Insurance demo project spurs lawsuit

The major health insurance company in the Federal Employee Health Benefit Plan is suing the Office of Personnel Management over regulations issued to initiate a demonstration project to allow some military retirees into the program.

Blue Cross and Blue Shield Association said the regulations illegally permit OPM to use the FEHBP administrative reserve fund to cover losses that carriers may incur from coverage of demonstration project enrollees. This fund is financed by a surcharge that is imposed on the premiums carriers charge and is used to pay OPM's costs of administering the insurance program, including salaries and informational material.

By using this fund to cover carriers' losses associated with this demonstration project, OPM is in effect using money provided by FEHBP carriers to finance something quite different than covering its administrative costs. According to the lawsuit, the law prohibits such use of the fund.Carriers undoubtedly will suffer losses because their premium structures do not reflect the anticipated use of benefits by this group. How could they? Carriers don't have a clue as to this group's rate of benefit utilization.

The demonstration project, authorized by the 1999 Defense authorization bill, allows up to 66,000 Medicare-eligible military retirees into the FEHBP. The project is scheduled to run from Jan. 1, 2000, to Dec. 31, 2002.

Blue Cross and Blue Shield is concerned that if the program does sustain losses, the administrative reserve will be depleted, and the carriers will have to cough up more money to replenish the reserve.The company also does not like the timing of OPM's regulatory actions. Although the president signed the law authorizing the demonstration project in October 1998, OPM did not issue regulations right away. Instead, agency officials waited until July 6 - a month before FEHBP rates were to be finalized for the annual open season. OPM made the regulations effective immediately because the 66,000 Medicare-eligible military retirees participating in the demonstration project will participate in the fall 1999 open season, and their coverage will begin in 2000. Blue Cross and Blue Shield said the regulations were issued in a "procedurally defective manner."

A spokesperson for Blue Cross and Blue Shield said the lawsuit is aimed at the precedent of using the administrative reserve to cover carrier losses rather than against the demonstration project itself, which is small and would not have a huge impact on the fund.

This is another example of how Congress mandates certain actions without providing funding for them. This has been a pet peeve of the business community for a long time, and it is legitimate. Any legislation Congress passes should be accompanied by the funding required to implement it. Of course, members of Congress do not like to do that because that would force them to identify a funding source for projects, which would probably mean a tax hike of some kind. That does not play well in Peoria, so Congress blithely ignores funding and lets those it has imposed its will upon worry about the financial details.

Moreover, what is this project going to demonstrate that we do not already know? Letting military retirees into the FEHBP does not make much sense unless Congress wants to cancel the health benefits program currently open to the military. If there is something wrong with it, why doesn't Congress just fix it? Why tamper with the FEHBP?

It is a foregone conclusion that the retired military participants will use benefits at a greater rate than younger active employees will. Will they use benefits at a greater rate than their civilian counterparts? Who knows? Who cares? The premium structure for the FEHBP is being tampered with, and you can bet your bottom dollar that federal workers will not benefit from this "demonstration." The more elderly participants you allow into the FEHBP, the greater the cost burden on everyone.

"Demonstration" is a good word to describe this project. It demonstrates that Congress passes unwise legislation and mandates requirements without funding them. If Blue Cross and Blue Shield wins its suit, OPM will not have any money to finance this program, so it will not be able to implement it. That will toss the problem right back into Congress' lap, where it belongs. Maybe Congress will rethink this legislation. It won't be the first time legislation was shelved because there was no money to implement it.

--Bureaucratus is a retired federal employee who contributes regularly to Federal Computer Week.

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