other federal employees enroll in the exchange.  NARFE opposed this amendment.  The committee later accepted a weakened version of the Grassley measure, which would only impose the mandate on lawmakers and their staff and not on other federal workers.

Revenue Provisions

H.R. 3962 would raise an estimated $460.5 billion over 10 years by imposing a tax surcharge on those with adjusted gross incomes of more than $500,000 for an individual or $1 million for a joint return. The bill would not index those dollar amounts for inflation, meaning that the surtax would apply to more taxpayers as inflation affects income levels.

The surcharge would be 5.4 percent of the portion of gross income that exceeds the $500,000 and $1 million amounts, and would apply to tax years that begin after December 31, 2010.

Contributions to flexible spending accounts (FSAs) would be limited to $2,500 per year, indexed to inflation, to raise $13.3 billion over 10 years.  FSAs would no longer reimburse for over-the-counter medical purchases, except with a physician’s consent.

The penalty for non-health related distributions for health savings accounts would be increased from 10 percent to 20 percent, raising $1.3 billion over 10 years.

Unlike the Senate bill, H.R. 3962 does not assess a tax surcharge on insurance carriers that offer health plans with premiums over $21,000 for families and $7,000 for individuals.


H.R. 3962 is projected to result in a net reduction of Medicare expenditures by $451 billion over 10 years.  Most of the cost savings are achieved by slowing the growth in payments to Medicare providers.  In other words, provider payments are not cut, but the rate at which they increase every year would be reduced.

However, the bill would target specific providers for an increase in their reimbursement.  Starting in 2011, primary care practitioners would receive a 5 percent bonus and an additional 5 percent bonus for those practicing in an underserved area.  Additional payments would be offered to rural health care providers and facilities to protect rural access.

The congressional leadership also addresses provider payments by attempting to pass separate legislation (S. 1776/H.R. 3961), supported by the American Medical Association, that would eliminate the Medicare cost-control formula governing payments to physicians, known as the Sustainable Growth Rate, and replace it with updates based on inflation.   The House will consider H.R. 3961 the week of November 16.

Although most doctors and hospitals are compelled to accept Medicare reimbursement because the programs control a huge share of all health care spending, there is some debate as to whether payment reform could encourage some medical providers to stop participating in Medicare.

Even when providers do not accept Medicare, the program, when combined with FEHBP coverage, will reimburse enrollees for physician and hospital costs.  When providers don’t accept Medicare, beneficiaries have to pay their bills up front, which can be unaffordable for many retirees and survivors who cannot wait for Medicare and their FEHBP plan to reimburse them.

In addition, cost savings are achieved by reductions to payments to private Medicare Advantage (MA) plans.  Proponents of the traditional, public fee-for-service Medicare program, including NARFE, believe the overly generous Medicare Advantage reimbursement payments threaten the fiscal future of the entire program. Recent studies have shown that Medicare Advantage plans are paid more than the average traditional-fee-for-service Medicare plan in their area.

Most federal annuitants enroll in traditional Medicare because the program’s coverage coordinates better with FEHBP benefits than Medicare Advantage.

While H.R. 3962’s net reduction of Medicare expenditures by $451 billion over 10 years is significant, it should be put into perspective by comparing this amount to how cost savings were achieved in other laws enacted during the past several years.  For example, a net reduction of $394 billion over 10 years (or a 12 percent cut in Medicare baseline spending) was made to Medicare in the Balanced Budget Act of 1997 (BBA 1997).  After the legislation became law, there were no documented quality problems with Medicare and the solvency of the Medicare “Part A” hospital insurance trust fund was extended by seven years.  In fact, the reductions saved so much that Congress reversed some of them in 1999 and 2000.

Although H.R. 3962’s net reduction in Medicare spending is higher ($451 billion) in absolute dollar amounts than the Balanced Budget Act of 1997 ($394 billion),  H.R. 3962 would cut Medicare baseline spending (what would have been otherwise spent) by 6.3 percent while the BBA 1997 cut Medicare baseline spending by 12 percent.   H.R. 3962 is expected to extend the solvency of the Part A trust fund.
NARFE supports a provision in the House bill that would end the “donut hole” in Medicare Part D prescription drug coverage, beginning with a $500 reduction in 2011, and completing the phase-out by 2019.  In 2009, once Part D beneficiaries pay more than $2,700 in total annual drug costs, they are in the “donut hole” (a gap in coverage) and must pay 100 percent out-of-pocket for the cost of prescription drugs until their total out-of-pocket costs reach $4,350.

Under FEHBP coverage, federal annuitants simply pay co-payments and/or coinsurance for prescription drug coverage, which is more generous than Part D.  For that reason, the vast majority of retirees and survivors do not enroll in Medicare Part D.


The House would expand eligibility in Medicaid to cover millions of low-income people who do not qualify under current law and either do not have access to private insurance or cannot afford it.  Medicaid is funded by the federal and state governments, which pay for medical and long-term care for low-income individuals and families.  Effective January 1, 2013, H.R. 3962 would make all individuals under age 65 (children, pregnant women, parents and adults without dependent children) eligible for Medicaid if they earn up to 150 percent of the federal poverty level, or $33,075 in 2009.  The coverage expansions would be financed with 100 percent federal financing through 2014 and 91 percent federal financing beginning in year 2015.

Stay Up-To-Date on Health Care Reform Legislation

The Legislative Department continues to closely examine any and all comprehensive health care proposals as the legislative process continues.  NARFE members will continue to be updated through the NARFE magazine, the Legislative Hotline and Action Requests.  We encourage members with e-mail access to join the Rapid Response Team.  By e-mailing and joining the program, members receive our weekly Legislative Hotline (when Congress is in session), but more importantly, any urgent action requests.  Legislation changes quickly on Capitol Hill so NARFE’s ability to quickly engage our grass-roots is a powerful tool to protect earned benefits.

If you have further questions regarding comprehensive health care reform or the process, please contact the Legislative Department at 703-838-7760 or

National Active and Retired Federal Employees Association
NARFE (National Active and Retired Federal Employees Association)
606 N. Washington St., Alexandria, VA 22314, Phone: (703) 838-7760, Fax: (703) 838-7785.

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