Members of Congress, their staffs, and approximately 9 million other federal workers, retirees, and their families in the 42-year-old Federal Employees Health Benefits Program (FEHBP)--a consumer-driven system unmatched in the private sector--are beginning the annual process of selecting plans and benefit options for next year. Unlike most Americans, they are able to choose a plan that best meets their needs from almost 200 private options nationwide, including fee-for-service, preferred provider organization, and managed care plans, and those sponsored by unions and employee organizations. They also can pocket any savings they realize from their wise choices.
Though the structurally sound FEHBP historically has outperformed both private health insurance and Medicare in controlling costs and achieving high rates of member satisfaction, it is nevertheless troubled. Next year, it will face a projected premium increase of 13.3 percent. One reason: It serves an aging and increasingly costly pool of workers and retirees. Another, more basic reason: Many of its difficulties are rooted in outdated policies implemented by officials in the federal agency that administers the program, the Office of Personnel Management (OPM). These policies are incompatible with the free-market principles of patient choice and competition upon which the program is based.
- Artificial restrictions on plan options, including less expensive plans. Current policy imposes restrictions on the supply of alternative health care options and plans in the market, such as high-deductible plans, new fee-for-service plans, medical savings accounts (MSAs), and flexible spending accounts (FSAs). Restrictions on the supply of services in a market constitute a deliberate distortion of that market, which drives up costs and premiums.
- Steady growth in the equivalent of health benefit mandates and regulation. Mandates and regulations drive up costs, yet over the past decade, OPM imposed many benefit requirements and expanded its regulatory reach. Between 1991 and 2001, it imposed 44 benefit "changes"--often the equivalent of mandates--and a variety of regulatory initiatives. Meanwhile, state governments imposed over 1,400 similar mandates on private health plans, and between 1996 and 1999, state legislatures enacted over 1,000 laws governing managed care plans. OPM preempts state rules for national plans or HMOs that operate in interstate commerce but refuses to exercise its statutory authority to preempt state-mandated benefit laws and insurance regulations for HMOs headquartered, or "domiciled," in the several states. Consequently, federal employees and their families enrolled in those plans are forced to absorb the costs of these added mandates, requirements, and regulations.
- Routine neglect of long-term problems with the program, including the aging of its membership pool; the persistence of adverse selection, in which older and sicker enrollees gravitate to certain plans and drive up costs and drive out younger and healthier enrollees; and the need to improve the way in which the government contributes to competing health care plans. Serious policy changes in these areas would restrain costs and improve the functioning of the program.
- Reaffirm the statutory authority of the OPM Director to negotiate premium rates and health benefits without congressional interference; in addition, the President should veto any new benefit mandates Congress attempts to impose on the program.
- Preempt state-mandated benefits and seek an independent evaluation of the cost impact of recent OPM regulatory initiatives and benefit changes.
- Return to the traditional system of cooperative negotiations with competing health plans and promoting private-sector flexibility and innovation in benefit design and pricing.
- Empower consumers by incorporating the emerging information technology into the program. Advanced information technology can help patients more easily compare and choose high-quality plans, doctors, and health benefits.
- Enhance plan options by easing the entry of new plans into the program, including the new fee-for-service plans, MSAs, and FSAs available to millions of workers and their families in the private sector.
- Change the insurance underwriting rules and the government contribution formula to enable federal workers and retirees to take full advantage of the potential savings that accrue from wise plan choices while reducing adverse selection in the program.
- Broaden the FEHBP pool by allowing young military families and dependents and the families of reservists called up for active duty to enroll in the program. This not only would substantially improve health coverage for these families, but also would stabilize health insurance premiums for all federal workers and retirees.
In recent years, OPM has become a more aggressive regulatory agency, imposing the equivalent of benefit mandates, promoting plan standardization, and reducing the capacity of private plans to make innovative changes. OPM policies have neither reduced health care costs nor attracted more plans and benefit offerings.
Today, federal workers and their families are paying higher prices with less real choice. Improving the FEHBP can be the first step for the Administration and Congress to create a new health care system for Americans in which individuals and families, rather than corporate or government officials, make the key decisions.
Robert E. Moffit, Ph.D., is Director of Domestic Policy Studies at The Heritage Foundation.