GOVERNMENT EMPLOYEES HEALTH BEBEFITS PROGRAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP61-00357R000300030003-0
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 34
• Document Creation Date: December 15, 2016
• Document Release Date: January 14, 2004
• Sequence Number: 3
• Publication Date: August 20, 1959
• Content Type: REGULATION

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-86TH CONGRESS HOUSE OF REPRESENTATIVES 5 REPORT
1st Session No. 957
GOVERNMENT EMPLOYEES HEALTH BENEFITS
PROGRAM
.AuousT 20, 1959.-Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
Mr. MuRRAY, from the Committee on Post Office and Civil Service;
submitted the following
REPORT
[To accompany S. 2162]
The Committee on Post Office and Civil Service, to whom was re-
ferred the bill (S. 2162) to provide a health benefits program for Gov
ernment employees, having considered the same, report favorably
thereon with an amendment and recommend that the bill as amended
,do pass.
AMENDMENT
The amendment proposed by the committee to S. 2162 strikes out
all after the enacting clause and inserts in lieu thereof a substitute
text which appears in italic type in S. 2162, as reported by the coin-
mittee of the House. A discussion of the effect of this proposed
amendment is contained in the explanation of the bill, as reported.
PURPOSE
The general purpose of this legislation is to facilitate and strengthen
the administration of the activities of the Government generally
and to improve personnel administration in the Government by pro-
viding a measure of protection for civilian Government employees
against the high, unbudgetable, and, therefore, financially burdensome
costs of medical services through a comprehensive Government-wide
program of insurance for Federal employees and their dependents,
the costs of which will be shared by the Government, as employer,
and its employees.
At the present time, a wide gap exists between the Government, in
its capacity of employer, and employers in private enterprise, with
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respect to health benefits for employees. Enlightened, progressive
private enterprise almost universally has beenestablishing and operat-
ing contributory health benefit programs for its employees. Until
now, the Government has made scant progress in this area.
This bill is designed to close the gap which now exists and bring
the Government abreast of most private employers. It will enable
Government employees to purchase protection, at- a cost which is
within their means, from the unanticipated and usually oppressive
costs of medical care and treatment in the event of sickness or injury,
as well as the often crushing expense of so-called catastrophic illness or
serious injury. Availability of this health protection program` to
Government employees will be of material assistance in improving the
competitive position of the Government with respect to private enter-
prise in the recruitment and retention of competent civilian personnel
so urgently needed to assist in maintaining and improving our strong
national defense and in the operation of other essential Government
programs.
The addition of the health insurance program provided by the bill
to the existing fringe benefits package for Government employees-
which currently includes retirement and survivor annuities, group life
insurance, annual and sick leave, compensation for job-connected
injury or death, and other benefits-will fill a long, keenly felt need
and will place the Government on a substantially equal level with
progressive industry in respect to employee fringe benefits.
Legislation to establish a health benefits program for Federal
employees has been before the Post Office and Civil Service Committee
in each Congress beginning with the 83d. Hearings were held in
1956 on an administration proposal to provide Federal employees
protection against the bankrupting expenses of extended castastrophic
illness of injury, with the Government sharing the cost. The reported
;bill incorporates the outstanding feature_ of that p Man-major
comprehensive insurance for health services at moderate cost.
The urgent need for a joint Government-employee health benefits
program is emphasized by the fact that there is widespread and
increasing recognition on the part of the public that both basic health
and major medical insurance coverages are essential to protect wage-
earners and their families. In 1940, approximately 4 million indi-
viduals were enrolled in basic hospital plans; at the beginning of
1959 the number of individuals who had this protection had sky-
rocketed to 123 million-70 percent of the population. Similar
spectacular increases have been recorded in surgical and regular medi-
cal programs. In the comparatively new field of major medical
insurance, participation in plans offering this protection has virtually
exploded from 700,000 in 1952 to 17 million in 1959. It is a source of
concern to this committee that no more than a relative handful of
Federal employees now have such major medical coverage. This
extremely important protection will be made available by the reported
bill, along with the more generally prevalent basic coverage which
now is held by approximately 70 percent of Federal employees.
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The committee emphasizes that the health benefits program
provided by this legislation represents an entirely new area of Federal
employees' fringe benefits in which the Government is without
previous experience, and that extreme care will be necessary, par-
ticularly in the initial stages, to protect both the Government and its
employees. The committee intends to conduct a continuing review
of the operation of the program in order to carry out its responsibilities
under section 136 of the Legislative Reorganization Act of 1946.
The repo rtedLbill makes basic and catastrophic health protection
available to approximately 2 million Federal employees and their
dependents. Employees will have free choice among health benefits
plans in four major categories, including (1) a Government-wide
service benefit plan, such as is offered by Blue Cross-Blue Shield, (2) a
Government-wide indemnity benefit plan, such as is currently offered
by several insurance companies, (3) one of several employee organi-
zation plans, such as the present health plans of the National Associa-
tion of Letter Carriers and the National Federation of Post Office
Clerks, and (4) a comprehensive medical plan, which may be either a
group-practice prepayment plan (such as the Kaiser Foundation plan
in California and the Group Health Association plan in Washington,
D.C.) or an individual-practice prepayment plan (such as the Group
Health Insurance plan in New York). The Government-wide service
benefit plan and the Government-wide indemnity benefit plan each
will include at least two levels of benefits.
The reported bill retains the provisions of the Senate-passed bill
(1) providing for 50 percent contribution by the Government to sub-
scription charges and (2) establishing biweekly maximum contribu
tions of $1.75 for an individual employee, $4.25 for an employee and
family, and $2.50 for a female employee and family including a non-
dependent husband.
Employees will be eligible for enrollment in health benefits plans
without having to pass any physical examination and, in the event of
their separation from Government service, may convert their coverage
to a private health benefits plan without undergoing any physical
examination. It is intended that each of the foregoing plans will
provide a wide range of hospital, surgical, medical, and related bene-
fits designed to afford the employees full or substantially full protec-
tion against expenses of both common and catastrophic illness or
injury.
Responsibility and authority for administration of the health bene-
fits
program in the interest of both the employees and the Government
is vested in the U.S. Civil Service Commission. The Commission will
execute contracts with the Government-wide service plan carrier and
the Government-wide indemnity plan carrier and will make suitable
arrangements to place the other types of plans in effect through appro-
priate contracts or agreements.
Provision is made for the prime insurer under the Government-wide
indemnity benefit plan to reinsure with such other qualified companies
as may elect to participate, in accordance with an equitable formula.
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4 GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
Similar provision is made for the prime carrier under the Government-
wide service benefit plan to allocate its rights and obligations under
its contract among such of its affiliates as may elect to participate.
No person will be excluded from participation in the health benefits
program because of 'race, sex, health status, or (at the time of first
opportunity to enroll) age.
With respect to the service benefit plan and the indemnity benefit
plan, the reported bill requires the Commission to enter into contracts
which call for premium rates that are competitive with those generally
charged for anew group health insurance sold to large employers.
For the premiums agreed upon, the Commission is charged with ne-
gotiating the best possible basic health and major medical benefits.
These provisions are designed to assure maximum health benefits for
employees at the lowest possible cost to themselves and to the
Government.
The Government will contribute 50 percent to the subscription
charge for each enrolled employee, but not more than certain amounts
which the Commission may prescribe from time to time subject to
(1) biweekly minimums of $1.25 for an individual employee or annui-
tant, $3 for an employee or annuitant and family, and $1.75 for a
female employee and family including a nondependent husband, and
(2) biweekly maximums of $1.75 for an individual employee, $4.25
for an employee or annuitant and family, and $2.50 for a female
employee and family including a nondependent husband. The pro-
visions for contributions are related to the service benefit plan and
the indemnity benefit plan authorized by section 4 of the bill, thus
perir:itting each employee to exercise independent judgment and
obtain the plan which best suits his or her individual needs or family
circumstances.
The bill provides for setting aside portions of total contributions
(1) not exceeding 1 percent for administrative expenses, and (2) not
exceeding 3 percent to provide a contingency reserve or margin for
adjustment based on experience without seeking further legislation.
The Commission will make available to each employee eligible
to enroll in a health benefits plan information which will enable the
employee to exercise an informed choice among the various plans.
Each employee will be issued an appropriate certificate summarizing
the benefits under the plan selected.
The bill authorizes the Chairman of the Civil Service Commission
to appoint an advisory committee of five members, comprising em-
ployees enrolled under the act and elected officers of employee organi-
zations. This committee (which will perform a solely advisory func-
tion) replaces the Advisory Council which would have been provided
by the Senate bill.
The bill omits those parts of the Senate bill which would have (1)
established a Bureau of Retirement and Insurance in the Civil Service
Commission to administer the health benefits program along with
the retirement and life insurance programs, and (2) required prior
submission of health benefits contracts to the Post Office and Civil
Service Committees of the Senate and the House of Representatives.
In the judgment of the committee, the assignment of duties in con-
nection with administration of the program should be left to the
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GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
discretion of the Civil Service Commission, which is responsible for
success of the program. The committee is convinced that the prior
submission of contracts would have tended to impede and interfere
with progress in the establishment and operation of the program.
On the basis of the formula, provided by section 7 of the reported
bill, for. a 50 percent Government contribution subject to certain
limitations, the cost of the program for the first year of operation
is estimated at $214 million, of which approximately one-half will
be paid by the Government.
The reports of the Director of the Bureau of the Budget and the
Chairman of the U.S. Civil Service Commission (directed to S. 2162
as passed by the Senate and submitted before the committee amend-
ment was drafted) recommend approval of a health benefits program
identical in principle to the program which will be established by the
bill, as reported by this committee, except that such reports favor a
Government contribution of 33Y3 percent in lieu of 50 percent as author-
ized by the reported bill. The Post Office Department, the Department
of Health, Education, and Welfare, the Department of Defense, and
the Comptroller General of the United States also submitted reports
favorable to the principles of the reported bill.
The committee points out that the Civil Service Commission, the
Bureau of the Budget, major employee organizations, and leading
companies and associations which now provide health benefits and
will participate in this program, have agreed to the terms of the re-
ported bill, in a spirit of compromise and cooperation, in order that
an effective and financially sound Government employees health bene-
fits program may become a reality at the earliest possible time. The
committee desires to express its appreciation for this cooperation and
joint endeavor to bring about a result in the general interest of the
Government and all parties concerned. It is believed that the final
agreement represented by the reported bill will receive overwhelming
approval by Federal employees, full cooperation by the companies
and associations which expect to participate, and support of the Gov-
ernment departments and agencies concerned.
The text of the reports of the Bureau of the Budget, the Civil Service
Commission, the Department of Defense, the Department of Health,
Education, and Welfare, and the General Accounting Office appear
immediately following the explanation of the bill, as reported.
EXPLANATION OF THE BILL, AS REPORTED
The first section of the bill creates a short title which permits the
provisions of this legislation to be conveniently cited as the "Federal
Employees Health Benefits Act of 1959."
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GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
Section 2 defines the technical terns used throughout the act, as
follows:
Subsection (a) defines the term "employee" to include an appointive
or elective officer or employee in or under the executive, judicial, or
legislative branches of the U.S. Government and an employee of
the District of Columbia government. Included within the definition
are Members of Congress, the Official Reporters of Debates of the
Senate and their employees, and employees of Gallaudet College.
The definition of the term "employee" does not include members of
the_ Armed Forces ("uniformed services") and noncitizen employees
whose permanent duty stations are located outside the United States.
Also excluded are employees of certain corporations which are under
the supervision of the Farm Credit Administration, of which corpora-
tions any member of the board of directors is elected or appointed by
private interests.
This definition will operate to provide coverage under the bill to
the same groups of employees who are covered under the Federal
Employees' Group Life Insurance Act of 1954, as amended, except
that employees of the Tennessee Valley Authority, who have been
specifically excluded from the definition, will not be covered. This
exclusion was made at the request of the Tennessee Valley Authority
because employees of the Authority have their own contributory
health benefits program which has been operating successfully.
Subsection (b) defines the term "Government" as meaning the Gov-
ernment of the United States of America to distinguish it from State
and local governments.
Subsection (c) defines the term "annuitant" to include-
(1) an employee who retires on or after the effective date (July 1,
1960), mentioned in section 15, under the Civil Service Retirement
Act or other retirement system for civilian employees, on an imme-
diate annuity after 12 or more years of service or for disability;
(2) a member of a family who receives an immediate annuity as the
survivor of a retired employee described in paragraph (1), or an
employee who dies after completing 5 or more years of service;
(3) an employee who receives benefits under the Federal Employees'
Compensation Act as a result of illness or injury to himself and who
because of the illness or injury is determined by the Secretary of Labor
to be unable to return to duty; and
(4) a member of a family who receives monthly compensation as
the surviving beneficiary of-
(A) an employee who dies of an illness or injury compensable
under the Federal Employees' Compensation Act after 5 or
more years of service, or
(B) a former employee who dies while receiving compensation
benefits and is held by the Secretary of Labor' to have been
unable to return to duty.
Subsection (d) defines the term "member of family" to include-
an employee's or annuitant's spouse;
his unmarried children under age 19, including-
(A) an adopted child, and
(B) a stepchild or recognized natural child who lives with him
in a regular parent-child relationship; and
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(C) his unmarried children, regardless of age, who are incap-
able of self-support because of a disability that existed prior
to their reaching the age of 19.
Subsection (e) defines the term "dependent husband" to mean a
husband who is incapable of self-support by reason of mental or
physical disability which can be expected to continue for more than
1 year.
Subsection (f) defines the term "health benefits plan" as meaning
essentially a group insurance policy, contract, agreement, or similar
group arrangement provided by a carrier for the purpose of provid-
ing, paying for, or reimbursing expenses for health services.
Subsection (g) defines the term "carrier" to include a voluntary
association, corporation, partnership, or other nongovernmental or-
ganization which provides, pays for, or reimburses the cost of health
services under group insurance contracts, agreements, or similar
group arrangements, in consideration of premiums or other periodic
charges payable to the carrier. The definition includes a health bene-
fits plan duly sponsored or underwritten by an employee organization.
Subsection (h) defines the term "Commission" as meaning the U.S.
Civil Service Commission, to which is assigned the responsibility of
administering this legislation.
Subsection (i) defines the term "employee organization" to include
an association or other organization of employees which-
(A) is national in scope or
(B) in which membership is open to all employees of a depart-
ment or agency of the Government who are eligible to enroll
in a health benefits plan
and which on or before December 31, 1959, applies to the Commission
for approval of a plan which it sponsors or underwrites.
In addition to the health benefits plans provided by national
employee labor organizations, this language would include employee
Organization sponsored plans such as those of the Federal Bureau of
Investigation, the National Security Agency, the U.S. citizen em-
ployees of the Panama Canal, the Foreign Service, the Central
Intelligence Agency, and the Postal Hospital Association of St. Louis.
ELECTION OF COVERAGE
Section 3 provides generally for election of health benefits plans by
employees.
Subsection (a) permits an eligible employee to enroll, either as an
individual or for self and family, in a health benefits plan approved
by the Civil Service Commission. This subsection authorizes the
Commission (1) to prescribe regulations fixing the time, manner, and
conditions of eligibility for enrollment and (2) to exclude employees
from enrolling on the basis of the nature and type of their employ-
ment or conditions pertaining thereto such as, but not limited to,
short-term appointments, seasonal or intermittent employment, and
employment of like nature. However, no employee may be excluded
by the Commission's regulations solely on the basis of the hazardous
nature of his job.
Subsection (b) permits an annuitant to continue his coverage after
he retires if lie was enrolled in a health benefits plan under the act
for a period of not less than (A) the 5 years of service immediately
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GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
preceding retirement or (B) the full period or periods of service
between the date he first becomes eligible to enroll in a plan and the
date on which he becomes an annuitant, whichever is shorter. This
subsection also permits the survivor of a deceased employee or annui-
tant to continue his coverage if the survivor was enrolled as a member
of the family at the time of the employee's or annuitant's death..
Where a husband and wife are both Federal employees, subsection
(c) permits either one to enroll individually or to enroll for self and
family and prohibits any person from enrolling both as an employee
or annuitant and as a member of the family.
Subsection (d) permits an employee or annuitant to change from
individual to family coverage or vice versa at such time and under
such conditions as the Commission may prescribe.
Subsection (e) permits an employee or annuitant to transfer his
enrollment from one health benefits plan to another at such time and,
under such conditions as the Commission may prescribe.
HEALTH BENEFITS PLANS
Section 4 authorizes the Commission to contract for or approve the,
following health benefits plans:
(1) One Government-wide service benefit plan of the type com-
monly provided by Blue Cross-Blue Shield under which payment for
medical services is made, insofar as possible, under contracts with
hospitals, physicians, and other vendors of medical services. Where-
such payment is impracticable, it will be made directly to the employee.
(2) One Government-wide indemnity benefit plan such as is com-
monly provided by commercial insurance companies. Under this
type of plan payment for medical services may be made directly to
the employee or directly to the vendor of the medical services.
(3) Employee organization plans which are sponsored or under-
written by employee organizations. To be eligible under the bill, the
organization which sponsors or underwrites the plan must have had
in operation a plan which provided health benefits to its members on
July 1, 1959. Employees will be able to enroll in these employee
organization plans only if at the time of enrollment they are members'
of the organization.
(4) Two types of comprehensive medical plans-(A) group-practice-
prepayment plans and (B) individual-practice prepayment plans.
The Government-wido service benefit plan and the Government
wide indemnity benefit plan will each offer two options providing
varying levels of benefits at varying subscription charges so that every
employee will have an unrestricted choice between the service type
plan and the indemnity type plan and, within each plan, between
benefits and subscription charges which best suit his family circum-
stances and his ability to pay.
An employee who belongs to an association which sponsors an
employee organization plan will have the additional choice of enrolling
in his association's plan. Employees who are located in areas in
which a group-practice prepayment plan or an individual-practice
prepayment plan operates will have the further choice of enrolling in
such a comprehensive medical plan.
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GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM 9
'Section 5 stipulates that the benefits to be provided under the plans
described in section 4 may be of the following types:
(1) Service benefit plan-
(A) hospital benefits.
(B) surgical benefits.
(C) in-hospital medical benefits.
(D) ambulatory patient benefits.
(E) supplemental benefits.
(F) obstetrical benefits.
(2) Indemnity benefit plan-
(A) hospital care.
(B) surgical care and treatment.
(C) medical care and treatment.
(D) obstetrical benefits.
(E) prescribed drugs, medicines, and prosthetic devices.
(F) other medical supplies and services.
(3) Employee organization plans-
Benefits of the types described in paragraph (1) or (2) or
both.
(4) Comprehensive medical plans-
Benefits of the types described in paragraph (1) or (2) or
both.
The general effect of section 6 is to authorize and require the Civil
Service Commission to take appropriate action to contract, or to
make other arrangements, for health-benefits plans.
Subsection (a) authorizes the Civil Service Commission to negotiate
contracts with qualified carriers offering plans described in section 4.
The subsection requires each such contract to be for a uniform term of
at least 1 year and permits the contract to be made automatically
renewable from term to term in the absence of notice of termination
by either party.
Paragraph (1) of subsection (b) requires the prime carrier foi the
indemnity benefit plan to be a company which is licensed to issue
;group health insurance in all the States and the District of Columbia.
Under the related. authority to prescribe minimum standards for
carriers, vested in the Civil Service Commission by subsection (d), it is
expected that one of the standards for the prime indemnity carrier will
be the volume of group health insurance business it has handled in the
past. The Commission is expected to choose as a prime carrier a com-
pany that has by the volume of its operations demonstrated the experi-
ence and capacity necessary to handle what will undoubtedly be the
largest policy of its kind in the world. In addition to requiring
licensing in all the States and the District of Columbia, the Commis-
sion will presumably apply some volume-of-business test, such as re-
quiring that the carrier selected shall, in the most recent year for which
data are available, have made at least 1 percent of all group health
insurance benefit payments in the United States.
IIi. Rept. 95T, 86-1--2
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10 GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
Paragraph (2) of subsection (b) requires the prime carrier of the
indemnity benefit plan to reinsure with such other companies as may
elect to participate, in accordance with an equitable formula based on
the total amount of their group health insurance payments in the
United States during the latest year for which such information is
available. The reinsurance formula is to be determined by the carrier
and approved by the Commission. Under paragraph (2) the prime
carrier for the service benefit plan is similarly required to allocate
its rights and obligations among such of its affiliates as may elect
to participate, in accordance with an equitable formula which the
carrier and its affiliates will determine and which the Commission will
approve.
This practice of reinsuring and allocating rights and obligations
follows closely the policy laid down by the Congress in the Federal
Employees' Group Life Insurance Act of 1954 and ensures that all
qualified companies and organizations which are engaged in providing
protection against the cost of health services will share equitably in
the contracts to be negotiated under this act, if they desire to do so.
Subsection (c) requires that any contract negotiated by the Civil
Service Commission shall contain a detailed statement of benefits
offered and include such maximums, limitations, exclusions and other
definition of benefits as the Commission may deem necessary or
desirable.
Subsection (d) authorizes the Civil Service Commission to prescribe
regulations fixing minimum standards for participating health benefits
plans and for carriers offering such plans.
Subsection (e) prohibits the Civil Service Commission from enter-
ing into any contract or approving any plan which excludes employees
or annuitants, or members of their families, because of race, sex,
health status, or, at the time of the first opportunity to enroll, because
of age.
Subsection (f) requires each plan approved by the Commission to
permit an employee or annuitant whose enrollment in the Ian is
terminated, other than by his voluntary cancellation of enrollment,
to convert from group coverage to individual coverage. It is expected
that when the group coverage of an employee or annuitant terminates,
he will have continued temporary protection for 31 days without
current contributions so that lie may have reasonable opportunity to
convert to individual coverage and thus avoid an interruption in his
protection against the cost of health services. The terms or condi-
tions under which the employee or annuitant may convert will be pro-
scribed by the carrier and approved by the Civil Service Commission
and the employee will have to pay the periodic charges of the converted
coverage directly to the carrier.
Subsection (g) requires that the converted coverage shall, at the
option of the employee or annuitant, be noncancellable by the carrier
except for fraud, overinsurance, or nonpayment of periodic charges.
Subsection (h) stipulates that the premiums to be charged by the
carriers for approved health benefits plans shall reasonably and equi-
tably reflect the cost of the benefits provided. The subsection requires
that the premiums for the service benefit plan and the indemnity
benefit plan be determined on a basis which, in the judgment of the
Civil Service Commission, is consistent with the lowest schedule of
basic rates generally charged for new group health benefits plans
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GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM 11
issued to large employers. This subsection further requires that
premium rates determined for the first contract term shall be contin-
ued for subsequent contract terms except that they may be readjusted
for any subsequent term based on past experience and benefit adjust-
ments under the subsequent contract. Any readjustment in rates is
required to be made in advance of the contract term in which the
new rates will apply and on a basis which, in the judgment of the
Commission, is consistent with the general practice of carriers which
issue group health benefits plans to large employers.
The effect of subsection (h) is to make certain that the premiums
which the Government will have to pay for the service benefit plan
and the indemnity benefit plan will not be more costly than those
charged by the industry to other large employers.
Section 7 provides for contributions by the Government and by
employees to subscription charges.
Paragraph (1) of subsection (a) specifies the Government's con-
tributions to the subscription charge for each enrolled employee and
annuitant as the lesser of (A) 50 percent of the subscription charge or
(B) such other amounts as the Commission prescribes.
The amounts which the Commission may prescribe, in accordance
with clause (B), above, must not (i) be less than $1.25 or more than
$1.75 biweekly for an individual who is enrolled for self alone, (ii) be
less than $3 or more than $4.25 biweekly for an individual who is en-
rolled for self and family, or (iii) be less than $1.75 or more than $2.50
biweekly for a female employee who enrolls for self and family if the
family includes a nondependent husband.
Paragraph (2) of subsection (a) authorizes the withholding from an
individual's salary or annuity of the difference between the total
subscription charge of the plan in which he is enrolled and the Govern-
ment's contribution to the subscription charge. The employees' con-
tributions will be made through payroll deductions, as is the case
with respect to employees' contributions under the Civil Service
Retirement Act and the Federal Employees' Group Life Insurance
Act of 1954.
(3) Paragraph authorizes the Civil Service Commission to adjust
the contributions of the Government and of the employees and annui-
tants to a particular plan whenever past experience indicates that
such an adjustment is warranted or whenever there is a change in
benefits offered by the plan. Any such adjustment must preserve
the same ratio between the Government's and employee's or annui-
tant's contribution as existed originally, with the one exception that
the Government's contribution cannot be adjusted to a biweekly
amount which is more than the $1.75, $4.25, or $2.50 specified in
subsection (a) (1).
The net effect of this provision is that the `Commission will pre-
scribe the maximum contribution which the Government will make
to each approved health benefits plan and so be able to control the
total cost of the program to the Government.
It is expected that the Government contributions prescribed by
the Commission will be 50 percent of the subscription charge to
the approved plans in which most employees are enrolled. Thus the
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12 GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
Government and the employee or annuitant will each contribute 50
percent of the subscription charge.
There may be some plans or options within plans which will provide
benefits superior to the benefits under other plans or options and for
which the subscription charge per enrollment will exceed the sum
of the prescribed maximum Government contribution plus a matching
contribution from the employee or annuitant. Where an employee
chooses to enroll in such a superior-benefit plan or option, the excess
portion of the subscription charge will be withheld from his salary.
Any adjustment in contribution rates must, within the specified
limits, preserve the ratio which originally existed between the em-
ployee's or annuitant's contribution and the Government's contribu-
tion. If in the future an adjustment will (because of the maximums
imposed on the Government's contribution) result in destroying this
ratio, it is contemplated that the Civil Service Commission will call
the matter to the attention of the Congress in advance so that the
legislation can be amended to increase the maximum Government con-
tributions if the Congress wishes.
Subsection (b) authorizes the Civil Service Commission to continue
an employee's coverage for a period of up to 1 year (exclusive of any
temporary extension of coverage) while he is in a leave-without-pay
status. Because the employee will not be drawing any pay during
this period, no contributions can be withheld from his salary and,
therefore, the Commission is authorized to waive both the employee's
and the Government's contributions while the employee is in a
leave-without-pay status.
Subsection (c) directs that the Government's contribution toward
the cost of the program be paid from the following sources:
(1) For most employees, from the appropriation or fund
which is used for the payment of their salaries.
(2) In the case of an elected official, from the appropriation
or fund which is available for payment of other salaries of the
same office or establishment.
(3) In the case of an employee in the legislative branch whose
salary is paid by the Clerk of the House of Representatives, from
the contingent fund of the House.
Subsection (d) directs the Civil Service Commission to provide for
the conversion of the biweekly contribution rates to weekly, monthly
or other rates in the case of individuals who are paid on other than a
biweekly basis and permits the converted rate to be adjusted to the
nearest cent.
Subsection (a) of section 8 creates an employees health benefits
fund, to be administered by the Civil Service Commission, which is
made available without fiscal year limitation for the payment of all
premiums to approved health benefits plans and into which all con-
tributions of employees, annuitants, and the Government shall be paid.
Subsection (b) requires that portions of the contributions made by
employees, annuitants, and the Government shall be regularly set
aside in the fund as follows:
(1) A percentage, not to exceed 1 percent of all such contribu-
tions, determined by the Commission as reasonably adequate to
pay its administrative expenses under this bill.
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GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM 13
(2) For each health benefits plan a percentage, not to exceed
3 percent of the contributions for such plan, determined by the
Commission as reasonably adequate to provide a contingency
reserve. It is expected that these contingency reserves will be
available to defray anticipated increases in future premiums and
it is hoped that their use in this manner will postpone for a reason-
able period of time the necessity of increases in contribution rates.
Authorization is also contained in this subsection. for applying
the contingency reserves to reduce the contributions of employees.
and the Government or to increase the benefits provided by the
plan from which the reserves are derived. It is required that the
contingency reserves set aside for each plan will be used for the.
purposes mentioned above with respect to that plan only.
Subsection (c) authorizes the Secretary of the Treasury to invest
any of the moneys in the employees health benefits fund in interest-
bearing obligations of the United States and to sell such obligations
for the purposes of the fund. All interest derived from these invest-
ments and the proceeds from the sale of obligations will become a part
of the fund.
Subsection (a) of section 9 authorizes the expenditure from the
employees' life insurance fund for the fiscal years 1960 and 1961,
without regard to limitations on that fund, of such sums as may be
necessary to pay the administrative expenses of the Civil Service
Commission in carrying out the provisions of the Federal Employees
Health Benefits Act of 1959. The subsection requires that reimburse-
ment for sums so expended be made from the employees' health
benefits fund to the employees' life insurance fund, together with
interest at a rate to be determined by the Secretary of the Treasury.
Subsection (b) makes the employees' health benefits fund available
(1) to reimburse the employees' life insurance fund, as indicated and
(2), within such limitations as may be specified annually by the
Congress, to pay the expenses of the Commission in administering
this legislation for the fiscal year 1962 and subsequent years.
Subsection (a) of section 10 authorizes the Civil Service Commission
to promulgate such regulations as may be necessary to give effect to
the intent and purposes of the Federal Employees Health Benefits Act
of 1959.
Subsection (b) requires the Civil Service Commission to specify in
its regulations the beginning and ending dates of coverage of em-
ployees and annuitants and members of their families. The subsection
permits the Commission, by regulation, to grant a temporary exten-
sion of coverage upon cancellation (other than voluntary cancellation)
of enrollment. Where the cancellation is for reasons other than the
death of the employee or annuitant, it is expected that the temporary
extension of coverage will continue for 31 days. Where the cancella-
tion is on account of the death of the employee or annuitant, this sub-
section permits a temporary extension of coverage for members of the
family for as long as 90 days after the end of the pay period or month
in which the death of the employee or annuitant occurred. In any
case, it is intended that the temporary extension of coverage will be
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14 GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
without current contributions by the employee or annuitant, or mem-
bers of his family, and by the Government.
Subsection (c) provides that an employee enrolled under this legisla-
tion who is removed or suspended without pay and later reinstated or
restored to duty because the removal or suspension was unjustified or
unwarranted shall have his coverage restored so that he may enjoy
the same benefits as if removal or suspension had not occurred.
Subsection (d) requires that the Civil Service Commission shall make
available to each employee such information as may be necessary to
enable him to exercise an informed choice among the various plans
available. This information with respect to the Government-wide
service benefit plan and the Government-wide indemnit benefit plan
must be in a form acceptable to the Commission and will be developed
by the Commission after consultation with the carriers. It is expected
that information with respect to the employee organization plans and
the comprehensive medical plans will be prepared and distributed by
the respective carriers; however, this information must also be ap-
proved by the Commission. Each employee who enrolls in a health
benefits plan will be issued an appropriate certificate summarizing the
services or benefits provided by the plan. These certificates will also
have to be approved by the Commission.
STUDIES, REPORTS, AND AUDITS
Subsection (a) of section 11 stipulates that the Civil Service Com-
mission shall make a continuing study of the operation and adminis-
tration of this legislation, including surveys and reports on health
benefits plans available to employees and on the experience of such
plans. It is expected that in making this study the Commission will
include any instances of apparent overutilization of hospital facilities
and any instances of apparently excessive charges by purveyors of
health services.
Subsection (b) requires carriers to furnish such reports as the Civil
Service Commission determines to be necessary to enable it to carry
out its functions under this legislation and permits the Commission and
representatives of the General Accounting Office to examine any
records of the carriers which either the Commission or the General
Accounting Office deem to be pertinent to the purposes of this legis-
lation.
Subsection (c) requires Government departments, agencies, and
independent establishments to keep such records, make such certifica-
tions, and furnish the Civil Service Commission such information and
reports as may be necessary to enable the Commission to carry out
its functions under the legislation.
Section 12 requires the Commission to transmit to the Congress
an annual report concerning the operation of the Federal Employees
Health Benefits Act of 1959.
Section 13 requires the Chairman of the Civil Service Commission
to appoint a committee composed of five members, who will serve
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without compensation, to advise the Commission regarding matters
of concern to employees under this legislation. Each member of the
committee will be an employee enrolled under this legislation, or an
elected officer of a national employee organization.
JURISDICTION OF COURTS
Section 14 gives the district courts of the United States original
jurisdiction, concurrent with the Court of Claims, of any civil action
or claim against the United States founded upon this legislation.
Section 15 makes the benefit and contributions provisions of this
legislation effective on the first day of the first pay period which
begins on or after July 1, 1960, and, by implication, makes the other
provisions of the legisation effective upon enactment.
ADMINISTRATIVE REPORTS
EXECUTIVE OFFICE OF THE PRESIDENT,
Ton. TOM MURRAY,
BUREAU OF THE BUDGET,
Washington, D.C., August 4, 1959.
Chairman, Committee on Post Office and Civil Service,
House of Representatives, Washington, D.C.
My DEAR MR. CHAIRMAN: Reference is made to your letter of
July 8, 1959, requesting the views of the Bureau of the Budget on
S. 2162, to provide a health benefits program for Government em-
ployees,. presently before your committee.
Since 1954 this administration has advocated, and now continues
to advocate, the establishment of a voluntary health insurance pro-
gram for Federal employees. Specific programs were proposed in
1954, 1955, 1956, and 1957, each proposal being an attempt to formu-
late a better program. In 1958 the administration gave priority to
pay increase legislation and recommended that action on employee
health insurance legislation be postponed. It should be noted that
during these years Government annual expenditures for Federal em-
ployee pay and benefits have been increased by substantial amounts
due to increases in pay rates under both the statutory and prevailing
wage systems, increases in annuities under - employee retirement
systems, the liberalization of the premium pay benefits system, the
liberalization of the civil service retirement system and the establish-
ment of such new benefits as the allowances for uniforms and the
group life insurance and unemployment compensation systems.
Following this administration's basic policy that the Federal em-
ployee should be compensated for the services he renders to the
Government under a pay and benefit system that is reasonably com-
parable in structure and level with the compensation provided by
progressive private employers, the Bureau of the Budget favors
legislation authorizing a Federal employee health insurance program
with benefits providing financial protection against the cost ofiicalth
care reasonably comparable with those benefits provided in private
employment. Although the existing Federal employee fringe benefit
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Z GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
system has been reported to be already more liberal than the typical
private business fringe benefit system, it does not include a program
of health insurance benefits. Adding these benefits to the existing
system will further increase the total value of the Federal employee
fringe benefit package. Under these circumstances it is essential
that the value added by the now health insurance benefit program
be kept in line with private industry health benefits.
The new health insurance benefits should be made available only
to employees who earn them by rendering services to the Government
under the now program after it becomes effective. Compensation in
the form of pay and benefits is paid to employees for services rendered.
Former employees who rendered service tinder a compensation system
which did not include these health insurance benefits have already
been paid in full for their services in the form of pay and benefits
already received or in vested rights to payment of future benefits
already earned. Whenever salary or benefits are adjusted an effective
date must be selected. It may be unfortunate that some former em-
ployees must miss eligibility by narrow margins, and a retroactive
approach is often suggested. However, a retroactive approach
actually creates an inequity where none would otherwise exist. For
while prospective entitlement is firmly linked to services rendered
under a compensation agreement, retroactive entitlement is pure
gratuity. If any former employee is granted this special gift, then
any other former employees who are excluded by the particular retro-
active date selected will feel they merit equal consideration. The
new health insurance benefits should, therefore, be provided only to
employees who render service to the Government after a prospective
effective date.
S. 2162, now before your committee, while including several desir-
able features, falls short of providing an acceptable employee health
insurance program in two major respects: the cost to the Government
is higher than justifiable in establishing a health insurance benefits
program reasonably comparable with existing private business pro-
grams, and. the organization and administrative system is defective.
The cost-sharing feature of the bill would require the Government
to pay one-half of the premiums rather than one-third, as established
for the Federal employee group life insurance program in 1954. The
first-year cost of the bill to the Government is estimated in the Senate
committee report to be $145.3 million, which must be increased by
$2.5 million in the first year and $25 million in the fifth year to include
the Government share of the cost of annuitant coverage, This amount
is substantially higher than the $80 million figure which- is actually
needed as one-third of the cost, including the cost of annuitant cover-
age, of a sound program providing a benefit level in line with private
industry plans, and providing a sound experience basis for accumulat-
ing the facts on which an appropriate Federal employee health benefits
program can evolve for the future. It would be prudent for the Gov-
ernment to seek the patterns and level of health benefit protection best
suited to the problems of the Federal employee, the benefits that will
yield the most effective return for the premium dollar. Experience
elsewhere strongly suggests that an effective program will evolve best
from a conservative base. Sound development can occur as the gen-
uine needs of the covered employees are clearly defined through experi-
ence, and a pattern of effective health care benefits grows up to meet
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these needs. The bill should be modified to clearly provide this sound,
conservative beginning.
The organization and administrative provisions of S. 2162 should
be modified. The Civil Service Commission will advise you in full
detail concerning these modifications. This report will comment only
on three organization provisions: the advisory council, the Civil Serv-
ice Commission reorganization, and the submittal of proposed con-
tracts and regulations.
The functions and membership of the proposed advisory council
are not designed to aid sound administration. The council's assigned
functions include making investigations of the administration of the
program, and receiving reports direct from carriers and employees.
Such assignment- would confuse the Commission's authority in its
relations with carriers, employing agencies, and employees. The Civil
Service Commission should be unmistakably responsible for the success
of this program. The council's functions should be advisory only.
The council's membership should reflect its character as an element
of a Federal employee benefit program, and should include appro-
priate Government officials, ex officio, together with employees, or
their representatives, who are contributing and participating in the
health insurance system. There is no need to create a statutory
organization based on an assumption that the Civil Service Commis-
sion may refuse to seek the advice of responsible experts in the health
insurance field. Neither is there basis for assuming that the Commis-
sion may foster a program which will be deleterious to the public
generally, nor that the Commission will fail to give adequate consider-
ation to all parties, including all qualified prospective carriers. The
Government's lack of experience in administering it health insurance
program for its employees and the asserted absence of facts upon
which to base decisions does not argue for splitting responsibility in
this program between the Civil Service Commission and the advisory
council. Rather, it requires placing a special responsibility on the
Commission to proceed prudently,. to develop factual experience as
rapidly as feasible, and to build soundly, and it places a special respon-
sibility on those who contribute to the design of the authorizing
statute to provide the clear-cut authority and proper organization
that will be so essential. Section 12 should be modified accordingly.
The proposed statutory reorganization of the Civil Service Com-
mission would interfere, to no defined purpose, with the existing
statutory power and responsibility of the Chairman of the Civil
Service Commission to determine the internal organization of the
Commission's business and to designate officers and employees to
perform assigned functions. It is especially important in this new
program to avoid a rigid organization prescription that could hamper
the proper adjustment of administration with experience. Section 13
should be deleted from the bill.
The requirement that the Commission submit proposed contracts
and regulations to the Senate and House Committees on Post Office
and Civil Service is unnecessary to assure energetic administration
by the Commission and is clearly improper if it is intended to provide
the committees with a power of prior review of executive action.
Subsection (a) of section 16 should be deleted from the bill.
S. 2162, as passed by the Senate, includes several features which
are desirable in a program of Federal employee health benefits, but
H. Rept. 957,86-1r----8
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GOVERNMENT EMPLOYEES' ,EEALT LBFNEFITS PROGRAM
it seeks to provide a level of benefits at an unnecessarily high cost,
and it provides an unsound system and organization for administra-
tion. Unless S. 2162 is modified as to cost and administrative provi-
sions, as above noted, the Bureau of the Budget would not favor
enactment of the bill.
Sincerely yours,
MAURICE H. STANS, Director.
CIVIL SERVICE COMMISSION,
Hon. TOM MURRAY, August 5, 1959.
Chairman, Committee on Post Office and Civil Service,
House of Representatives.
DEAR MR. MURRAY: In response to your letter of July 8, 1959, I
am forwarding the Commission's views on the bill S. 2162, to provide
a health benefits program for Government employees, as the bill has
been amended by the Senate Post Office and Civil Service Committee
and reported to the Senate. These views would also apply to H.R.
8210 and H.R. 8211, which are identical to S. 2162.
In the interest of brevity we are not here including a section analy-
sis of S. 2162. The Senate committee's report of July 2, 1959, (No.
468) contains an explanation of the bill by sections. Except as noted
hereinafter, the Commission construes the bill as stated in that
explanation.
As the central personnel agency of the executive branch, the Com-
mission considers enactment of a health insurance program for Federal
employees highly desirable. Such a progrnm would fill the one remain-
ing major gap in employee fringe benefits and be of inestimable value
in attracting and retaining Federal personnel.
We are in complete agreement with the fundamental concepts under-
lying S. 2162. Very briefly, these would-
(1) Permit employees a free choice among a Government-wide
service benefit plan, a Government-wide indemnity benefit plan,
a local group practice prepayment plan, and an employee organi-
zation plan.
(2) Require contributions from the employee and from the
Government.
(3) Make the Commission responsible for the overall adminis-
tration of the program while sharing the day-to-day operating
responsibilities with the employing agencies and the insurance
carriers.
(4) Create a central fund into which all receipts would be
deposited and out of which all disbursements would be paid.
The soundness of these same concepts (except for the first, which is
pertinent only to health insurance) has been solidly established by
the efficient operation of the Federal employees' group life insurance
program.
The Commission does not, however, altogether favor the manner in
which S. 2162 applies these four general principles. We also have
serious reservations about several other provisions of the bill. Under
the circumstances, we find S. 2162 sufficiently objectionable to compel
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GOVERN1bIENT EMPLOYEES' HEALTH BENEFITS PROGRAM
is to report unfavorably. If the objectionable features were cor-
rected, we would find the bill acceptable and a good basis for a suc-
cessful, enduring health benefits program.
There follows a discussion of what we consider to be the objection-
able features of the bill, together with suggestions for rectifying them.
RETROACTIVITY
Regardless of how long before July 1, 1960, S. 2162 were enacted,
it would become generally effective no earlier than that date. Section
2 (b) (2), however, contains a proviso which would extend the benefits
of the bill to certain employees and certain survivors who qualify for
annuity between the time the bill is enacted and the time it becomes
generally effective.
We appreciate and are not unsympathetic with the purpose of this
proviso which is to protect those people who would otherwise be denied
the benefits of the bill because, owing to circumstances beyond their
control, they are separated before its effective date.
The situation which the proviso in section 2 (b) (2) seeks to cure is
not new. It occurs each time beneficial legislation is enacted and on
each such occasion it appears that numbers of people have been denied
benefits because they were prematurely separated. Depending largely
on the value of the benefit, the group which considers itself aggrieved
by having been denied the benefits ranges all the way from those who
were separated as little as 1 day too early to those who were separated
as much as 5 or even 10 years too early.
It is unfortunate that any person has to be denied a benefit because
he has been prematurely separated, but we know from long experience
that the proviso in section 2(b)(2), although it may slightly lessen
the number of persons who will feel aggrieved, will not appreciably
remedy the situation. The proviso in section 2(b)(2) would extend
health benefits to certain employees who retire involuntarily or for
disability during the interval between the enactment and effective
date of the bill and to survivors of certain employees who die during
this interval. The number of people whom the proviso will affect
will depend. on how long this interval may be, but in any event the
proviso will not affect the large number of employees who, for example,
will voluntarily retire during the interval and later claim they had
no knowledge of the fact that, had they waited, they could. have
qualified. Nor, for another example, will it affect the even larger
number of employees who retired (or died) 1 day, 1 week, 1 year
before the enactment date.
A line of demarcation must be drawn somewhere. The fairest and
firmest place to draw the line is at the date the enacted bill becomes
effective. Any retroactivity, unless it were complete, would be dis-
criminatory and would intensify the aggrievement the excluded groups
would feel and the representations they would make for having the
benefits extended to them. The Commission, therefore, recommends
that the following text be deleted from the bill:
(1) Subsection 2(b)(2) on page 23, beginning in line 13 and ending
in line 18.
(2) Subsection 3(b)(2) beginning on page 26, line 25, and ending
on page 27, line 11.
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GV GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
There are at least two aspects of the bill's benefit-contribution
structure which, in the Commission's view, are so objectionable as to
make S. 2162 unsatisfactory. These aspects are as follows:
(1) Government contributions:
At the maximum rates specified in section 7(a), the total con-
tribution required of the Government has been estimated by the
Senate committee at $145.3 million annually. We would make
two observations concerning this estimate: First, it does not
include the sums which the Government would have to con-
tribute annually toward insuring annuitants; second, the admin-
istration's frequently stated position is that it cannot at this time
acquiesce in spending more than $80 million a year on this
program.
(2) Contributions versus benefits:
It can be contended that under section 7(a) contributions of
employees and Government may be kept low by setting the rate
at a figure less than the maximum authorized amount. But, we
are not aware that any carrier has submitted a firm offer to under-
write, at a price less than the maximum contribution rates, the
ultrarich benefits which are described in section 5(a) (1) and
which are further implied in the Senate committee's report on
S. 2162.
In the absence of such firm offer, we have reservations as to
whether the implied benefits can be contracted for even at the
maximum contribution rates. To the extent that they cannot,
or to the extent that Government fiscal policy requires the con-
tribution rates to be set lower than the maximum, the implied
ultrarich benefits will have to be curtailed. Any such curtail-
ment in benefits will, like the too-high contribution rates, result
.in employee disaffection with the program.
We discern other weaknesses in the benefit-contribution structure
of S. 2162 but those mentioned above are considered sufficient to
justify our recommendation against enactment.
In the absence of a written commitment from a reputable carrier
containing detailed specifications of benefits and subscription charges,
we believe it wiser not to mislead employees into believing that they
will receive ultrarich benefits. It would be infinitely better to delete
section 5 of the bill in its entirety and rely on the Commission to
negotiate contracts which will provide employees with generally bet-
ter benefits than they now can get, at a cost to them which, depending
on the geographic area, may be less than or about the same as they
now pay.
We believe that, to assure enactment of a program, section 7(a)
should limit the Government's total contribution to.an amount which
is acceptable to the administration. And, further, to permit em-
ployees who may be so inclined to enroll in plans offering very rich
benefits (e.g., some existing group-practice plans) at a subscription
charge greater than the maximum contribution rate stipulated in
section 7(a), no limit on the employee's contribution rate should be
specified. Suggested language to accomplish both these points
follows :
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"Snc. 7(a)(1) The Government's contribution to the subscription
charge for each enrolled employee or annuitant shall be 33% per centum
of the subscription charge but may not exceed (i) 95 cents biweekly
if he is enrolled for himself alone, or (ii) $2.30 biweekly if he is enrolled
for himself and members of his family, or (iii) $1.35 biweekly in the
case of a female employee or annuitant who is enrolled for herself and
members of her family, including a nondependent husband.
"(2) There shall be withheld from the salary of each employee or
annuity of each annuitant enrolled in a health benefits plan under this
Act so much as is necessary, after deducting the Government's con-
tribution, to pay the subscription charge for his enrollment."
Section 6 authorizes the Commission to negotiate contracts with
qualified carriers. It enumerates some of the items to be specified
in the contracts but offers no guidance--nor does the Senate commit-
tee's report on S. 2162-on what we regard as a critical issue: Should
each carrier of a Government-wide plan assume the total risk under
his contract or should he be required to share his rights and obligations
with other insurers?
For several reasons, but primarily to simplify negotiations with
prospective carriers, the Commission considers it highly desirable that
the prime carriers' rights and obligations under the two Government
wide plans be shared in much the same manner as the Congress has.
provided under the Federal Employees' Group Life Insurance Act.
While the Commission, in contract negotiations, would probably in-
sist on such sharing even if section 6 were enacted in its present form,
it would be preferable to have the Congress express its intent in this
regard by including language along the following lines in section 6,
perhaps as a new subsection (b) :
"(b)(1) The contract for the Government-wide service benefit plan
shall require the carrier to allocate its rights and obligations under the
contract among all its affiliates who elect to participate in accordance
with an equitable formula to be determined by the carrier and its
affiliates and approved by the Commission.
"(2) To be eligible as the carrier for the Government-wide indemnity
benefit plan, a company must be licensed to issue group health insur-
ance in all the States and the District of Columbia. The policy for-
such plan shall require the carrier to reinsure with such other comppa-
nies as may elect to participate, in accordance with an equitable
formula based on the total amount of their group health insurance
claims paid in the United States during the latest year for which such
information is available, to be determined by the carrier and approved
by the Commission."
The Commission assumes, of course, that the national Blue Cross
Blue Shield organization will be the prime carrier for the Government-
wide service benefit plan. To eliminate all but a dozen or so of the
largest, most responsible insurance companies from consideration as.
prime carrier of the indemnity benefit plan, and to avoid diversity of
citizenship difficulties in the event of a court action by an employee,
the suggested language requires the prime carrier to be licensed in all
the States and the District of Columbia. All other companies which
write group health insurance would, of course, be eligible to acquire
their fair share of reinsurance from the prime carrier.
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GG GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
I am sure your committee is aware that increasing use of hospital
and other health services and the continuing rise in the cost of these
services has required many insuring organizations to raise their sub-
scription or premium rates. Some organizations have had to raise
their rates several times within the last few years: The current
situation in New York City, where the Blue Cross has very recently
announced a substantial increase in its rates for the second time in
less than 2 years, is characteristic of the trend toward higher insurance
costs. Also characteristic is the reported widespread disatisfaction
with the rate increases among subscribers.
Informed opinion is to the effect that steady increases in the cost
of providing health services are inevitable. To avoid the necessity
of having to increase contribution rates under the Government-
sponsored program with unnecessary frequency and, incidentally, to
avoid the employee dissatisfaction and the administrative difficulties
entailed in each such rate increase, the Commission believes that an
adequate contingency reserve should be set aside which could be drawn
upon to stave off frequent contribution rate increases. Section 8 of
S. 2162 makes no provision for setting aside funds for this purpose
other than those derived from "dividends, premium rate credits or
other refunds." These refunds (and there is nothing to guarantee that
any will be made by the carriers) are completely inadequate for use as
a contingency reserve.
The Senate committee, in page 18 of its report on S. 2162, seems
to have recognized the need to stabilize contributions by setting aside
a portion of contributions as a reserve. It indicates that the reserve
shall "not * * * exceed approximately 3 percent of any one year's
contributions or [exceed] an accumulative total of approximately 10
percent." However there is no language in section 8 which would
authorize retention of any portion of the contributions as a reserve,
much less the specific percentages indicated in the Senate committee's
report. In view of the explicit authorization in section 8 to set aside
a 1 percent reserve for administrative expenses, we question the
propriety of setting aside a larger contingency reserve without explicit
authorization.
Increases in the cost of health services cannot, of course, be forecast
with precision over a long period of years. The Commission feels
rather strongly, however, that a contingency reserve should be ac-
cumulated which will be adequate to stave off increases in contribu-
tion rates for at least the first 5 years of the program's existence and,
if possible, longer. To the best of our ability, we have estimated that
to do this, it will necessary to set aside moneys up to a maximum of
10 percent of all contributions paid into the fund. Suggested language
for amending section 8 to permit the setting aside of an adequate
reserve follows:
SEC. 8. (a) There is hereby created a Federal Employees Health
Benefits Fund, hereinafter referred to as the "Fund," which is hereby
made available without fiscal year limitation for the payment of all
subscription charges or premiums under contracts or policies entered
into or purchased under section 6. The contributions of employees,
annuitants, and the Government toward the subscription charges
shall be paid into the Fund.
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"(b) Portions of the subscription charges contributed by employees,
annuitants, and the Government shall regularly be set aside as
follows: (1) a percentage, not to exceed 1 per centum of all such
contributions, determined by the Commission as reasonably adequate
to pay the administrative expenses made available in section 9; (2) for
each plan, a percentage, not to exceed 10 per centum of the contribu-
tions toward such plan, determined by the Commission as reasonably
adequate to provide a contingency reserve. The income derived
from any dividends, premium rate adjustments, or other refunds
made by a plan shall be credited to its contingency reserve. The
contingency reserves may be used to defray increases in future sub-
scription charges, or may be applied to reduce the contributions of
employees and the Government to, or to increase the benefits provided
by, the plan from which such reserves are derived, as the Commission
shall from time to time determine.
"(c) The Secretary of the Treasury is authorized to invest and
reinvest any of the moneys in the Fund in interest-bearing obligations
of the United States and to sell such obligations of the United States
for the purposes of the Fund. The interest on and the proceeds from
the sale of any such obligations shall become a part of the Fund."
The Commission believes that an advisory council can be a valuable
adjunct to the health insurance program. Conversely, a council could
operate to hamper administration of the program.
In our considered opinion, two features of section 12 will seriously
impair efficient operation of the program.
(1) Composition:
The 11-member Council called for by S. 2162 is so large as to
inhibit unified and timely action which may be required of it.
Of the members mentioned in clauses (1) through (7) of section
12(a) only the Director of the Bureau of the Budget, because he
is concerned with Government fiscal policy, and the throe repre-
sentatives of employee organizations have a continuing intrinsic
interest in the program. We do not see that the other members
mentioned (the Secretary of Labor, the Surgeon General, the
Chief of the Bureau of Medicine and Surgery, a representative
of the public, and three representatives of universities) have more
than a casual interest in or concern with the program nor what
long-range purpose would be served by their permanent member-
ship on the Council. In any event, the services and advice of
any or all these persons could be readily obtained when, in a
particular situation, it was considered desirable.
We would suggest that section 12 be amended to create a
smaller, more efficient Council whose membership would be
representative of the vital interests affected by the program.
This membership should, in our opinion, consist of the Director
of the Bureau of the Budget, the Secretary of the Treasury,
because he is charged by S. 2162 with the management of the
health benefits fund, the Secretary of Health, Education, and
Welfare, because he is officially concerned with public health and
health benefits and, finally, to represent employees' interests
two elected officers of employee organizations and two insured
employees at large.
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24 GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
(2) Duties:
Three of the Council's duties prescribed by section 12(b) are
,sufficiently inappropriate for an advisory council to repeat and
comment on here:
(a) "to make studies from time to time of the operation and
administration of this Act."
This prescribed duty is sheer duplication of what the
Commission is required to do by section 11(a)-"[to] make
a continuing study of the operation and administration of
this Act."
(b) "to receive reports and information with respect [to this
Act] from the Commission, carriers and employees and their
representatives."
This duty will (1) interpose the Council between the
Commission and the carriers and impair the carriers' ac-
countability to the Commission and (2) make the Council
a forum for airing employee grievances. Even if S. 2162
did not require it, the Commission would, as a matter of
course, furnish reports and information to the Council and
otherwise keep it current with developments so that it would
have a basis on which to furnish advice and make recom-
mendations.
(c) "to ascertain from time to time the status of the Federal
Employees Health Benefits Fund, including the establishment.
and maintenance of any balances and reserves."
The Commission, as trustee of the fund, would "do just
this on a continuing basis and its efforts in this regard would
automatically be audited by the General Accounting Office.
We cannot help but feel that, especially at the outset of the pro-.
gram, the Advisory Council as constituted by section 12 would have to
be in virtually continuous session, would divert the energies and.
resources of the Commission, and, in general, would impede efficient,
administration. We urge that section 12 be amended so that it pro
vides for a council whose function will be to advise and to recommend.
rather than to monitor the Commission. Language which would do
this follows:
"SEc. 12. (a) There is hereby established a Federal Employees.
Health Benefits Advisory Council which shall consist of the following:
" (1) The Director of the Bureau of the Budget or his represen-
tative;
" (2) The Secretary of the Treasury or his representative;
" (3) The Secretary of Health, Education, and Welfare or his,
representative;
" (4) Four members, to be appointed by the Chairman of the Com-
mission, of whom two shall be elected officers of national employee.
organizations and two shall be employees enrolled under this Act.
" (b) It shall be the duty of the Advisory Council (1) to consult with,
and advise the Commission in regard to the administration of this
Act, and (2) to make recommendations to the Commission with.
respect to the amendment of this Act or improvements in its.
administration.
"(c) Members of the Council who are not otherwise in the employ
of the United States shall be entitled while attending meetings of the
Advisory Council, including travel time, to receive compensation at
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GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM 25
a rate to be fixed by the Commission, but not exceeding $50 per diem,
while away from their homes or regular places of business.
"(d) The Advisory Council shall be convened once yearly or
oftener on the call of the Chairman of the Commission or on request
,of any three members of the Advisory Council."
STATUTORY BUREAU OF RETIREMENT AND INSURANCE
The only reasons we know of for the inclusion of section 13 in S. 2162
are the ones advanced in page 19 of the Senate committee's report on
the bill. To put it briefly, the Commission does not find these reasons
persuasive.
It is quite possible that the Commission may find it advisable to
organize a bureau to handle its retirement and insurance functions.
This possibility exists whether S. 2162 is enacted or not. The Chair-
man of the Commission is already empowered by law to reorganize the
Commission and if considerations of economy and efficiency should in
the future so dictate, he would do this. But his right, among other
things, to choose a propitious time for the reorganization, to assign
a name to a newly created bureau, to delegate responsibility, and to
determine, in accordance with position classification standards, the
grade of a bureau director should not be invaded by a statute which
is not germane to these matters.
We must strongly urge that section 13 be deleted entirely from
S.2162.
CONTRACTS AND REGULATIONS
The last feature to which the Commission feels obliged to object
is the directive in section 16(a) which would require the Commission
to transmit by May 1, 1960, to the House and Senate Committees on
Post Office and Civil Service, copies of the contracts it proposes to
enter into and the regulations it proposes to promulgate.
We cannot perceive nor have we been able to ascertain the purpose
of this directive unless it is to assure that the Commission takes timely
action- to implement the enacted bill. If this is its purpose, its in-
elusion in the bill is superfluous since section 16(b) directs that the
enacted bill become effective July 1, 1960. If the bill is enacted, we
will of course deploy all our resources to have implementation com-
pleted by that date. We feel, in this connection, that it is necessary
only to call attention to the very prompt action the Commission took
in August of 1954 to make the Group Life Insurance Act effective-
and this with no effective date specified in the statute.
In addition to being superfluous, section 16(a) would leave the
Commission in a quandary in at least two respects.
(1) Prudence would seem to dictate that the Commission,
having transmitted copies of the contracts and the regulations,
postpone their signing and promulgation while it awaited some
formal acknowledgement from both the Senate and House
committees that they had objections to or that they approved of
the proposed contracts and regulations. The wait could of
course result in significant delay but. any action, either negative
or affirmative, on the part of either committee could be construed
as an infringement upon the Executive's powers.
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26 GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
(2) If between the time copies of the contracts and the regula-
tions were transmitted andthe time they were signed and
promulgated, changes were made in either or both, the Commis-
sion would presumably have to notify the committees of the
changes and again await acknowledgements. Such last minute
changes could easily occur after May 1, 1960, in which case the
Commission could, involuntarily, be in violation of section 16(a).
Viewed in the most favorable light, section 16(a) is superfluous
and enigmatic. It should be deleted from the bill.
We are not in this statement of our views suggesting language to
perfect a number of relatively minor items in S. 2162 which we think
can (and should) be easily improved. Mostly, these improvements
would facilitate administration of the program.
I would be glad to have a representative of my office meet with.
your staff to work out these perfecting changes and, if you wish, to
provide such other technical assistance as your committee may want..
The Bureau of the Budget advises that there is no objection to the
submission of this statement to your committee.
By direction of the Commission:
Sincerely yours,
ROGER W. JONES, Chairman.
OFFICE OF THE POSTMASTER GENERAL,
Hon. TOM MURRAY, Washington, D.C., July 28, 1.969.
Chairman, Committee on Post Office and Civil Service,
House of Representatives, Washington, D.C.
DEAR MR. CHAIRMAN: Reference is made to your request for the
views of this Department on S. 2162, as amended and reported in the
Senate. S. 2162 is a bill to provide a health benefits program for
Government employees.
In previous years the Post Office Department has favored in
principle health insurance for Federal employees, provided such
insurance could be obtained at a reasonable cost and meets the needs
of employees for protection against catastrophic illness, This
Department continues to favor such health insurance for Federal
employees.
S. 2162 as reported in the U.S. Senate is based on a committee
print. The position of the administration on this legislation has been
set forth in reports by the Civil Service Commission and by the
Bureau of the Budget (pp. 24-28 of S. Rept. 468 to accompany S.
2162). These reports have been brought to the attention of this
Department and this Department concurs therein.
It is understood that the U.S. Civil Service Commission and the
Bureau of the Budget will file reports with your committee with
respect to S. 2162 as reported to the Senate. In the circumstances,
this Department has no comments or recommendations to submit
with respect to this legislation.
The Bureau of the Budget has advised that there would be no
objection to the submission of this report to the committee.
Sincerely yours,
E. O. SESSIONS,
Acting Postmaster General.
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GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM 27
DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE,
Hon. Tom MURRAY,
August 12, 1959.
Chairman, Committee on Post Office and Civil Service,
House of Representatives, Washington, D.C.
DEAR MR. C$AIRMAN: This is in reply to your request of July 8
for our comments on S. 2162, as passed by the Senate, a bill to provide
a health benefits program for Government employees.
Our comments on S. 2162 are also applicable to H.R. 8210 and
H.R. 8211, pending before your committee, which appear to be identi-
cal with S. 2162.
In view of the detailed explanation of S. 2162 in the report of the
Senate Committee on Post Office and Civil Service, we refrain from
burdening this report with a summary of the bill.
The pattern of health insurance coverage for Federal employees
proposed by this bill is one which this Department considers appro-
priate and essential, both to meet the health insurance needs of
Federal employees and to assure the competition among plans neces-
sary for expansion of voluntary health insurance in the Nation. In
this connection, we should like to mention the following basic points:
1. The employee options permit a real choice of coverage by the
employee in terms of what he considers best suited to his needs and
those of his family, and also provide an opportunity for the develop-
ment of enrollment procedures which will yield the kind of educational
efforts required to promote restraint and responsibility in the use of
health insurance benefits. Carriers have found such efforts necessary
with regard to both the insured and the providers of services.
Employee choices call for reasonable opportunity for changing from
one plan to another. If the rules regarding transfer from one plan to
another are unduly restrictive, a valuable gage of employee satisfac-
tion and carrier performance can be lost. Since the bill forbids restric-
tions which would exclude or limit coverage for preexisting diseases or
conditions, the main problems in working out reasonable transfer
arrangements will be adjustments for premium payments and benefits
already availed of during the previous part of the benefit year.
2. The alternative types of plans set forth in the bill permit the
development of benefits which could provide full scope of protection
for Federal employees. It should be the responsibility of the Com-
mission to see that each of the plans for which it contracts or gives
approval offers protection which is substantially equivalent to some
desirable level established by the Commission as a yardstick. Im-
portant, too, is the opportunity provided under the bill for women
employees to gain coverage for their families.
3. The bill accepts the principle of uniform contributions for both
active employees and retirees and uniform benefits for these groups.
The continuation of protection for retired employees without reduc-
tion-with premiums to continue at the same level, and their cost to
be shared by the annuitant and the Government in the same propor-
tion, as for active employees-follows a desirable pattern of coverage
in health insurance plans generally.
4. The bill permits the setting aside of a portion of the health bene-
fits fund as a special reserve against adverse fluctuations in future
charges. A reserve of this type appears wholly appropriate in view
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28 GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
of the nature of health benefits risk and the rising trend in medical
care costs.
On such matters as the desirable distribution of premium costs as
between the Government and employees, the composition and func-
tions of the Advisory Council, and the proposed establishment of a
Bureau of Retirement and Insurance within the Commission, we defer
to the views of the Civil Service Commission. We suggest, however,
that the Secretary of Health, Education, and Welfare be designated
as a member of the Council in place of the Surgeon General of the
Public Health Service. It should be noted that our Social Security
Administration and the Office of the Special Assistant to the Secretary
on Health and Medical Affairs, as well as the Public Health Service,
are expert in and concerned with the study and encouragement of
voluntary prepayment plans for hospital, medical, and other health
services.
We, therefore, recommend enactment of the bill, with the modifi-
cations above suggested, and with such further modifications as are
indicated by the views of the Civil Service Commission and the
Bureau of the Budget, on the Federal share of the costs, on adminis-
trative organization, and on the composition and functions of the
Advisory Council.
In making this recommendation, we have not overlooked the fact
that the bill does not address itself to the problem of health insurance
for those who are already retired, a fact that has given us much.
concern. We consider it essential that legislation for active employees
and future retirees be supplemented in the near future by providing
similar protection for those already retired. While we recognize the
complexity of the problems involved in providing effective health
benefit coverage to those already on annuities, the pressing health
insurance needs of retired Federal employees suggest the importance.
of an early formulation of ways and means to meet their problems.
The Bureau of the Budget advises that it perceives no objection
to the submission of this report to your committee.
Sincerely yours,
ARTHUR S. FLEMMING, Secretary.
GENERAL COUNSEL OF THE DEPARTMENT OF DEFENSE,
Washington, D.C., August 7, 1959.
Hon. Tom MURRAY,
Chairman, Committee on Post Office and Civil Service,
House of Representatives.
DEAR MR. CHAIRMAN: Reference is made to your request for the
views of the Department of Defense on S. 2162, 86th Congress, a bill
to provide a health benefits program for Government employees, as
reported in the Senate on July 2, 1959.
This bill would provide generally for four basic types of health
insurance plans to be made available to Federal employees and
annuitants, and members of their families. The bill also covors the
level and pattern of benefits to be provided under the various plans;
places certain responsibilities in the Civil Service Commission for
overall administration; provides for payroll deductions and matching
contributions by the Government; establishes a Federal Employees'
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GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM 29
Health Benefits Fund; and creates a Federal Employees Health
Benefits Advisory Council and states its duties.
The Department of Defense fully recognizes the importance of
group health insurance for its employees. For many years it has en-
couraged these employees to participate in available group health
insurance programs on a voluntary basis, and large numbers are
currently participating in such programs. This Department has also
consistently supported recommendations for health insurance which
have been included in the legislative programs of this administration.
The Department of Defense therefore endorses the basic purposes
of S. 2162 and favors the enactment of legislation which will establish
a Federal employee health benefits program that will provide sound
protection against the high costs of illness at a price which both the
employees and the Government can afford. The Department further
believes that July 1, 1960, should be the goal for making such program
fully effective and removing the unfortunate lag between the Federal
Government and private industry in this important area.
Time has not permitted the full and detailed analysis of all the
technical provisions of S. 2162 which would be necessary in order to
determine whether changes in any of those provisions might produce
improvements. However, the Department of Defense considers that
this bill does provide the basis for a sound, well-rounded program of
health insurance.
From the standpoint of assuring the most economical and efficient
administration of this program, however, the Department of Defense
is concerned with those provisions of S. 2162 which establish and pro-
scribe the functions and duties of the Federal Employees Health
Benefits Advisory Council.
The wording of section 12 makes this Council much more than an
advisory body. It has monitoring and investigative functions, may
receive reports and information from various individuals concerned
with the program (which to some degree at least give it the character
of a grievance committee), and may recommend legislation, presum-
ably with or without concurrence of the Civil Service Commission
which is the agency responsible for the program.
All these powers and duties of the Advisory Council will, in the
opinion of the Department of Defense, tend to dilute and impair the
position of the Civil Service Commission as the administrator of the
program, create confusion, and make more complicated the administra-
tion of a program which will be complicated enough even under the
best of circumstances. It is the belief of the Department of Defense
that the Advisory Council should be confined to those functions which
the name implies-advising and making recommendations to the Civil
Service Commission.
It would also seem unnecessary and undesirable to provide for
membership on the Council of representatives of university schools
of medicine, hospital administration, and public health. While these
are undoubtedly sources from which the Civil Service Commission
would desire to seek information and advice from time to time, this
can be done without providing membership and votes on a statutory
advisory council. Their interest in and identification with the pro-
gram established by S. 2162 is not this direct.
S. 2162 provides for an equal sharing by employees and the Govern-
ment of contributions under the program, which exceeds the maximum
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Government contribution previously recommended by the admin-
istration. It is estimated that costs to the Department of Defense
from legislation of this nature will approximate one-half the costs to
the Government, exclusive of costs attributable to coverage of annu-
itants. Since S. 2162 represents pending legislation, no provision has
been made for these costs in the budget of the Department.
The Bureau of the Budget advises that there is no objection to the
submission of this report to the Congress.
Sincerely yours,
L. NIEDERLEHNER,
Deputy General Counsel.
COMPTROLLER GENERAL OF THE UNITED STATES,
Hon. TOM MURRAY,
Washington, July 21, 1959.
Chairman, Committee on Post Office and Civil Service,
house of Representatives.
DEAR MR. CHAIRMAN: In compliance with your request of July 8,
1959, we offer our comments on S. 2162, as passed by the Senate.
The bill provides generally that there shall be made available to
Government employees health benefit plans of the currently popular
types, the cost of which will be borne equally by the Government and
the employees concerned. The program will generally give Govern-
ment employees protection equivalent to that enjoyed by commercial
and industrial employees.
While the bill involves a matter of policy upon which we offer no
recommendation, the following observations are made for such con-
sideration as they may warrant.
Section 2.--Many terms appearing in the bill, some of which are
used interchangeably, are not clear. Among these are hospital care,
hospital benefits, medical services, ambulatory patients, hospital serv-
ices, hospital outpatient, other ambulatory patients, diagnostic and
treatment services, and professional services. We assume that the
`Commission will include in its regulations such definitions as may be
necessary.
Section 5 (general comments on subsections (a) and (b)).-Subsection
(a) provides the benefits to be included in health plans but subsection
(b) authorizes the Commission to substitute "alternative" benefits for
any and all of the benefits specified in subsection (a). As the section
is now written, the alternative benefits could be exclusive of major
medical care. We suggest that subsection (b) be revised to insure that
the alternative benefits shall include both basic and major medical
protection at least equal to that provided under subsection (a). Also,
in the event the Commission finds, in the administration of the pro-
gram, that costs are being adversely affected by excessive or unjusti-
fied use of health services, there may be required some means of
protecting the interests of the employees who refrain from such prac-
tices. Possibly, as an aid to the Commission, the authority to include
deductibles and coinsurance should be made applicable to any benefits
offered by the program.
Section 5(a)(1)(A).-While there is general provision for 120 days
hospital care, the duration of care provided in cases of tuberculosis
and nervous and mental conditions is limited to 30 days. We think
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that the supplemental benefits would apply in those cases, immediately
after the expiration of 30 days. However the relationship of this
ssection to the major medical care provided in section 5(a)(1)(E) is
not entirely clear. Therefore, we suggest the insertion of an express
provision in the bill designating the point at which a tuberculosis or
mental patient would be covered by major medical care.
Section 5(a) (1) (B) and 5(a) (1) (C).-The language "to persons with
incomes less than those of the one-quarter of Federal employees earn-
ing the highest incomes" apparently is intended to preclude graduated
medical and surgical fees to Federal employees with incomes less than
those in the one-quarter group of employees that earn the highest in-
,comes. However, enactment of the language would constitute con-
gressional recognition of the practice of graduated medical and surgical
fees to personnel with incomes in the "one-quarter of Federal em-
ployees earning the highest incomes." We doubt that congressional
recognition should be given to the practice of graduating medical and
surgical fees upon the basis of income. Therefore, you may wish to
delete the language in the section relating to graduated fees.
Section 5(a) (1) (D).-Benefits for ambulatory patients should be
clarified. As the subsection now reads, it is not clear whether it was
the intention to require that each of the four plans specified in section
4 include provisions for protection against medical costs for ambulatory
patients, or whether care for this class of patients would be restricted
to service benefit plans. Further, it is not clear whether the con-
templated medical costs would apply to visits of patients to the phy-
sician's office when the patient had not been previously hospitalized
for the condition subsequently treated at the office. It is likewise not
clear whether the section contemplates the payment for house calls
made by physicians.
Section 5(a) (1) (E).-The section provides for a sharing of the first
$1,500 of expenses and that the carrier shall pay all costs in excess of
$1,500 subject to maximums determined by the Commission. Your
committee may wish to consider the desirability of prescribing in the
law itself maximum and minimum amounts that would be payable in
addition to the first $1,500. This point would be of particular sig-
nificance if the cost of benefits provided under a plan should increase
to a point where it may be necessary for the Commission to reduce
certain of such benefits to stay within the limit of available funds.
Also, we suggest the addition of the following language to be inserted
after the word "subparagraph" appearing on line 10, page 31, "shall
include any and all diseases but".
Section 5(a) (1) (F) .-Apparently under this paragraph no supple-
mental benefits would be provided for any normal delivery even
though complications may develop prior to the patients' complete
recovery.
Section 5(a) (Q).-We do not have the details of the benefits which
may be offered under the indemnity plan. We recommend, however,
that the bill require or, at least, that the committee report specify
that the value of benefits under the indemnity plan generally coincide
with the value of the services furnished under the service plan, includ-
ing coverage of all diseases.
Section 6.-The bill specifies that the Commission shall approve
two nationwide plans, one of the service type and one of the indemnity
type, and authorizes the Commission to enter into nationwide con-
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32 GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
tracts for benefits provided by the two plans. Under such conditions,
the question arises as to what recognition is to be given to the varia-
tions in hospital room rates, medical services, and surgical fees
between various localities. Since schedules of benefits will be ap-
plicable nationwide, there will be a tendency for those hospitals and
surgeons heretofore charging less than the stated maximum to increase
their 'rates and fees until they reach the maximum levels specified.
This result would add to the cost of the program for both the employee
and the Government. In our opinion the bill should specify that the
nationwide contracts contain language assigning to the carrier respo.nsi-
bility for maintaining costs at prevailing local levels. We suggest
language similar to the following be added to section 6(b) "Any nation-
wide prime contract shall include a requirement that the carrier's
subcontracts or other arrangements with corporations, associations,
groups, doctors, hospitals, and other providers of health services
shall be stated at cost levels no higher than the (1) charges to the,
general public, or (2) schedules of health benefit costs in local health
benefit plans."
We suggest that this section be amended to authorize the Com-
mission to require reinsurance if it deems such action is necessary to
protect the interests of the Government. Similar reinsurance is
required under the Government Employees Life Insurance Act.
Section 7(b).-This section covers employees who are on leave
without pay and would vest in the Commission discretion to regulate
the coverage to be granted. Presumably, this discretion is necessary
to enable consideration of the circumstances involved in individual
cases concerning authorized or unauthorized leave without pay.
Consideration might be given to providing the Commission guidelines
for its administration of this section in your committee's report.
Section 8.-We recommend a technical revision in this section
After the word "Fund" on page 36, line 14, insert the language "which
shall be administered by the Commission and". Also, on page 37,
after the word "Fund" appearing on line 15, insert the language "when
directed by the Commission."
Sincerely yours,
B-119033.
JOSEPH CAMPBELL,
Comptroller General of the United States.
COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, August 17, 1959.
Hon. Tom MURRAY,
Chairman, Committee on Post Office and Civil Service,
House of Representatives.
DEAR MR. CHAIRMAN: As a result of a number of conferences
between members of our respective staffs we have been requested to
report on the version of the bill S. 2162 presently under consideration
by your committee. We are pleased to offer the following comments
on the bill as presently revised by the committee.
Health benefit plans (sec. 4, p. 30)
Section 4 of the bill provides that there shall be one Government-
wide service benefit plan and one Government-wide indemnity plan.
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GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM 33
Testimony before the committee has disclosed clearly that in order to
provide a health plan within the reach of the employees in the lower
grades, and for basic fiscal policy reasons, a benefits plan with rela-
tively low or "thin" benefits will be acquired. Under the require-
ment that only one service and one indemnity plan may be operative,
such plans may and probably will not provide a benefit level desired
by the majority of employees in the middle or upper grades, nor will
the new uniform medium or low benefit plan compare favorably with
broader coverage now carried by many employees. We suggest that
the committee consider revising this section of the bill to require the
providing of at least two levels of benefits for each of the two primary
plans created by sections 4(1) and 4(2). Two levels of benefits would
provide a more flexible choice to the employees, enabling them to
consider local cost conditions, and would also recognize the employees'
ability to pay. In our opinion the option for two levels of benefits
under each major plan could be included within a single contract with
the respective carriers. While the cost of administration will neces-
sarily be increased by additional options, we believe that the matter
can be worked out by the Commission to assure a minimum of in-
creased costs. The following language, or some modification thereof,
added to sections 4(1) and 4(2) would provide a basis for the Com-
mission to develop two levels of benefits and two levels of cost under
each of the two nationwide plans:
"Provided, That any such plan shall include two levels of benefits
and two related levels of subscription or premium charges."
Contracting authority (sec.' 6, p. 33)
The committee has received testimony that experience under many
health plans indicates they are subject to costly abuses. Published
material indicates a rather significant overutilization of hospital serv-
ices when the individuals are insured for hospital services only.
Some published data has indicated that unnecessary hospitalization
under insurance or service plans runs as high as 20 percent.
If abuses occur, then costs borne by the employee and the Govern-
ment will be correspondingly higher. Conversely, if the unnecessary
services and the related costs are curtailed, then more funds will be
available to provide the necessary benefits. The unnecessary use of
hospital room and board in order to obtain other needed services not
available unless the patient is hospitalized, is an example of abuse.
The insurance industry and the large employers have devised con-
tract provisions designed to curtail nonessential utilization of health
services, and it would seem that where appropriate the Government
should apply similar and other effective provisions. Coverage of all
medical services, coupled with coinsurance and deductibles are among
the corrective devices used. The committee may wish to state in
the bill an expression of policy for the guidance of the Commission
in framing contracts to provide to the extent possible for the curtail-
ment of abuses of the Government health plans by the users of the
services or benefits. This could be accomplished by adding a provision
to section 6 of the bill, reading substantially as follows:
"Regulations of the Commission shall require that all plans or con-
tracts include benefits, in specified categories of health services, and
at such levels, as the Commission determines necessary to restrict
excessive utilization or abuse of any service. The standards shall
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34 GOVERNMENT EMPLOYEES' HEALTH BENEFITS PROGRAM
include such other provisions, including coinsurance and deductible
provisions, determined by the Commission to be necessary to prevent,
abuses of the program."
Contributions (sec. 7(a)(1), p. 36)
We wish to point out that section 7(a)(1) as written, permits the
Commission full discretion regarding the level of benefits that may be
acquired. The benefits may be set very low-substantially below
the amounts stated in subparagraphs (i) and (ii)-and in such cases,
the Government would pay 50 percent of the costs. If the benefits
acquired are liberal and the costs higher, then the Government may
pay less than 50 percent of the costs.
Also, we note that the minimums and maximums between which
the Commission must set the "prescribed" amounts are apparently
intended to be applicable uniformly to all plans. However, it is
possible to interpret the language of this section as authorizing
variable "prescribed" amounts, within the three categories of mini-
mum and maximum limits stated in the bill. We believe this would
be inequitable to employees who were members of the plans assigned
low "prescribed" amounts. We. suggest the following change on line
7, page 36:
"The amounts so prescribed, which shall be uniform for all plans,
shall not--."
Subscription charges and premiums
The bill contains numerous references to "subscription charges"'
and "premiums." However, the manner in which the terms are used
indicates that in some instances these terms refer to the combined
amount represented by payroll deductions from employees and the
Government's transfer to the fund, and in other instances one or both
of the terms refer to the payment from the fund to the carriers..
These amounts paid into the fund will not necessarily be the same
as the amounts paid out to carriers, as the bill is now written. The
difference in the amounts is due to allowances for expenses and credits..
to the reserve. It is suggested that the use of these terms throughout
the bill be reviewed and their specific use clarified by editorial change..
We will be pleased to provide any further information or assistance
in connection with this proposed legislation that the committee desires...
Sincerely yours,
FRANK H. WEITZEL,
Assistant Comptroller General of the United States..
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