Beginning today and continuing through December 13, 2004, millions of federal workers and retirees have the chance to decide which health insurance plans will cover them and their families next year. About 85 percent of the federal workforce voluntarily enrolls in the 45-year-old Federal Employees Health Benefits Program, a unique and successful consumer-driven health care program.
Federal workers and retirees will be making the kinds of decisions that few other Americans can make without incurring prohibitive tax and regulatory penalties. They will decide what kind of health plans they want-whether standard PPO plans, HMOs, or Health Savings Account plans-the kinds of benefits packages they want, the medical treatments and procedures they want, and the premiums, co-payments, deductibles, and coinsurance they are willing to pay. Whatever their choices, the federal government will make a defined contribution to each federal employee's health plan.
Each federal worker will also have an opportunity to evaluate the performance of their existing health insurance plan and make a simple and straightforward decision: rehire or fire it. They have the benefit of their own personal experience along with a reservoir of public and private information on plan performance, benefits, quality, and service. For all practical purposes, most Americans today cannot fire a poorly performing health plan, at least not without imposing enormous personal burdens on themselves and their families.
The FEHBP has a solid record of success in offering health coverage to federal workers and retirees at affordable prices. That success is not based on any superior management by the career civil servants at the U.S. Office of Personnel Management (OPM), the agency that administers the program, or its benefits package (there are many different benefit offerings), but rather on its guiding principles. There are three key principles:
Consumer Choice. Federal workers and retirees get to choose from a variety of health plans, including fee-for-service and Preferred Provider Organizations (PPOs), Health Maintenance Organizations (HMOs), and consumer-driven health plans, such as Health Reimbursement Account plans (HRAs) and Health Savings Account plans (HSAs). In 2005, traditional insurance companies, employee organizations, unions, and, in one instance, a religious organization have all put plans on the FEHBP market. Most American do not have anywhere near this level of choice in health care coverage.
Competition. Federal workers and retirees get to choose from a large number of options. Nationally, 249 plans will be competing for the business of enrollees, including 18 HSA plans or consumer-driven health plans. Routinely, federal workers in any given area of the country are able to choose from between a dozen and two dozen plans. This intense competition has helped to control costs. In 2005, the average annual premium for FEHBP plans will increase 7.9 percent. Health insurance premiums outside of the FEHBP are expected to increase substantially more in 2005.
Light and Rational Regulation. Health care is one of the most highly regulated sectors of the American economy. In the FEHBP, government officials enforce basic benefit requirements, as well as rules governing the fiscal solvency of plans and consumer protection and non-discrimination. There are no price controls or premium caps; there are no detailed rules governing the kind of medical treatments and procedures that enrollees can or cannot have; and there is no comprehensive standard health care benefits package or rigid rules governing co-payments or deductibles. Compared to most government regulation of health insurance, both at the federal or state level, the body of rules governing the FEHBP is smaller and more rational.
The FEHBP is far from perfect, and it could be made to work even better for federal workers and their families (See "How Washington Can Improve Health Care Coverage for Federal Workers and Their Families," Heritage Foundation Backgrounder No. 1504). But overall, it has been a successful program. Not surprisingly, many experts cite the FEHBP as a good working model for health care reform. But details matter (See "Details Matter: A Closer Look at Senator Kerry's Health Care Plan," Heritage Foundation Backgrounder No. 1805). As a model for comprehensive reform, the FEHBP holds special promise for the transformation of Medicare program for the baby boomers. Its best features can also serve as a guide for state-based efforts to expand insurance coverage within a framework of consumer choice and competition.
Recent Heritage Foundation Research on the FEHBP
- "Health Savings Accounts and the FEHBP: Perfect Together," Heritage Foundation Webmemo No. 571
- "Lessons of Success: What Congress Can Learn from the Federal Employees Program," Heritage Foundation Webmemo No. 565
- "The FEHBP as a Model for Medicare Reform: Separating Fact from Fiction," Heritage Foundation Backgrounder No. 1674
- "Using the Federal Employees' Model: Nine Tests for Rational Medicare Reform," Heritage Foundation Backgrounder No. 1675
- "FEHB 101: What Medicare Reformers Should Know" by the Honorable Kay Coles James, Heritage Foundation Lecture No. 792
- "Comparing the Performance of Medicare and the FEHBP," Heritage Foundation Webmemo No. 285
- "The Disparity In Value Between FEHBP and Medicare Coverage," Heritage Foundation Webmemo No. 262
- " What the GAO Says About the Best Model for Medicare Reform," Heritage Foundation Backgrounder No. 1625
Robert E. Moffit, Ph.D., is Director of the Center for Health Policy Studies at The Heritage Foundation.