December 24, 2009 | Commentary on Health Care Reform
Long before this year's health-reform effort began, Washington was running the world's largest group health insurance program. It's called the Federal Employees Health Benefits program (FEHBP). Administered by the Office of Personnel Management (OPM), it covers members of Congress, federal workers and retirees and their dependents -- about eight million people in all.
And it's wildly popular and successful. I know. As a former OPM director, I oversaw the FEHBP from 2001 to 2005.
Because of its size and success, the FEHBP -- and the role of OPM -- often draws the interest of would-be health reformers. And well it should. Key features of the FEHBP ought to be incorporated into a broad reform of America's health-care system.
For example, the FEHBP offers federal workers and their families a wide choice of private health plans -- typically anywhere from a dozen to two dozen plans, depending on where the worker lives. And, in sharp contrast to ordinary Americans, federal workers enjoy the benefits of marketplace competition: Insurers compete for business by trying to offer the most attractive benefit packages at the most affordaable prices.
The competition spawns a wide variety of offerings: traditional fee-for-service plans, PPO networks, HMO-type managed care plans, even high-deductible health savings accounts. For 2010, a federal worker could opt for a "rich" plan like the Blue Cross Blue Shield Standard Option (annual family premium: $14,590), or choose low-cost plans, like the union-sponsored Mail Handler's Value Plan (annual family premium: $6,830), or the Aetna Health Fund (annual family premium: $7,860).
Financing is key. FEHBP is a "defined contribution" program. The government, as the employer, pays a set amount toward the cost of each worker's insurance (up to 75 percent of the total cost). Each employee then decides which plan he or she will select -- with cost being one of the criteria.
The employer contribution is generous, but it is capped. That creates a cost-restraining dynamic completely different from the open-ended Medicare entitlement that is accumulating literally trillions of dollars in debt.
Unfortunately, the Senate health bill cobbled together by Majority Leader Harry Reid creates a rigid system of federal regulation that undercuts the wide range of personal choice and robust competition that makes the FEHBP so successful. Worse, the bill would transform OPM from facilitator to foe of consumer choice and competition in the health insurance market.
Section 1334 of Reid's bill calls on OPM to administer a new set of "multi-state" health plans for the general public. These plans, one of which must be non-profit, would "compete" against the other private health plans in the states. But given the statutory requirements, this arrangement seems to be a "public option" in "private" option disguise. Why? Because OPM would not merely serve as the umpire overseeing competition among private health plans. It would also become a health-plan sponsor, fielding its own team of players to compete against the existing private plans in every state. That's a very different role for OPM and the inherent conflicts are obvious.
The bill gives OPM new regulatory powers. For example, it authorizes the agency to set premiums for the health plans it sponsors and to apply rules governing profit margins and medical loss ratios that could differ from the rules HHS would apply to all other private health plans.
That's worrisome indeed. It gives political appointees at OPM the means to manipulate rules for the benefit of the government's "own team." As a result, OPM could crowd out the private insurance providers, forcing millions of Americans to lose or be transitioned out of their existing health coverage.
Then there is the question of taxpayer liability. Section 1334 authorizes the appropriation of "such sums as may be necessary [for OPM] to carry out this section." That's a blank check. But what if the OPM-sponsored "private plans," including the non-profit plan, lose money? Section 1334 includes no provision that protects taxpayers from being tapped for bailouts. Will Congress deem the OPM-sponsored health plans "too important to fail"?
While Harry Reid's legislation provides that there will be no reduction in OPM staff or resources for the FEHBP, that doesn't mean that OPM has the capacity to carry out this new mission. OPM's job is to serve the federal civilian work force and its retirees, while enforcing merit principles in hiring and stopping prohibited personnel practices. It's not OPM's job to compete against private health plans.
Taxpayers worried about the dangers of the proposed "public option" should be no less alarmed by the Senate's proposed new role for OPM.
Kay Coles James, a former director of the U.S. Office of Personnel Management, is a member of the Heritage Foundation's board of trustees.
First Appeared in National Review Online