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Insurers Battle Over Federal Employees’ Health Coverage

Two of the nation’s leading forces in health insurance — UnitedHealthcare and the Blue Cross and Blue Shield Association — faced off Thursday before Congress in a battle over control of the $47 billion program that covers 8 million federal employees, retirees and their families.

UnitedHealthcare wants to change a 1959 federal law that it says allows the nonprofit Blue Cross and Blue Shield plans to dominate the Federal Employees Health Benefits Program (FEHB).  Blues plans now cover almost two-thirds of the people in the program, often described as the nation’s best run employer-sponsored coverage because of its wide choice and efficiency.

The Obama administration backs efforts by UnitedHealthcare and other for-profit insurers to allow regional PPO-style health plans to compete to cover federal employees, saying that will help hold down costs and offer the types of plans more typical in the private market.  PPOs give members a wide choice of providers but require them to pay more if they go outside of a network.

But the Blues are fighting the change, saying there is already sufficient competition with 230 plans competing for enrollees. They say allowing regional PPO-type plans would undercut their national plans and increase cost for employees and the federal government. 

“Assuming all PPOs were offered on a regional basis, 54 percent of federal employees and retirees are likely to see their premiums increase,”  Bill Breskin, vice president for government programs at the Blue Cross and Blue Shield Association, said at the hearing before the House Oversight and Government Reform subcommittee on the federal workforce.

Tom Choate, chief growth officer for UnitedHealthcare, said the Blues’ “monopoly” of the program is stifling competition and innovation of insurance products.

“Much has changed since 1959. We’ve moved from typewriters to laptops; from rotary dial phones to smart phones; from 45s to iTunes,” Choate said at the hearing. “It’s time to update that 1959 law, so federal employees and the federal government can also benefit from innovation and competition in the health care marketplace.”

Republicans on the subcommittee said they wanted to increase competition but did not trust the Obama administration to ensure that the new plans won’t serve only low cost regions of the country.

“It is our duty to see how we can continue to save taxpayers’ hard earned dollars and provide the best coverage for our federal workforce,” said Rep. Blake Farenthold, R-Texas, chair of the House subcommittee.

UnitedHealthcare and the BCBS Association were the only two insurance groups testifying. Aetna and Humana also support changing the 1959 legislation.

Jacqueline Simon, public policy director of from the American Federation of Government Employees, one of the largest federal labor unions, said she was leery of adding the regional plans.

“This would have both winners and losers,” she said. A member survey found most like the stability of the Blue Cross plans and their large provider network, she said.

Jonathan Foley, director of planning and policy analysis at the U.S. Office of Personnel Management that runs FEHB, said his agency would make sure regional plans didn’t serve only the lowest cost markets.

He estimated that allowing the regional plans to compete would result in $260 million in cost savings over the next decade.

But BCBS’ Breskin, citing a recent study by consulting firm Avalere, said the move would result in $6 billion in higher costs for the federal government.

“We are all for competition and welcome more competitors, but it must be on a level playing field,” Alissa Fox, senior vice president of the Blue Cross and Blue Shield Association, said in an interview.

The outcome of the debate will impact current and former federal workers, who live in virtually every state.

A June 2012 Health Affairs article said that in areas of the country with multiple health plans competing, premiums were more than 10 percent lower compared to areas of low competition.

Blue Cross and Blue Shield plans have kept premium increases on their most popular FEHB plans to about 2 percent for the past two years, well under the national average, Breskin said.

The second largest plan by enrollment is the Government Employees Health Association, which covers 7 percent of FEHB members.

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