are here to talk about health care and how best to ensure that all
Americans--and particularly our seniors--enjoy health security.
nation has the finest health care services in the world, with
hospitals and doctors in every community. People are not lining up
at the borders to leave our country to get quality health care;
they are lining up to get in. And I believe all Americans ought to
have affordable access to the caring physicians, the life-saving
advances in medicine and medical technology, and, yes, the
prescription drugs that are helping people live longer, healthier
THE PRESIDENT'S AGENDA
is a priority for President George W. Bush. In March, the President
laid out a comprehensive Framework to Modernize and Improve
Medicare. This framework is designed to ensure that Medicare will
always be there for seniors and people with disabilities. It
modernizes and improves Medicare, guaranteeing all seniors access
to a prescription drug benefit. It gives seniors more choices--the
freedom and opportunity to select a health care plan that best fits
approach is consistent with the President's overall health care
principles. He envisions a system where all Americans have choices,
a system that trusts patients, working with their health care
professionals, to decide which treatment is best for them.
the President and his domestic policy advisers set about developing
their framework, they looked to a model that offers national
availability, provides exceptional choice, and uses private-sector
competition to keep costs reasonable, ensure high-quality care, and
is a model no doubt familiar to many of you because it is the same
system that insures Members of Congress and Hill staff, as well as
federal employees and retirees across the country--the Federal
Employees Health Benefits program, or FEHB.
AN EXEMPLARY PROGRAM
Director of the U.S. Office of Personnel Management, my portfolio
includes stewardship of this exemplary program. As a result, I have
been spending a great deal of my time educating various people
involved in public policy and health care about the FEHB program. I
give a crash course--I call it "FEHB 101"--that helps explain the
distinctive features of our program, to explain why it is cited so
often as a model for improving Medicare.
first thing we must be clear about is that the FEHB program is not
centralized, government-run health care. Since its inception in
1960, the FEHB program has operated according to a decentralized
model. When it was created, Congress envisioned the program as
being in line with the best practices of private employers as part
of a well-rounded personnel benefits package. That is still our
goal 40 years later.
Incidentally, at OPM we are opening up
exciting new territory on the "demand" side, incorporating consumer
education and a new focus on personal responsibility in driving
both quality and affordability. It is an approach that I believe
holds great promise for the general health care marketplace.
are committed to keeping the FEHB program the market leader it is
today. The FEHB is the nation's largest employer-based health
benefits program. To give you a sense of its size, last year's
payments totaled about $24 billion annually. Yes, that is billion
with a "B."
8 million federal workers, retirees, and their families rely on the
FEHB program for access to affordable health care. Close to 85
percent of our eligible active workers choose to participate--a
testament to the FEHB's popularity.
surprises people to learn that the average age of an active worker
covered through the FEHB is 47. That does not include the 1.9
million federal annuitants we enroll. The federal government has a
commitment, which we honor, to offer health benefits to the
retirees who spent their careers working for America.
an aside, I would note this is not the general trend among
employers nationwide. When our retiree population is included, the
average age rises to 61. So the FEHB does not apply to what one
would describe as a "young" population.
THE PRIMACY OF PERSONAL FREEDOM
distinguishes the FEHB program? What is behind its popularity and
makes it a pacesetter and a model? The answer is not its size, but
how the program operates.
of you have been through our annual "Open Season." During this time
each year, you and all of our enrollees have the opportunity to
shop around for the plan best suited to your personal situation.
This is not the case with most employer-provided health insurance
coverage, where workers are presented with a one-size-fits-all,
take-it-or-leave-it policy where the "choice" is whether to elect
individual or family coverage.
Federal employees and retirees covered
through the FEHB are not "hostage" to a single carrier selected by
their employer. Instead, they enjoy a broad array of options. In
2003, 188 discrete options are being offered by 133 health
important and distinctive feature of the FEHB program is nationwide
availability. No matter where one lives--from Portland, Maine, to
Portland, Oregon--every enrollee can choose from at least a dozen
options offered by nationwide fee-for-service/preferred provider
organization (PPO) plans.
members may elect one of the six nationwide plans limited to
members of sponsoring organizations (such as the Foreign Service
Benefit Plan). Many may select a health maintenance organization
(HMO) in their geographic area.
Web-based tools in 2002 let federal employees and retirees get
on-line premiums and compare benefits and customer satisfaction
ratings of national and local health plans. They can make the
comparisons from their homes, from their offices, or any other
place they can surf the Web. By increasing access to information,
we are encouraging our employees to get the facts so they can make
the best choice for themselves and their families. We continue to
expand our use of the Internet as a communication and resource
is the future of health care. We know that young people especially
are turning to the Internet as a primary source of health
information. But do not underestimate the seniors. We are finding
our retirees are quite computer-savvy. Close to a million
annuitants accessed the OPM Web site in 2001, and that number
continues to grow.
Young or old, all Americans want quality
health care choices and options. And that is one of the great
strengths of the FEHB model.
is able to provide our employees and retirees this range of choices
by contracting with scores of carrier partners in the private
marketplace. Plans remain in the FEHB program from year to year
unless they choose to terminate their contracts for business
reasons, including failure to reach agreement with OPM on benefits
and rates for the coming year. Under current law, the window for
new plans to enter the program is essentially limited to HMOs.
A BUSINESS RELATIONSHIP WITH
PRIVATE HEALTH PLANS
relationship with these carriers is a business relationship, not a
regulatory one. That is important.
conducts annual one-on-one negotiations with each plan. And on
behalf of the taxpayers and our employees and retirees, we are
aggressive in our contract negotiations and aggressive in
overseeing our contracts, monitoring plan performance, and ensuring
Several factors are built into our
contracts--quality assurance, patient safety, prevention of fraud
and abuse, and compliance with accounting standards. We recently
have begun centralizing plan performance data in a data repository.
This move will facilitate analysis by our contracting staff. All of
our contracts include mechanisms through which profits can be
adjusted based on performance.
maintain high standards; in fact, we insist on them.
OPM Inspector General is an important part of this equation. He
knows I support 100 percent his efforts to detect and control fraud
and cultivate a culture of accountability within the FEHB. As a
result of the close collaborative relationship between the
contracting office and the IG, the FEHB program recovers on average
more than $100 million a year.
Going into last year's contract
negotiations, we challenged the carriers to come to the table with
creative ideas for containing costs and maintaining quality. We did
not prescribe to the carriers what they were to do. This
Administration recognizes the best ideas are going to come from
providers in the marketplace.
were not disappointed. You can see the innovation in the approach
introduced this year by the nationwide open enrollment plan of the
American Postal Workers Union. Their "Consumer Driven" plan, which
we are testing, is designed to give enrollees greater awareness and
more control over their health care dollars. While it is too early
to report any direct results for the new FEHB option, other
employers have reported lower utilization, fewer prescriptions, and
fewer doctor visits with consumer-driven insurance. We are hearing
from other plans informally that they are looking at
consumer-driven options for 2004.
is just one example of how competition within the FEHB spurs
innovation and improves choices. Carriers want to keep their
current customers and attract new ones. So they have a market
incentive to keep their plans on the cutting edge and make sure
their customer service meets or exceeds expectations.
dissatisfied customer can take his or her business elsewhere. If a
plan's premiums jump, so can their customers--on board with another
provider who will give them more "bang" for their health care
CONTROLLING HEALTH CARE COSTS
know, because we have done the analysis, that consumer choice is
helping us keep premiums affordable. One of the direct effects of
enrollee choice was to cut annual premium payments by approximately
$300 million in 2003--because enrollees moved to lower-cost plans.
That knocked 1.3 points off of the premium increase.
fact, this year's average 11.1 percent premium increase in the FEHB
program, while higher than we would have liked, compared quite
favorably in the overall health care marketplace. Indeed, it ranked
among the lowest in the nation.
new, lower-cost options that plans have come up with--such as the
Government Employees Hospital Association Standard Plan that was
introduced in 2001 and the Blue Cross/Blue Shield Basic option in
2002--are proving quite popular with our members. Not everyone
wants a Cadillac, but they do want and deserve choices so they can
pick what is best for them and their particular situation. It is
what the President envisions for our nation's Medicare
enrollees--more choices and better options.
concern that has been raised in discussions about improving
Medicare is access in rural areas. Let me illustrate how the FEHB
addresses that concern, using the example of the Blue Cross/Blue
Shield basic option.
help keep costs down, this option was designed as an
"in-network-only" plan. Since the plan does not cover
out-of-network services, Blue Cross/Blue Shield made adjustments to
their provider arrangements to ensure members' access to a
nationwide provider network. Those adjustments may include covering
a broader range of health care providers; utilizing community-based
service centers; and, when absolutely necessary, deeming a provider
to be in the network for coverage purposes.
Other plans take different approaches and
guarantee out-of-network benefits in parts of the country where
they cannot develop a strong provider network, such as rural areas.
While there is generally more cost sharing, the difference in
out-of-pocket costs may be fairly nominal.
Plans have considerable flexibility to
deal with specific issues such as access to services. By statute,
however, the FEHB has a provision that ensures that members in
Medically Underserved Areas have access to health care providers.
Our fee-for-service plans must pay for covered services by any
licensed provider practicing within the scope of his or her
license, even if that provider is not considered a covered plan
There is no question that costs may be
higher where there is a shortage of providers, such as in rural
areas. However, if you are contracting nationally, or on a fairly
broad regional basis (such as the HHS regions), there should be
enough cross-subsidization so that these higher-cost areas can be
ADAPTABILITY TO CHANGE AND INNOVATION
of the beauty of the FEHB program is that benefits can adapt
readily with the changing medical environment--changes in
preventive care guidelines, for example. We were quite pleased with
the response to our request to carriers in the Call Letter last
year to add colorectal screening coverage. It was a suggestion, not
of you may have heard me express--in fairly strong terms--my
opinion about mandates. I do not like them. So we took what I
believe is the appropriate approach by bringing the issue to the
providers' attention and letting them decide. As a result, many
plans now cover this important and potentially life-saving
procedure as a screening under their preventive benefits. As
industry norms change, OPM will continue this approach of
recommending (rather than demanding) benefit changes in preventive
care and treatment.
the competitive market fostered by the FEHB program, new treatments
and services are incorporated quickly by providers who do not want
the patient--their customer--looking for better services elsewhere.
There is not some government bureaucracy that determines and
dictates additions to the benefit package, often a slow and
grudging process. Providers recognize it is in their interest to
keep customers happy--and healthy.
President has appropriately asked why America's seniors should not
have the same type of health care benefits enjoyed by members of
Congress and other federal employees. He has put forth a sound
framework for modernizing Medicare and offering choice along the
is a sound model, one that has stood the test of time. As you move
forward, our professional staff and technical experts at OPM are
available to help you understand how this pacesetting program
operates and how it can be applied to improve Medicare.
The Honorable Kay Coles James is Director of
the U.S. Office of Personnel Management. These remarks were
delivered at a meeting sponsored by The Heritage Foundation's
Center for Health Policy Studies and held in the Rayburn House
Office Building in Washington, D.C.