October 26, 1995 | Commentary on Health Care
As Congress debates competing proposals for saving the Medicare system, reformers on Capitol Hill need look no further than their own Federal Employees Health Benefits Program (FEHBP) to find a model for getting the job done.
There are some extremely valuable lessons to be learned from FEHBP, which covers more than 9 million federal workers and retirees, including senators, representatives and congressional staff.
First, unlike Medicare's "one-size-fits-all" approach, FEHBP gives enrollees the freedom to choose from among nearly 400 private health insurance plans during an annual "open season." The ensuing competition between insurance companies provides an incentive nowhere to be found in the current Medicare setup: An incentive to provide the most and best health care for the lowest cost.
The numbers tell the story: The average FEHBP premium actually went down 3.4 percent in 1995, and will go up by a mere four-tenths of one percent in 1996. A quarter of the plans in FEHBP will actually cut premiums next year. By contrast, Medicare costs have gone up more than 10 percent annually in recent years.
Also helping FEHBP keep costs under control is the fact that the program is based on a "defined contribution" by the government, unlike the "defined benefit" nature of Medicare. There's a big difference. In FEHBP, the government pays about 72 percent of the average premium. Everything above that is paid by the enrollee. That provides a real incentive to choose your coverage wisely.
By contrast, under Medicare -- a "defined benefit" program -- the government pays for a set of benefits and medical procedures selected by Washington bureaucrats -- nothing more, nothing less. The payments are made according to a fee schedule -- also set by bureaucrats -- that defies comprehension and ignores the ups and downs of the health care market. You are out of luck if you need a benefit Medicare doesn't cover -- like prescription drug coverage -- that is widely available under FEHBP.
Under the federal employee program, fierce competition for new enrollees forces traditional firms like Blue Cross/Blue Shield, as well as health maintenance organizations (HMOs), professional groups and labor unions, to tailor their coverage to fit the particular financial and medical needs of their customers.
An important example here is catastrophic coverage, which is not available under Medicare, but could be under an FEHBP-style Medicare system. This crucial benefit would protect senior citizens against the type of costs associated with unexpected catastrophic accidents or illnesses that can easily wipe out a lifetime of savings. Other services not covered by Medicare but widely available to federal retirees under FEHBP include preventive screenings, routine physical exams, annual serum cholesterol tests, home nursing care, smoking cessation programs and home physician visits, to name just a few.
And here is something else to think about: FEHBP requires only 164 federal employees to administer, and there are less than 100 pages of federal regulations associated with the program. Compare that to the more than 4,000 Health Care Financing Administration (HCFA) employees creating miles and miles of frustrating red tape and bureaucracy for the Medicare system.
In other words, FEHBP provides far more choices at lower costs and involves far fewer bureaucrats and regulations. With such a model to guide them, there is no reason Congress can't fix Medicare for generations to come.