The Health Security Act of 1993 Documentation of Federal Budget Effects December 1993 Table of Contents Medicaid/Medicare Medicaid.......................................................2 Medicare......................................................15 Other Existing Government Programs Veterans Affairs..............................................40 Department of Defense.........................................43 Federal Employee Health Benefits..............................46 Public Health.................................................50 New Programs Academic Health Center and Medical Education Funding Pools....72 Wrap-Around Benefits for Children.............................73 Long-Term Care................................................75 Net Federal Discount Payments to Alliances (Capped Entitlements) Discounts.....................................................80 Offset for State Maintenance of Effort........................82 Administrative Costs..........................................84 Attachment Glossary of Acronyms..........................................88 BACKUP DOCUMENTATION This document provides a description of policies in the Health Security Act which involve Federal costs or savings, the line-by-line numerical estimates, and a brief description of key assumptions or methodologies used to derive the estimates. The estimates are consistent with the Congressional testimony presented by the Director and Deputy Director of OMB. A few minor variances with the final bill language remain. Revised estimates will be provided with the President's FY 1995 Budget. [page 1] Backup Documentation (Savings negative, costs positive) (outlays in $ millions) Budget Category Medicaid: Providing Coverage for Medicaid Non-Cash Recipients through Alliances Budget Projections Fiscal Years 1995 1996 1997 1998 1999 2000 95-2000 Guaranteed 0 -1,900 -6,500 -18,500 -24,700 -27,900 -79,500 benefit package Wrap: non-cash 0 -100 -600 -1,600 -2,300 -2,600 -7,200 Wrap: cash kids 0 -100 -300 -900 -1,200 -1,300 -3,800 Emergency svcs 0 100 200 400 500 600 1,800 for undocumented persons ----------------------------------------------------------------- Net Medicaid 0 -2,000 -7,200 -20,600 -27,700 -31,200 -88,700 Savings Policy Description Current non-cash recipients of Medicaid (individuals under age 65 who do not receive AFDC or SSI payments) will receive a comprehensive package of benefits through the health alliances, like everyone else. Medicaid will not pay their premiums. In addition, Medicaid will no longer pay for wraparound benefits on behalf of non-cash recipients integrated into alliances or cash recipient children. (Cash and non-cash children will receive wraparound benefits through a new Federal program, as described in a separate backup document.) [page 2] Key Technical Assumptions Estimates are based on projected Medicaid acute care spending for services covered in the guaranteed benefit package as well as Medicaid wraparound benefits. Pricing based on August 1993 Medicaid estimates. The percentage of aggregate acute care spending allocated to non-cash recipients is based on data from HCFA-64 and 2082 forms. DSH spending is not included in the estimates. Assumes that states with 15% of Medicaid spending implement by FY 1996, 40% by FY 1997, and 100% by FY 1998. Estimates based on assumption that new Federal program is created to cover wrap benefits for both cash and non-cash children. Net Medicaid savings includes estimate for continued Medicaid coverage of emergency services for undocumented persons. [page 3] BACKUP DOCUMENTATION (savings negative, costs positive) (outlays in $ millions) BUDGET CATEGORY Long-term care: Medicaid offset from new community LTC program. BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 community 0 -1,500 -2,200 -2,700 -3,100 -3,600 -13,100 LTC offset POLICY DESCRIPTION The new community LTC program for people with severe disabilities will serve eligible individuals who were previously covered under Medicaid. KEY TECHNICAL ASSUMPTIONS Estimates are from ASPE/Lewin-VHI (see "New Programs/Long-Term Care"), based on the assumptions that roughly 50% of baseline Medicaid home and community-based spending will be offset by the new program. Data from the National Medical Expenditures Survey and the Medicaid program support an estimate that 50% of Medicaid home and community-based expenditures are for individuals meeting the severely disabled criteria of the new community LTC program. ASPE assumed that States will move these individuals to the new LTC program, where a higher Federal matching rate and increased program flexibility will be available. Medicaid baseline spending projected by Lewin-VHI. [page 4] BACKUP DOCUMENTATION (savings negative, costs positive) (outlays in $ millions) BUDGET CATEGORY Medicaid: Effect of Capitated Payment for Cash Recipients BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 0 -300 -1,200 -3,900 -6,700 -10,200 -22,300 POLICY DESCRIPTION Under the Health Security Act, a comprehensive benefits package will be provided to cash AFDC recipients through the Alliances. States will contribute to the Alliances a premium for cash recipients equal to 95% of baseline spending on benefits for cash recipients in the year prior to implementation of reform. Baseline spending in the year prior to implementation is computed by trending forward spending in FY 1993 by the projected national average Medicaid growth rate for benefits for cash recipients. Beginning with the first year of implementation, premiums grow at the budgeted premium growth rate for the private sector. Separate premiums will be computed for AFDC and SSI recipients. States are to vary premiums across Alliances within a State so that the weighted average premium across all Alliances is equal to the premium as calculated on a uniform, Statewide basis. OACT'S KEY TECHNICAL ASSUMPTIONS To calculate the premium, actuaries used annual growth rates derived from historical and baseline data. States were assumed to implement health reform on a Federal fiscal year basis in 1996 (15%), 1997 (25%), and 1998 (60%). It was assumed that full-year cash recipients would total roughly 18 million by FY 1996. The baseline data used to calculate the savings listed above incorporates State spending estimates from August, 1993. [page 5] BACKUP DOCUMENTATION (savings negative, costs positive) (outlays in $ hundreds of millions) BUDGET CATEGORY Medicaid: Disproportionate Share Hospital Payments and Vulnerable Populations Adjustment BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 Disprop Share 0.0 -1.4 -4.7 -13.0 -16.8 -18.6 -54.6 * Vulnerable 0.0 0.2 0.4 1.0 1.0 1.0 3.6 * Pop Adj Net 0.0 -1.2 -4.3 -12.0 -15.8 -17.6 -51.1 * * Totals do not add due to rounding. POLICY DESCRIPTION Medicaid disproportionate share hospital (DSH) payments are supplemental payments for hospitals that serve large numbers of low-income, undercompensated, or non-paying patients. The Federal share of DSH payments totalled about $9 billion in FY 1993, over 12% of medical assistance payments. Hospitals that currently serve a disproportionate share of Medicaid and uncompensated patients will receive large inflows of new revenue when universal coverage is phased in with health reform. Providers will be compensated for all patients and rates for current and former Medicaid recipients will be determined through negotiations with health plans. As a result, Medicaid DSH payments are to be eliminated as Sates implement health care reform in CY 1996 (15%), CY 1997 (25%), and CY 1998 (60%). New Federal payments of $3.55 billion will be targeted to hospitals serving a high percentage of low-income individuals through the Vulnerable Populations Adjustment. OACT'S KEY TECHNICAL ASSUMPTIONS The baseline data used to calculate the savings listed above incorporates State spending estimates from August, 1993. August State estimates were not included in HCFA's mid-session review (MSR) estimates. HCFA actuaries estimated that Federal DSH outlays in FY 1994 will total roughly $10.3 billion -- up from an MSR estimate of $9.5 billion. Actuaries assumed that a three-month payment lag would lower potential first-year savings in each State by 25%. Savings were calculated assuming that States would implement health reform on a Federal fiscal year basis as follows: FY 1996 (15%), FY 1997 (25%), and FY 1998 (60%). [page 6 & 7] BACKUP DOCUMENTATION (savings negative, costs positive) (outlays in $ millions) BUDGET CATEGORY Long-term care: Liberalized LTC eligibility BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 Liberalized 0 500 500 500 500 500 2,500 LTC elig. POLICY DESCRIPTION Under the Health Security Act, States will establish a medically needy program for all residents of nursing homes and intermediate care facilities (ICFs-MR). The personal needs allowance (PNA) for nursing home residents may be raised to $50 per month. (Current PNA levels vary across States, but the national average is $35 per month.) The costs of raising the PNA are financed with 100% Federal dollars. States have the option to allow unmarried nursing home and ICF-MR residents to retain up to $12,000 in assets (up from the current $2,000) in determining Medicaid eligibility. KEY TECHNICAL ASSUMPTIONS Approximately 1.2 million residents of nursing homes and ICFs-MR are Medicaid recipients. PNA levels would increase for these individuals in 45 States. 5 States already have PNAs at or above $50 per month. [Page 8] BACKUP DOCUMENTATION (savings negative, costs positive) (outlays in $ millions) BUDGET CATEGORY Medicaid: Cost-Sharing Discounts Provided in Some Alliances BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 0 100 200 600 700 700 2,300 POLICY DESCRIPTION If a low-cost sharing plan is not available at or below the weighted average premium, AFDC and SSI recipients (as well as other low-income beneficiaries) will receive discounts to reduce their cost-sharing to the level they would have incurred if they had enrolled in a low cost-sharing plan. Medicaid pays for these cost-sharing (out-of-pocket) discounts as part of payments to the alliances. KEY TECHNICAL ASSUMPTIONS The total number of Medicaid cash enrollees (non-aged and disabled) was estimated by HCFA at 18.4 million in FY 96 and grows to 20.2 million in FY 2000. The percentage of Medicaid cash enrollees eligible for low cost-sharing discounts is estimated at 5.0%, yielding 990,000 enrollees receiving discounts in FY 1999. The average discount cost was estimated at $1050 in FY 96, 57% of which is Federal, yielding an average Federal discount cost of $599. Average discount costs were assumed to increase by 5% per year. State phase-in schedule assumes States with 15% of Medicaid spending implement 10/1/95; States with 25% implement 10/1/96; and States with the remaining 60% of spending implement 10/1/97. Estimate of cost-sharing discounts calculated on fiscal year basis. Act provides Medicaid premium (in addition to out-of-pocket) discounts to AFDC and SSI recipients ( 1371 (c)(1)) who reside in alliance areas in which a health plan at or below the average weighted premium is not available. This estimate only reflects costs associated with these out-of-pocket (not premium) discounts. [Page 9] BACKUP DOCUMENTATION (savings negative, costs positive) (outlays in $ millions) BUDGET CATEGORY Medicaid: Costs associated with paying unpaid Medicaid claims for cash recipients ("Payment lag"). BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 0 1,040 1,960 5,310 0 0 8,310 POLICY DESCRIPTION States generally pay Medicaid costs (claims) retrospectively. Thus, in the year of implementation, States will be responsible for "lagged" claims from the previous year in addition to prepaid capitation payments to plans. KEY TECHNICAL ASSUMPTIONS States are, on average, a quarter behind in payments. In the year in which a State implements reform, the State (and the Federal government) must make up for this lag, which constitutes 25% of spending for cash recipients for services in the standard benefit package. The costs are incurred in FY96 through FY98 due to staggered State implementation of 15%/25%/60%. States are assumed to phase-in on fiscal year basis. [Page 10] BACKUP DOCUMENTATION (savings negative, costs positive) (outlays in $ millions) BUDGET CATEGORY Medicaid: Administrative Savings Due to Program Reduction and Simplification. BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 0 -100 -300 -800 -1,100 -1,400 -3,700 POLICY DESCRIPTION Under the Health Security Act, as under current law, State expenditures for administering the Medicaid program will be matched by the Federal government. State Medicaid programs will include far fewer enrollees, however. Payment for services included in the comprehensive benefits package will be made via a fixed, pre-paid monthly premium, rather than through direct, fee-for-service provider reimbursements -- significantly reducing the volume of claims and the need for provider contracts, reimbursement specialists, and other State oversight personnel. Thus, with enactment of the Health Security Act, States will have an opportunity to reduce Medicaid administrative expenses substantially. KEY TECHNICAL ASSUMPTIONS It is assumed that States would be able to reduce administrative expenses by about one-third in response to reduced responsibilities in enrollment, oversight, rate-setting, and claims processing. Because administrative savings depend on discretionary State action, potential savings were discounted by 25%. Savings totals assume that States implement health reform on a Federal fiscal year basis in FY1996 (first 15%), FY97 (next 25%) and FY98 (last 60%), and that full administrative savings are reached 2 years after implementation. [Page 11] BACKUP DOCUMENTATION (savings negative, costs positive) (outlays in $ millions) BUDGET CATEGORY Medicaid: Impact of Medicare Drug Benefit on Medical Spending BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 0 -700 -1,000 -1,200 -1,300 -1,500 -5,700 POLICY DESCRIPTION The Health Security Act extends a drug benefit to Medicare Part B beneficiaries. Low-income beneficiaries will receive the same out-of pocket discounts for the drug benefit as they do for other Medicare services. Individuals eligible for both Medicaid and Medicare who currently receive Medicaid drug benefits will now be served by the Medicare drug benefit when reform is implemented. Federal and State Medicaid expenditures will reduced by the portion of the Medicare drug benefit financed through Federal Medicare revenues. OACT'S KEY TECHNICAL ASSUMPTIONS OACT assumed that the net Federal per-beneficiary cost of the Medicare drug benefit, together with beneficiary premiums and cost-sharing, would be equivalent to net Federal per-beneficiary costs for prescription drugs under Medicaid. Actuaries also assumed that Federal outlays from the Medicare drug benefit would reduce current Medicaid spending on dual eligibles (approximately 3.5 million beneficiaries) by 50%, since Medicaid will continue to pay the premium and cost sharing. Conversely, in a shorthand way, the actuaries assumed that Medicaid would incur additional costs equal to 50% of the net Federal per-beneficiary cost of the Medicaid drug benefit for Qualified Medicare Beneficiaries (QMBs) and Specified Low-income Medicare Beneficiaries (SLMBs), for whom Medicaid pays Part B premiums (approximately 1.5 million beneficiaries). The baseline data used to calculate the offset savings listed above incorporates State spending estimates from August, 1993. [Page 12] BACKUP DOCUMENTATION (savings negative, costs positive) (outlays in $ hundreds of millions) BUDGET CATEGORY Medicare/Medicaid: Effect on Qualified Medicare Beneficiary (QMB)/Selected Low-Income Medicare Beneficiary (SLMB) participation and Medicaid payments BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 Net effects 0.0 0.1 0.1 0.1 0.2 0.3 0.8 on Medicaid of Medicare savings proposals (Drug benefit cost-sharing and premiums assumed in Medicare drug estimates.) POLICY DESCRIPTION Under the Health Security Act, working individuals of Medicare-eligible age and their spouses will receive health coverage by enrolling in Alliances, with the employer as primary payor in those cases when a Medicare enrollee works at least 40 hours in each of the last two months of each year. Those eligible for Medicare and Medicaid coverage of cost-sharing and/or benefits will retain Medicaid benefits. Medicare is primary payor for all Medicare services under current law, including drugs for non-working dual eligibles, with Medicaid paying Part B premiums and, in some cases, cost-sharing for poor Medicare Part B enrollees. KEY TECHNICAL ASSUMPTIONS Full FY 1996 implementation of relevant policies; approximately 3.5 million QMBs and 750,000 SLMBs in 1996, extrapolated from HCFA data reports for 1993. Assumed no QMBs/SLMBs are working aged. Medicare is primary payor of drugs for dual eligibles. Drug cost-sharing for QMBs is not in the MOE calculation, but will be required of States. QMBs and dual eligibles who work would receive coverage through the Alliance and may continue to receive Medicaid wrap-around coverage. Medicaid cost-sharing for drugs assumed in Medicare estimates. Assumed 57% of total additional Medicaid costs would be borne by Federal government. Effect of package on Part A premium is not calculated and, as a result, effects on qualified working disabled individuals (QDWIs) are not included in the estimates. This calculation is, therefore, sensitive to the following variables: Percentage of QMBs working; whether Medicaid pays the 20% premium for working QMBs/SLMBs; whether Medicaid pays QDWIs' 20% premium in Alliance; effect on Part A premium for QDWIs of Medicare savings package; effect of final Medicare savings package on coinsurance liabilities (Medicaid pays the Part A premium for QDWIs). [Pages 13 - 14] BACKUP DOCUMENTATION (savings negative, costs positive) (outlays in $ millions) BUDGET CATEGORY Medicare: Part B Prescription Drug Benefit BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 Drug Benefit 0 6,600 13,500 14,200 15,200 16,200 65,800 POLICY DESCRIPTION Under the Health Security Act, Medicare Part B will be expanded for all beneficiaries to include a prescription drug benefit on January 1, 1996. Beneficiaries will pay for their prescriptions out-of-pocket up to $250 each year and 20% of drug costs between $250 and $1000, and will not incur out-of-pocket costs for prescriptions above $1000 each year. Manufacturers will be required to pay a rebate for each non-generic prescription sold to a beneficiary equal to at least 17% of the average manufacturer's price to the retail class of trade. The Part B premium is calculated to equal 25% of the Federal costs of the drug benefit (net of rebate revenue). Reimbursement to pharmacists will be capped at 93% of the average wholesale price for ingredient costs plus $5 per script for the dispensing fee (indexed to inflation). Pharmacists will be expected to answer questions from beneficiaries on recommended usage, side-effects, interactions, etc. The HHS Secretary is authorized to require those administering the benefit to operate a utilization review program for pharmacists and physicians similar to that required under Medicaid. OACT'S KEY TECHNICAL ASSUMPTIONS Listed costs are net of rebate revenue. It was assumed that each dollar of the new Medicare drug benefit would induce an additional 60 cents of drug spending by beneficiaries. Induced demand is estimated to be about $10 billion annually. Administrative costs account for about $1 billion per year of gross Federal expenditures. Monthly Part B premiums would rise between $10 and $11 in CY 1996 to cover 25% of Federal program costs. It was assumed that, after implementation of the drug benefit in 1996, over 36 million Part B beneficiaries would obtain a total of about 1 billion prescriptions per year. It was also assumed that 500,000 high-income beneficiaries would disenroll from Part B due to the combined effect on the Part B premium of the drug benefit and the proposal in the Health Security Act to income-relate the Medicare Part B premium. Working beneficiaries in the Alliance (see separate description of working policy) were included in the beneficiary population used to estimate the costs listed above. An offset for working beneficiaries for all Medicare expenditures, including Part B drug costs, is listed separately. [Pages 15 - 16] BACKUP DOCUMENTATION (savings negative, costs positive) (outlays in $ millions) BUDGET CATEGORY Medicare: Part B Prescription Drug Benefit Administrative Costs(non-add) Administrative costs are displayed separately for illustrative purposes only and are included in the cost estimate of the Part B prescription drug benefit. BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 Drug Benefit 13 600 900 1,000 1,000 1,100 4,613 POLICY DESCRIPTION Under the Health Security Act, Medicare Part B will be expanded for all beneficiaries to include a prescription drug benefit on January 1, 1996. Beneficiaries will pay for all prescriptions out-of-pocket up to $250 each year, 20% of drug costs between $250 and $1000, and will not incur out-of-pocket costs for prescriptions above $1000 each year. Manufacturers will be required to pay a rebate for each non-generic prescription sold to a beneficiary equal to at least 17% of the average manufacturer's price to the retail class of trade. Pharmacists will be expected to answer questions from beneficiaries on recommended usage, side-effects, interactions, etc. The Secretary is authorized to require those administering the benefit to operate a utilization review program for pharmacists and physicians similar to that required under Medicaid. OACT's KEY TECHNICAL ASSUMPTIONS Actuaries assumed that, beginning in 1996, over 36 million Part B beneficiaries would obtain a total of about 1 billion prescriptions per year. It was assumed that electronic claims would account for 90% of all prescriptions and would cost 73cents each in 1993. Remaining claims would be filed on paper, averaging 1.5 prescriptions per claim, and would cost about $1.00 each to administer. It was assumed that the weighted average cost per prescription, 72.4 cents, would increase 3% annually through FY 2000. Fixed costs of $100 million annually were also included in the cost estimates. [Page 17] BACKUP DOCUMENTATION (savings negative, costs positive) (outlay in $ millions) BUDGET CATEGORY Medicare payments to VA health plans BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 Medicare -- -- -- 200 300 300 800 payments to VA plans POLICY DESCRIPTION Under the Health Security Act, Medicare will reimburse VA health plans for services to higher-income veterans for non-service-connected conditions, as defined in 38 USC 1722 (b), eligible for Medicare. VA and HHS will negotiate application of rules and payment rates. KEY TECHNICAL ASSUMPTIONS VA estimates approximately 55,000 veterans that are enrolled in Medicare and that are above the "higher-income" threshold received VA care in FY 1992. Assumes 1/1/98 start-up date. VA health facilities must meet Medicare conditions of participation and reporting requirements. This calculation is sensitive to the following variables: which Medicare payment methodology will be used if VA health plans are considered Medicare HMOs; interaction with working aged policy; whether VA health plans will also cover spouses of veterans; rate of increase/decrease in eligible population; whether Medicare pays for a spouse who enrolls in a VA plan; phase-in schedule used in pricing; whether premiums have been netted out of Medicare expenditures, including drug premium add-on; whether Medicare will be primary payor for prescription drugs purchased by the VA; the date of commencement of Medicare payments to VA health plans; additional administrative costs, if any. [Page 18] BACKUP DOCUMENTATION (savings negative, costs positive) (outlay in $ millions) BUDGET CATEGORY Medicare payments to DoD health plans BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 Medicare -- 200 500 1,300 1,400 1,400 4,800 payments to DoD health plans POLICY DESCRIPTION Under the Health Security Act, the Secretary of HSS has the discretion to disregard the exclusion in the Social Security Act on Medicare payments to DoD health facilities. Medicare will pay a capitated amount to military health plans for services equivalent to SMI benefits for those Medicare beneficiaries who enroll in military plans. The payment will equal the payment to an organization with a risk-sharing contract under Section 1876 of the Social Security Act. KEY TECHNICAL ASSUMPTIONS DoD estimates it will provide $1.268 billion in services to individuals over 65 in 1993. Assumes revised phase-in schedule of 15% in FY 1996, 40% in FY 1997, and 100% in FY 1998. Estimate only accounts for currently projected services to over-65 population and assumes no induced utilization for inpatient or outpatient services. DoD used the DRG workload for the over-65 population to calculate total services provided Medicare beneficiaries. Assumes Medicare paid for 90% of costs. Used CPI-U to inflate estimates in the out-years. This calculation is sensitive to the following variables: method of calculation of the capitated amount; inpatient induced utilization would appear to be negligible, but there may be an inducement effect on the outpatient (Part B) side; effective date for Medicare payment -- phase-in schedule for such payments not specifically outlined. [Page 19] BACKUP DOCUMENTATION (savings negative, costs positive) (outlays in $ millions) BUDGET CATEGORY Medicare: New liabilities for ex-FEHB retiree beneficiaries BUDGET PROJECTIONS Fiscal Years 1995 1996 1997 1998 1999 2000 1995-2000 New Medicare -- 0 0 300 300 300 900 costs, net of premium penalty Medicare -- 0 0 -100 -100 -100 -300 offsetting receipts from monthly premium POLICY DESCRIPTION Under the Health Security Act, retiree health benefits for Federal retirees are covered by Medicare as primary payor. Federal retirees could then have first-dollar coverage, with OPM filling in the cost-sharing as the secondary payor. OPM is assumed to be responsible for payments to cover late enrollment fees assessed against the Part B premium. OPM will offer a Medigap-like policy to protect Federal retirees from cost-sharing. KEY TECHNICAL ASSUMPTIONS Assume all Federal employees and annuitants join beginning January 1, 1998. Assume cohort equals 115,000 individuals (OPM estimates). New enrollment is only under Part B, since almost all have Part A coverage now. Assumed average Part B benefits for aged Part B enrollees. Assumed OPM pay 100% of the Part B late enrollment penalty, including new drug premium (Beneficiaries who do not enroll in Medicare during their initial enrollment period are subject to a penalty in the monthly premium). Assumes all new enrollees pay Part B premium of 25%, including new drug premium. Assumes no drop-outs as the result of the working aged policy or the income-related Part B premium. Assumes no balance billing; assumes drug rebate amounts (15%) into net new Medicare outlays. This calculation is sensitive to the following variables: Effect of wrap-around coverage on utilization; whether wrap-around policies will cover the Part B deductible; how many will opt to purchase FEHB supplemental coverage; average number of years subject to penalty; relative health status of this cohort of individuals; PAYGO consequences; what effect the final policy on working aged will have on these estimates; interaction effect with income-related Part B premium; design of OPM's supplemental policies; receipts from drug add-on amount to Part B premium (Estimates do not account for working aged, long-term care policies). [Page 20 and 21]