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Backgrounder #878 on Social Security

February 6, 1992

Consumer Choice in Health: Learning from the Federal EmployeeHealth Benefits Program

By


(Archived document, may contain errors)

c 878 Revistd: November 9,1992 CONSUMER CHOICE IN HEALTH: LEARNING FROM THEFEDERALEMPLOYEE HEALTH BE" PROGRAM INTRODUCTION In the debate over national health care reform, thm is good news and bad news.

The good news is that Congnss actually has discovend the answer to America's health care problem, and the answer is a system that already exists.This system gives consumers wide choice of health plans and "user friendly" advice on how to choose among rival plans.

It promotes intense competition among health insurance carriers. Is conmls costs. It incor tes excellent benefits. And those who are enrolled in it are pleased with the system eral workers while considuing ways to impose vastly inferior systems on almost allother Americans.What would be fair is for Congress to allow all Amcrica to have a version of what lawmakers and federal workers reserve for themselves.

Anxious Workers. Surveys show that most Americans arc anxious about their jobre lated health benefits. Many workers warry that if they. an laid off, they will lose their cur rent health benefits and may not qualify for coverage at a new job because ofthei r medical condition. Others have no coverage at all, because their company does not off= it, and these workers must try to pay for their own care or insurance without any help &om the w-m=L Problems like these do not worry the Resident, members of Conpss, c abinet seuetar ies, congressional staff, and the millions of federal employees, retirees, and dependents who enjoy a system known as the Federal Employee Health Benefits Program (FEHBP As Resident George Bush has stated The FEHBP system cmntly allows fede r al employees to choose from a variety of competitive health plan options to obtain the best coverage for the best price The bad news is that Congress has been keeping this system exclusively in itself and fed lhis is a revised and updated version of a stu dy published on February 6.1992. l 1 The Federal Time& August 24* 1992.

Consumer Choice Showcase. Like any government program, the FEHBP is far from per Fect. Yet it is an excellent showcase of how consumer choice works in health care, ana how I system for all Americans based on choice, such as the plan proposed by The Heritage Foundation, would work in practice.

Under the FEHBP, some nine million Americans of widely differing income levels and backgrounds, from blue collar messengers on Capitol Hill to th e President and each mem ber of the Presidents cabinet, each year can pick and choose from a wide range of health care plans. From November 9 until December 14 this year, a period known as open sea son, these Americans will be able to choose the plan they want for 19

93. Unlike most Americans these congressional and federal employees, as well as retired federal workers enjoy the unique opportunity to decide what combination of services and price is best for themselves and their families.

Throughout the Un ited States, these fortunate Americans can choose among almost 400 health care plans, typically with two dozen choices available in any particular city or county. These range from traditional insurance plans, like Blue Cross and Blue Shield, to over 350 H ealth Maintenance Organizations (HMOs including such giants as Kaiser Per manente, to union-sponsored health care plans, such as those offered by the huge American Postal Workers Union or the smaller Nation4 Association of Letter Carriers.

This system base d on consumer choice and competing providers works smoothly and is popular with lawmakers and civil servants alike. This is why few ardinary Americans ever hear their senator or congressman complain about his health benefits 2 Among the key features of th e FEHBP K The FEHBP makes it easy for consumers to choose Every fall, federal employees receive a simple form listing the plans available in their area. They check off the plan they want. They cannot be wed down by the plan or be re quired to pay a higher p remium. Consumer organizations and the local press give employ ees the information they need to make informed decisions K The FEHBP gives help to pay for coverage In making a selection, the employee is quoted a premium price. However, the federal gov ernm e nt makes a contribution to the plan, according to a fannula and with a maximum dol lar limit 2 See Stuart M. Butler, Ph. D A Policy Makers Guide to the Health Care Crisis, Part Ik The Heritage Consumer Choice Health Care Plan, Heritage Foundation Talking Points, March 5,19

92. See also Stuart M. Butlex and Edmund F. Haislmaier, eds. A National Health Systemfor America (Washington, D.C The Heritage Foundation 1989 Stuart M. Butler, Using Tax credits to Create An Affordable Health System, Heritage Foundation Backgrounder No. 777, July 20,1990; Stuart M. Butler, A Tax Ref- Strategy to Deal With the Unhsd, The Journal of The American MeaicalAssociation,Volme 265, May 15,1991 2 Y The FEHBP makes it easy for the employee The employees agency, or congressional of f ice, automatically deducts the employees share of the premium from each paycheck and sends it to a central government fund A check then is cut by the government for all the employees in a particular plan and Sent to that plan Y The FEHBP encourages health plans sponsored by unions and other em ployee organizations Such plans accounted in 1992 for 32 percent of all enrollees. These plans also are avail able for non-union members. Example: only 5.6 percent of the enrollees in the Mail Han dlers Plan are memb e rs of the union By extending their plan to non-union members, the unions can eam a profit. In 1988, for instance, the Mail Handlers Plan made a $14 million profit or $280 for every union member. Some employee organizations, such as the Govern ment Employe e s Health Association, exist solely for the purpose of sponsoring a plan for themselves Y The FEHBP promotes managed care Managed care plans known as Health Maintenance Organizations (HMOs which are low-cost plans in which families accept certain limits on their choice of doctor and hospital but normally receive no bills for any treatment, accounted for 28 pextent of all FEHBP en rollees in 19

91. In America as a whole, only 15 percent of Americans are enrolled in HMOs Y The FEHBP rules are simple In a refr eshing contrast to most large government pmgrams, the FEHBP is relatively free of red tape. The law governing the FEHBP is only 24 pages long, with 54 pages of regula tions and 93 pages of instructions. By contrast, the law covering Medicare is 319 pages l ong, with 1,104 pages of regulations, plus a continually expanding body of instructions and guidelines numbering many .thousands of pages confusing to doctars and patients alike Y The FEHBP keeps costs down According to the United States Office of Personn e l Management (OPM the federal agency which runs the FEHBP, The average 1993 premium paid by active non-postal em ployees and annuitants will increase by only 9 percent, the third consecutive year the in crease has been under 10 percent. This increase is l e ss than half the 20 percent trend seen in the health insurance ind~stry In 1992, the average premium increase in the FEHBP was 7.4 percent; in 1991,4.7 percent. By contrast, premium increases in plans sponsored by U.S. corporations increased 12.5 percent in 1991 and 12 percent in 19

92. During the 1980s, the FEHBP also generally outperformed private sector plans in holding down health care costs, based on data supplied by the Congressional Research Service, the chief re search agency of Congress, and LewiM CF, a leading econometric firm whose services are 3 Improved Benefits, Low Rate Increases, Highlight 1993 FEHBP, OPM News, September 13,1992 3 used by Congress, government agencies, and major corporations. This performance is all the more remarkable becau se the FEHBP covers a growing number of retirees, including re tirees without Medicare, whose health care costs have been rising much faster than for younger Americans. Typical plans offered by private firms do not.

What is the secret of FEHBP? It promotes consumer choice and a competitive insurance market. The law governing private sector workers, by contrast does not The tax code affecting the private sector gives tax relief normally only to a plan offered by a company to its employees. If the employee w o uld prefer another, more economical plan, he or she receives no tax break and thus has no incentive to switch to it. Yet congress men and other government workers receive the same financial assistance whichever of doz ens of plans they choose. This gives them incentive to seek good values for money.

To make matters worse, giving tax relief only for employer-paid plans, which in fact becomes part of the workers compensation package, creates the illusion among many workers that their health care is free and thus encourages health cost inflation. Federal work ers choose plans according to price and quality, and so have strong incentives to economize.

Skeptics Proved Wrong. Skeptics of the idea of a consumer-choice universal health sys tem in America often cla im that Americans are not capable of choosing their own health coverage. A New York Times editorial complains that consumer-choice plans rely on indi viduals to buy their own coverage. But the complexity of insurance plans makes compari son shopping virtu a lly impossible by anyone other than an experienced professional. The FEHBP system, through over three decades of operation, proves this view to be dead wrong. If low-skilled congressional messengers can choose their plan, so can other Ameri Congressmen li k e their system so much that they often insist that ey be exempted from any new health system that they would impose on other Americans. This is especially true of bills in Congress mandating that private employers either prod& health insurance for their w orkers or pay an additional payroll tax to finance a new public insurance pgram.

Faced with this play or pay option, many companies likely would pay the new payroll tax and millions of Americans would thus be involuntarily separated from their private insu r ance and dumped into a huge Medicaid-like program. But not members of Congress OT their staffs. For example, one of the leading play or pay refm bills in the Senate (S. 1227 sponsored by Majority Leader George Mitchell, the Maine Democrat, like many oth e r health bills explicitly exempts lawmakers and other federal workers from coverage, and thus the consequences, of the bill. Rather than keeping their excellent health care system a special privilege for themselves and other federal workers, lawmakers sho u ld allow other Americans in effect to join the system. What is good enough for Congress should be good enough for the American people cans P 4 Tax credits for Health: Wrong Rx, The New YorkTimes, December 16,1991 5 See Robert E. Moffit. Congress and TheTa x payers: A Double Standard on Health Care Mom? Heritage Foundation Issue Bulletin No. 174, April 16,1992 4 To open an FEHBP-like system to the uninsured and other working-age Ameri First, Congress needs to change the tax treatment of medical benefits to al l ow tax cans, Congress needs to take two basic steps breaks to Americans wherever they obtain health coverage. This would enable Americans to choose a plan offered by their union, or a managed care plan, or a high option insurance plan, wherever they work- a range of choices taken for granted by federal employees and retirees but unavailable to private sector workers.

Second, Congress needs to require working-age Americans not covered by Medi care or Medicaid to purchase at least a basic health plan, and to provide assistance to families who otherwise would be unable to afford cm.

The Heritage Foundations proposed Consumer Cho ice Health Plan would om plish this. Under the Heritage plan, the current tax exclusion for company-based plans would be replaced with a refundable tax credit for a health plan obtained from any licensed source and for out-of-pocket medical expenses. In a ddition, all heads of households would be required to obtain at least a basic plan. This would give ordi nary Americans the same kind of options for health coverage as congressmen and federal workers now enjoy.

The Heritage Foundation Consumer Choice Healt h Plan is embodied in The Health Care Access and Affordability Act of 1992 (S. 3348 sponsored by Senator Orrin Hatch, the Utah Republican, and cosponsored by Senator Malcolm Wallop, the Wyoming Republican, Senator Robert Smith, the New Hampshire Republica n, and Senators Ted Stevens and Frank Murkowski both Alaska Republicans.

Lawmakers assume that the U.S. health system needs major surgery, and Congress now is debating the nature of the required operation. What the patient really needs is a strong dose of consumer choice and competition. Congressmen know this from their personal experience with their own health system based on these powerful dy namics The way to solve the national health care problem is for Congress to let all Americans have a similar syst e m HOW THE FEHBP WORKS Created in 1959, the Federal Employees Health Benefit Plan is open to all mem bers of Congress and congressional staff, the bsident, cabinet members, other exec utive branch appointees, federal judges, judicial staff, and all federal civil service em ployees and postal service workers. In addition, federal rethxs, suTyivoTs of de ceased federal employees and retirees, and the dependents of active federal employ ees and retirees are covered. Employees of the District of Columbia also a re eligible.

Approximately nine million individuals are in the nationwide system. The decision to enroll is up to the employee, and about 85 percent of the active federal workforce is in the program6 The majority of those not covered by the FEHBP are cover ed by the plan of a working spouse not in the federal workfurce 6 United States Off~ce of Personnel Management, Study of the Federal Employees Health Benefits Progruna. Submitted by Towers, Penin, Forster Cmsby, Inc., Washington, D.C April 22,1988. p.

25 . Hereafter cited as TPF&C Report 5 Postmasters Hlgh Standard hlllance Standard PPO Forelgn Sewlce' Speclal Agents Mutual Beneflt Assoclatlon Hlgh PPO Natlonal Assoclatlon of Letter Carrlers Mall Handlers Standard Hlgh Hlgh PPO secret sewlce Governmental E mployees Hospltal Assoclatlon hfnerlcan Postal Workers Unlon Standard Beneflclal Assoclatlon of Capital Employees Standard PPO 5,980 3,380 3,930 3,340 3,380 3,460 2,950 2,900 2,850 2,660 2,250 2,590 2,840 2,830 2,480 2,580 Table 1 Plans Available to Feder a l Worker's Families in the Washington, D.C. Area Avera e Maximum EmPloyee EmPloyee Plan CostBo Costto TRADITIONAL GOVERNMENT-WIDE PLANS Llncoln Natlonal Pnrdentlal Columbla Free State George Washlngton Hlgh Healthplus Standard Aetna Health Potomac Health Kalser Standard Hlgh M.D. IPA Note: The Average Cost is the bills for a typical mix of Hospitql%c

al. Drug, and Dental, Bfis 6 a family o!gr. The'wimum Cost is the total outof PPO PreferredEcier Organizatan 'Plan is only open to specific roup The Catastrop hic limits of &e plans d? nptjndude prescription dru s; therefore here is no definite limit. Source: Walton Francs et al..Checkbooks Guide to Health Insurance blans for FedgBrelGnpbyms, 1093 roximate yearly cost to em lo e, includin mium dues, and unreimb utwd lpt costs including premium for a family; also known as the catasmphic limn 6 In a four-week period each fall known as open season, federal workers can choose which health care plan will cover them. They can choose any private plan in the system.

Most do not change their plan from year to year, but if the worker decides to change plans he or she has the right to enroll at the same premium as any other plan enrollee, without re gard to health condition.

The choice available to federal workers is far wi der than for employees of even the larg est private corporations. According to economist Walton Francis, author of Checkbooks Guide to Health Insurance Plans for Federal Employees, a comprehensive guide to plans published by a Washington, D.C.-based consu mer organization, federal workers across the country can choose among almost 400 lans. In the Washington, D.C area, federal work ers can choose from 36 different plans.

The range of plans offered to federal workers is remarkable, as is the range of organiz a tions sponsoring the plans. There are traditional fee-for-service insurance plans, offered by such major insurers as Blue Cross and Blue Shield. But the FEHBP law also authorizes employee organizations, like unions, to offer plans Union Plans. Union-spo n sored plans started to compete successfully with the traditional big insurance companies in the 1970s. Today, seventeen employee-sponsored plans are available to federal workers, including unioil plans, and several of these plans are available to those wh o are not regular members of the union In the latter case, the union or employee organization normally requires outside enrollees to pay modest associate membership fees, normally between $30 and $35 per year8 The marketing success of these employee organi z ations has been phenomenal; by 1990 they included almost 36 percent of all FEHBP enrollees. A good example is the Mail Han dlers union. According to a 1988 study conducted for the mice of Personnel Management P The Mail Handlers Benefit Plan has been so s uccessful that the plan now dwarfs the union that sponsors it. There are approximately 30,000 =gular members of the union in the health plan and nearly 500,000 enrollees.

With associate membership dues of $30 per year, the plan generates approximately $14 million in revenue for the union, or $280 for every regular dues paying member. A representative of the Mail Handlers Plan advised us during an interview that most of the plans enrollees are not postal workers; thy are civilian employees in various agenci e s of the Executive Branch Another example of a successful employee organization plan is the Government Employ ees Hospital Association (GEHA This plan was developed by a group of federal employ ees not associated directly with any union. In fact, accordin g t6 a study for OPM, This organizations sole purpose appears to be the offering of a health insurance plan under 7 A complete guide to D.C. area health plans can be found in Walton Francis et al eds Checkbods Guidc To Health Insurance Plans for Federal Em p loyees (Washington, D.C Washington Conswms Checkbook, 1993 Hereafter cited as Checkbooks Guide 8 TFP&C Report, p. 56.FP&C analysts estimated that on an annual babiS these associate membership dues for the federal unions and employee organizations amounted to between $20 and $25 million. Health insurance is thus a benefit of membership for such organizations 9 Ibid p. 62 7 I Table 2 Choice for Federal Workers Has .Led to a Doubling of Options FEHBP. And the organization itself simply is the group of employe es who have cho sen the plan.

Managed Care. Another type of plan growing rapidly among federal employe& is man aged care. In managed care plans, enrollees accept certain restrictions on their choice of physicians and hospitals in return for lower premiums. The best known fann of managed care plan is a Health Maintenance Organization or HMO. The patient in an HMO normally receives no bills for treatment. He or she simply pays a fixed monthly fee for all care.

Table 2 shows the growth in the range of options available nationally to federal workers during the 1970s and 1980s. Per enrollee, the number of choices doubled from roughly a 10 Ibid p. 63 8 iozen to two dozen plans. Since 1988, the average number available per enrollee has de lined to less than two d ozen. The growth in HMO options has been dramatic.

While HMOs in the private sector have been growing fast, they are doing so faster in the FEHBP.l One reason for this is that in the private sector, where employees often ~IE used to generous free plans paid for by their employers, employees resist being a s signed to more restrictive plans, even though they generally cost less (to the employer, that is). In the FEHBP system, by contrast, employees can shop around among plans according to their combination of price and quality and keep the premium savings fro m lower-cost plans. In this open market, the price advantage of HMOs proves very attractive How the Government Helps to Pay Premiums fits package, the government makes a contribution to the cost. The same is true for most While the employee makes a decisio n on the basis of the stated premium price and bene workers in the private sector because company-provided health plans are a tax-free fringe benefit although if a family has no company plan and buys insurance di rectly, there is usually no tax break. In t he fdral sector the help takes the fm not of a tax break, but a direct pay ment calculated according to what is called the Big Six formula.

Under this fmula, the government will contribute an amount equal to 60 per cent of the simple average of the premium s for individ ual and family coverage of the six largest plans in the program. This means the fed eral government contributes a Health Care Cost Breakdown Under Four Family Plans Thousands of Dollars Thousands of Dollars s6 M 52 SI Kalser Group Health Mal l Handlen Amerkan POttQI Mld-Allantlc Standard Hlgh Womert Unlon HMO) ma QII) mol 0 Unreimbuned Expenses (Paid by Enmllee Endlee Share.of Premium Government Share of Premium Wallem Frsnds, et al. Che&mok% Gum to M lnsu~~lbrFedsnlE~18

99. H~bg~Dmm fixeddoll ar amount. The law further specifies that the contribution cannot exceed 75 per cent of the premium, up to the formula dollar amount.12 ~ar next year, the maximum is 1,675 for single employees and $3,630 for families. Federal employees and retkes then 11 H MOs, muionally, account far 15 percent of the health insurance market.They are generally mare popular in the Westem United States, less 50 in other regions of the country. In the FXHBP, HMOs now account for 2.8 pacent of total enrollment, up from just 10 percent in 1980 12 Postal workers have a different and mare generous farmula arrangement, based on collective bargahhg agreements.

For 1993, the government share of the FEHBP costs is projected at 72 percent. Rita Zzidner, Health Plans Vary More in Cost th an Benefits Government Executive November 1992, p. 54 9 pay the difference between the contribution and the premium cost. The above chart shows a breakdown of costs to employees and the government in four typical plans.

The federal employee does not even have to write a check to his or her insurance com pany or request reimbursement from the government for its share. Instead, the agency makes a payroll deduction each pay period for the employees share of the premium adds its own contribution, and transmit s this money to an FEHF3P Trust Fund, which then pays the plan chosen by the employee For retired federal personnel, payments are made by the Office of Personnel Management from a special account The Benefits Available to Federal Workers The FEHBP law give s the Office of Personnel Management, the federal governments central personnel agency, flexibility to negotiate rates and benefits of plans, consistent with Congresss intent to provide a sound package of benefits at reasonable cost. Congress has on occasi on, recommended that OPM press for certain specific benefits, but generally has stopped short of mandating them. OPM, which is responsible for the program, can require certain items to be included in all plans offered during open season.

This is quite diff erent from the pattern at the state level, whexe state legislatures rarely have hesitated to enact sweepin mandates requiring insurers to include certain services in any plan they offer in the state. Why this difference between the states and the federal g overnment in their propensity to mandate benefits? When a state mandates a benefit, com panies foot the bill, and employees applaud state lawmakers for increasing their W em ployer-provided benefits. By contrast if Congress mandates a benefit in all plans , there is no free lunch, and the taxpayers and federal employees pay ma.

This does not mean that federal plans offer only bare bones coverage. In fact, federal workers often demand, and receive, the reasonably generous benefits they choose to pay for. But they can also choose plans that will save them money. Notes Mike Causey, the Washington Posts veteran reporter on civil service affairs: All of the health plans are good, but picking the bes one can save individuals $1 ,OOO or mom in pxemiums and out-of p ocket costs next year. Virtually all the competing federal plans offer a wide range of services, including hospital and physician services, tests, immunizations and pventive ex aminations, kidney dialysis, and a limit on total out-of pocket costs 16 HELPI N G CONSUMERS CHOOSE Some critics of consumer choice in health care claim that a big difference between medi cal purchases and, say, buying a car, is that easily digestible information for consumers re garding health care does not exist. This, they say, mak es informed choices impossible.

To be sure, there is little information to help private sector employees buy health plans.

But this is because few families have the chance to make a choice from a wide range of 13 Federal law preempts state health benefit mandates for plans competing in the FEHBP and also prohibits state 14 Mike Causey, Shopping for Health Care, Washington Post, November 3,19

92. As Causey notes !ixthe.r, the taxation of plan premiums possible savings to federal employees and reh can range anywhere from $750 to $3,000 in 19

92. See Mike Causey, Health Insurance Savings, Washington Post, November 9,1993 10 plans. Without a market for advice, products offering advice will not develop. Such prod ucts, of course, have been developed offering a dvice for how to purchase other sophisti cated or complicated goods and services like life insurance, real estate, automobiles, or stocks and bonds.

Similarly there is plenty of advice for the nine-million-strong consumer market for FEHBP health plans. So me comes from the federal government. The Office of Personnel Management sends each employee an unbiased description of the benefits and employee cost of each plan. Federal agencies add to this information by distributing material to em ployees and sponso r ing health fairs that outline what is available to employees and their families. Members of Congress with large concentrations of federal employees or retirees in their districts even hold weekendhealth fairs, inviting private health insurance and govern ment analysts to discuss the merits and drawbacks of the various FEHBP plans.

The Private Sector Information Explosion Official efforts pale by comparison to the sophisticated and ubiquitous private informa tion available to federal employees and the publi c discussion that takes place each open sea son. For instance, from daily columns in the Washington Post to programs on tak radio federal employees in the Washington, D.C area can obtain the latest information on each years health care offerings how much p lans a~ going to cost, which has the best dental benefits, which has the best catastrophic coverage, and so on. In addition, the companies and employee organizations market their plans through brochms and advertising, espe cially in areas where there are heavy concentrations of federal employees. Caniers take to the airwaves, post billboards in strategic locations, or advertise in newspapers, buses, and subways. And they respond to the demand for quality information in plain English, with minimal jargon.

Even more significant is that major consumer organizations provide the same kind of in formation to federal workers buying heath plans as they do for other Americans purchasing a new car. Each year in the Washington, D.C ma, for example, congressional and federal employees can purchase the CheckbooKs Guide to Health Insurance Plans for Federal Em ployees, with detailed ratings and cost analyses of all the health insurance options available.

This annually makes the best seller book list in Washington, and i s published by Washing ton Consumers Checkbook, the same consumer organization that publishes information on where Washingtonians can get the best bargains on everything from VCRs to autos to house hold appliances.

Federal employee organizations, meanwhil e, distribute information to their members. The National Association of Retired Federal Employees (NARFE for instance, publishes an an nual Open Season Guide. And, of course, federal employees do in health care what they and other Americans do when they m a ke other major purchases: they talk to experts they trust and they talk to their coworkers. They ask their family physicians their agency bene fits expert about rival health plans, and they talk to each other about their experiences with During open seaso n , the cafeterias of the Treasury, the shuttlebuses to the State Depart ment, and the subways to the suburbs are scenes of countless discussions and debates about the pros and cons of different health plans. It happens because federal employees have the ri ght to choose and the incentive to choose wisely.

Refuting Experts. The wide availability of understandable information and expert advi sors refutes the contention that only experts can make intelligent decisions about health plans 11 care insurance. And e ven though some federal employees, like consumers in other markets actually grumble that the wide range of annual options is annoying or confusing, very few would want OPM to end open season. In fact, serious proposals to postpone open season have met wit h implacable employee opposition tageous and to save money. One effect has been a steady move to lower cost options such as managed care plans, including HMOs. In 1987, for example, approximately 175,000 en rollees moved from fee-for-service plans to HMO p l ans with costs that were approximately 20 percent less than comparable fee-for-service plans.As economist Walton Francis notes, with average enrollee premiums in 1988 dollars (both employee and government share) running about $2,430 for fee-for-service pl ans, and about $2,100 for HMOs, the 330 in savings per enrollee, for HMO enrollment alone generated savings for both the employees and the taxpayers on the order of $50 million in 19

87. Says Rancis Those non-expert federal employees who supposedly cannot choose rationally among a large num ber of plans have succeeded in becoming well enough informed to better their own health insurance while saving both themselves and the government hundreds of millions of dollars annually.18 15 Employees use the informat i on available to them to change plans when they find it advan THE LACK OF RED TAPE IN THE FEHBP SYSTEM Compared to most government programs, which are accompanied by thousands of pages of detailed and confusing regulation, there is little red tape in the F E HBP. Just 1 percent of each plans premium cost is set aside for OPMs administration of the system.This covers such things as OPMs role in running the annual open season and operating the Federal Employees Health Benefits Trust Fund, out of which premiums a re paid to the carrim, as well as administering a wide range of services for retirees. OPM also quixes plans to put aside thnx percent of premiums income in a reserve to pay for cmnt and future claims li abilities and to strengthen the financial position of the program.

Compared with the giant Medicare program, which is the prototype for the government payer system for national health insurance advocated by some in Congress, the consumer driven FEHBP is administratively far simpler despite the existence of an enormous number Cumbersome Medicare. In Medicare, the government literally dictates what benefits will or will not be included, such as catastrophic coverage, through a cumbersome and often controversial legislative and regulatory process. In contrast , the addition of benefits in the FEHBP is relatively painless, effected through private sector-style negotiations, and fi nalized for each and every employee through personal choice. While Congress and the man of plans 15 Faced with an unforseen deficit i n the FEHBP in 1981, for instance, the Reagan Administration announced postponement of the annual open season. Both employee organizations and members of Cmgn?ss expressed outrage. Federal union repmentatives responded with demands in formal hearings that C ongress malte open season mandatory, thus removing OPMs administrative authority over the process 16 Walton Francis, How To Reform. And How Not To Reform,The Federal Employees Health Benefits Program Testimony presented to the United States Office of Pers o nnel Management, July 26,1988 (revised 1991 p. 6 17 Ibid 18 Ibid p. 7 12 agers of Medicark program devote enormous resources to implementing intrusive and com plex cost contror features, the managers of the FEHBP historically have refiained froin such int e rvention. Nevertheless, truly efficient market forces, such as employees voluntary choice of low-cost plans with higher coinsurance and deductibles, makes this unique fed eral program a leader in health cm cost control. While Medicare employs thousands of per sonnel to administer the program, including the negotiation and monitoring of carrier con tracts, the promulgation of thousands of pages of detailed guidelines, rules and regulations the FEHBP plans themselves do much of the actual administration, inc l uding claims pro cessing, and the governments administrative staff is small. Meanwhile, OPM has helped to keep overhead costs down by making some significant managerial improvements during the past two years 19 COST CONTROL IN THE FEHBP Like ordinary Amer i cans, most lawmakers recognize that the best mechanism to control costs without sacrificing economic efficiency is through consumer choice in a competitive market. But there has been an assumption that this mechanism cannot operate in health care because c onsumers and providers are not greatly influenced by differences in prices in mak ing choices. In Medicare, Medicaid, and even many private company plans, this has led to the price controls, regulation, and other features of central planning. But these ha ve proven no mm effective in achieving efficiency in the U.S. health cm system than in the commu nist economies of Eastern Europe.

FEHBP explodes the myth that consumer choice is not the key to cost control in health care. From FEHBPs inception, consumer s ensitivity to price and quality-not regulation or price controls-has been at the heart of cost control tinguishes FEHBP from conventional, employer-based health insurance. In these private sector plans, consumer choice based on price does not generally fu n ction because very few employees have any idea of the price of their health benefits. And, because the tax code gives no breaks to an employee who would buy a more economical, noncompany plan to that offered by the employer, in the private sector health i nsurance world, there is no incen tive to shop around in the way that federal workers do. Instead, a health care plan is treated as a free benefit that comes with the job.

Twin Principles. Congress explicitly based FEHBP on the twin principles of consumer choice and market competition. Liberal lawmakers have emphasized these principles within the federal system covering themsehes, even while many of these lawmakers seem to reject the same principles when considering a new system for all other Americans. Sa i d Represen This sharply distinguishes FEHBP from other federal programs, like Medicare. It also dis 19 Even more can be done. But any refm of the FEHBP should be underlaken with proper respect for its general record of success. As Professor Alain Enthoven of Stanford University, a longtime student of the program, has noted, The administrative expense of the Ofice of Personnel Management, the managing agency, is less than a quarter of one percent of the revenue. William Hsiao, an actuary at the Harvard Scho o l of Public Health, did a comparison of the costs of claims administration under Medicare and under the FEHBP. He found that the average cost to pnxess a claim was 26 percent higher in Medicare than in the Federal Employees program, after dissimilar funct i ons were eliminated from the comparison. Main Enthoven, Health Plan: The Only Practical Solution To The Souring Cost 4 Medical Care (Reading, Massachusetts: Addison-Wesley Publishing Company, 1981 p. 83 13 tative Mary Rose Oakar, the Ohio Democrat and for m er Chairwoman of the House Subcom mittee on Compensation and Employee Benefits, in 1984 The two fundamental principles that grew out of enactment of the 1959 law were: freedom of choice and competition To ensure this variety of benefit packages to all fed e ral employees, retirees and dependents, at a reasonable cost, the Congress designed a syste that romoted competition among a large number of carriers hp Three years earlier, then Representative Michael Barnes, the Maryland Democrat, who chaired the Congre s sional Federal Government Services Task Force, told a congressional panel Freedom to choose among plans, and thereby to maintain competition among plans, has been the system's first line of defense against skyrocketing premiums.JI is a theme sounded repea tedly throughout the Act's legislative history.

This dynamic of consumer choice within a wide range of competing health plans has helped keep costs in check in the FEHBP. Based on data supplied by Lewin/ICF, the fol lowing chart shows FEHBP premium increas es averaged 11 percent from 1981 to 1992 compared to 14.4 percent in private-sector employer-sponsored plans. This trend is a contin uation of the generally favor ble pattern of FEHBP performance revealed by CRS figures for the 1981 to 1989 periodJ2 While private sector plans annual premium inneases have been in double digits, the FEHBP averages in recent years have been in sin e digits. Far 1993, average premium increases in the FEHBP m projected at 9 pemnt.8The 1992 aver age FEHBP premium increase was 7. 4 percent, while the private sector plans averaged 12 percent. For 199 1 the FEHBP premium increase was 4.7 percent, while private employers plans incxtased by 12.5 percent 20 Rep. Mary Rose Oakar Opening Statement on "New Participating Organizations in Th e Federat Employees Health Benefits Program Hearings, United States House of Representatives, Subcommittee on CbpemWm n and Employee Benefits, Committee on Post Office and Civil Service, October 2,1982 21 Rep. Michael Bames,Testimony on The Federal Employe e Health Benefits hgram before the Compensation end Employee Benefits Subcommittee, House Post Office and Civil Service Canmittee, November 19,1981 22 Updated private sector premium data provided through personal communications with Allen Dobson, Ph.D. of LewirJIcF, November 19

92. The 1989 Congressional Research Study concluded FEHBP total premiums have increased by an average of 12 percent annually from 1980 through 1988, compared to the average 14 percent rise incurred by private sector plans during the same period." See U.S. Congress, House, Committee on Post office and Civil Service, The Federal Employees Health Benefits Program: Possible Strategies for Reform. A Report prepared by The Congressional Research Service. Committee Print 101-5, May 24, 1989 , p.

50. Hemfttx cited as CRS Report.

It should be noted that what would have been dramatic premium increases in the FEHBP during the 19809 we restrained by OPMs unusually decisive management, including limiting or reducing coverage of dental and mental seMces to combat an unforseen deficit in 1982, as well as the use of plans' pmium reserves to give fedd employees a $1 billion premium rebate in 19

86. Moreover, OPM introduced stronger coinsurance and deductible requirements for controlling costs In addi tion, federal enrolles have taken advantage of the choices offered them by moving to lowerat plans in order to escape rising premiums." CRS Report, p. 255 23 "Improved Benefits, Low Rate Increases, Highlight 1993 FEHBP OPM News, September 13,1992 14 But t h e relative perfor mance of the FEHBP is even better than the total numbers show A num ber of factors, for exam ple, should be driving up FEHBP costs. FEHBP imposes no pre-existing condition requirements on its enrollees, and FEHBP covers 1.5 mil lion reti rees, plus their spouses and survivors.

In the private sector only one-third of compa nies offer health care coverage to their r etir ees, and the companies that do are cuttin back on these benefits4 But in the FEHBP, retirees make up about 40 per cent of total enrollees, in cluding a large number of federal workers ineli Average Annual Premium Increase for the Federal Employee Ben efits Plan vs. Private Sector Plans sox Annual Premium Increase 1 20 1 ow 0 10 Prlvate Sector 14 20% I I 1 I I I I 1 I I 1982 1984 1986 1988 1990 1992 FEHBP Private Sector Source: Congressional Research Senrice, 1989 and LewinllCF, 19

92. Herltaee Datachar t gible for Medicare, including those who retire early at age 55 with thirty years of service.u Retirees, of course, consume more health care services than do those of working age 24 According to a 1991 study by the Employee Benefits Division of Northwest e rn National Life Insurance Company of Chicago, only 33 percent of private companies offer retiree health care. Citing a 1990 study by William M. Menex Inc Northwestern analysts note that 26 percent of the companies that do give retired workers health cove r age a planning to limit it for current retirees and are not planning to offer it for future retirees. Narthwestem National Life Insurance Company, Retirement At Risk: The Growing Threat ofHealth Costs, presented at a fomn at the National Press Club, Washi n gton D.C November 14,1991, p. 5 25 Richard Ruddick, Vice President, Federal Employees Health Benefits plans Division, CNA Insurance Companies Statement Before the House Subcommittee on Compensation and Employee Be May 18,1988. p 8. As Rdck demonstrates, a n FEHBP retiree, eligible for Medicare, has health insurance claims costs of 140 percent of those of an active fedeml worker. But far a feded retiree without Medicare, the health insurance claims costs are 262 percent of those of an active federal warker. IW p. 10 24 According to analysts at Northwestem National Life Insurance Company, each Ameaican age 65 or older amsumes an average of $5,360 per year in health care services, compared to an American under the age of 65 who consumes an average of $1.2

90. R etirement At Risk, p 4. The propation of retirees in any given FEHBP plan has a direct impact on its at. So, even if overall FEHBP premium increases in a given year are in the single digits, an FEHBP plan with a large number of retirees could see double-d i git increases. This large bloc of elderly enrollees should be a prime consideration in any comparison of the performance of private sector and FEHBP plans in the area of cost control. On a per capita basis, for example, the costs of FEHBP plans should gro w faster simply because the feded plans, dike most private sector plans, cover the medical expenses of higher-cost retired workers and their families 15 Why the FEHBP Out-performs the Private Sector It is not often that a federal program is a better model o f a free market in action than the equivalent private sector program But the FEHBP is for two reasons. First, the federal gov ernment created a system based on consumer choice and market competition-a system in which market forces, not regulation, force i mprovements in efficiency and encourage inno vation among providers. Second, the tax system affecting non-federal workers has so dis torted the market for health care in the private sector that the power of consumer choice has been suffocated.

The tax code gives American workers an unlimited tax break on health plans if-and only if-the health plans are provided by their employer If the employer does not offer a plan or if a worker noticed that some other plan actually was better value for money, in al most no instance does the tax code give the worker any tax relief for selecting a better plan.

The tax benefits for private sector workers, moreover grow as the generosity of the com pany plan grows. So, union bargainers have an incentive to press for tax free health benefits rather than for taxable wage increases. This tends to push up health spending and health costs, and blunts employee sensitivity to these costs. By contrast, the federal government contributes a maximum amount to each employee. Historicall y , members of Congress and federal emplo ees have paid more out of pocket for health insurance than employees in the private sector Unlike .the unlimited tax break for free company plans in the private sec tor, this means there is a much greater sensitivit y to the price of health benefits by enrollees in the FEHBP.

Private employer-based insurance practices, heavily and artificially influenced by the fed eral tax code, have led to two characteristics of private coverage that now am routinely de scribed as a crisis. One is soaring health care costs, due to the lack of price sensitivity by employees. The other is that a familys employer is the key to its health care. This not the case in other areas of insurance, like life insurance, car insurance or home-own e rs insur ance. Only in health care is the extent and availability of insurance determined by mes em ployer. And only health benefits suddenly 8~e at risk if an American changes jobs or is tem porarily unemployed 37 HOW TO MAKE THE FEHBP BETTER The 1989 Co n gressional Research Service Study of the FEHBP, the most comprehensive analysis ever conducted, notes That FEHBP has continued to work over the years, de spite major chan es in the environment in which it has operated, reflects the soundness of its basic d esign. Nevertheless, Congress can take steps to make the program work even better. It can improve addressing the programs administration. And it can reduce the ad 58 27 With progressively richer federal benefit packages and the concurrent reduction in fvs t dollar coverage among private sector plans, however, the gap is narrowing. Rita Zeidner, On Balance, Federal Benefits are Healthy, Governmenr Execunve, February 1992, p 41. Faced with soaring costs, not only are private sector plans shaving benefits and r aising premiums for their workers, but more employers are retreating from covering at little or 110 cat to the employee. See Thomas A. Darold, Health Insurance Answer Bmk (1993 supplement New Yo& Panel Publishers, 1992 In the FEHBP, coverage is even exten d ed, under certain circUmstances, to former spouses 28 CRS Report, p. 231 16 verse selection problem. Adverse selection is the gravitation of younger and healthier em ployees to lower cost plans, leaving older, sicker and more costly enrollees concentrated in progressively higher cost plans As economist Walton Francis notes, the FEHBP, has only one major problem-adverse risk selection created by the failure to experience rate premi ums to the radically differing actuarial costs posed by different pups of en r ollees. This problem creates others, but they are deri~ative Some wish to solve this problem by eliminating or drastically reducing the employee choice and carrier competition But this would trade in the efficiencies of market forces for the disadvantages of a Medicare-style system, plagued by rising costs, reams of red-tape and congressional benefit setting. A far better approach, building on the solid success of consumer choice and competition in the FEHBP, would be to allow premiums to reflect more clos ely the actual cost of serving retirees and active employers, and to subsidize higher cost retirees directly.

Specifically, to make the FEHBP work even better, Congress should 1) Establish separate premiums for employees and retirees Active employees and f ederal retirees currently pay the same premiums for their health insurance, despite the fact that the costs for these pups very different. Older persons and families typically have much higher health care costs than younger persons and fami lies. The FEHB P does provide different premium rates for individuals and families, reflect ing the fact that costs incuxred by a family normally are higher than for single individuals But it does not allow for different rates between employees and retirees, or between r e tirees who are eligible for Medicare and those who are not Today, older, higher-risk retirees gravitate toward a particular health care plan, they raise disproportionately the costs of that plan and yet do not pay higher premiums and thereby contribute mo re revenue to cover their higher costs. When a large number of mtirees pick a particular plan, the effect is to force the plan to raise its premiums to cover the added cost.

But the effect of higher premiums is to encourage lower-risk employees, with low m edical costs to leave it for a cheaper plan. High cost individuals thus end up being concentrated in fewer and fewer plans; and these plans, covering higher cost enrollees paying artificially low premiums, find it progressively more difficult to compete w i th lower-cost plans with younger enrollees As Walton Francis and other economists argue, if these premiums for higher risk rethees reflected their actuarial cost, then the decision of a large number of retirees to pick a particu lar plan would not necessa rily force higher premiums for lower-cost active employees, or Medicare-eligible annuitants, already enrolled in the same plan. The cmnt problems of ad verse selection thus would disappear.

Because higher premiums for retirees would increase their financia l burden, the govern ment could offset the impact on these elderly citizens by making a larger government contri bution to the cost of their premiums, with perhaps slightly lower contributions for active employees, so that the net cost to government remai n ed the same 29 Francis, op. cir p. 8 17 I 2) Enhance competition and simplify administration New fee-for-service plans today must win approval from Congress before being allowed to compete in the federal insurance program, while HMOs do not. Although Cong r ess tradi tionally has been inclined to permit such new plans to join the system, especially if they are sponsored by union or employee groups, there is always a danger that access could be un duly politicized. In any case, the decision as to whether a pl a n is qualified to enter into FEHBP competition should be an administrative decision of the civil service, guided by standards of consumer protection, rather than a legislative decision influenced by political connections or lobbying standardized and simpl ified, and greater ease of entry should be established. OPM, not Congress, should determine qualifications for entry of all types of plans into the FEHBP.

And instead of meddling in the details of rates and benefits of almost 400 plans, OPMs au thority sho uld be limited to establishing and enforcing common basic ground rules far mar ket competition. These rules should be confined to establishing minimum benefit require ments, including catastrophic protection, fiscal solvency requirements, the promotion of consumer information and the protection of consumers hm fraud. With every plan re quired to provide at least a basic benefits package within the ground rules, any plan meet ing OPM administrative standards should be permitted to compete Thus the current r e quirements for all plans to enter and stay within the FEHBP should be LESSONS FOR HEALTH CARE REFORM Opponents of consumer-based health care refm in Congress and the press often argue that Americans just are not competent to make wise choices about health care plans. They say that Americans cannot weigh price, value and benefits. They also say that such a system would not constrain costs. Therefore ey insist, while consumer choice may sound good in theory, and works in the rest of the economy, it could not work in health care.

This is flatly contradicted by the experience of the FEHBP. And it is especially ironic that the lawmakers who reject the idea of consumer choice in health care actually exercise choice themselves every year in the FEHBP and resist ev ery effm to take away that choice.

The experience of the FEHBP has many lessons far lawmakers now engaged in the de bate over reforming the U.S. health care system-and each of these lessons points to the workability and desirability of a universal health care system based on the kind of con sumer choice taken for granted for federal workers-and members of Congress. Among the salient lessons Lesson #1: Ordinary Americans are quite capable of making sensi ble choices regarding their health care plans Federa l workers are not the wide-eyed hapless consumers pmtrayed by opponents of con sumer choice in health care. They do not shop around in a bewildering market, falling prey to powerful insurance companies. On the contrary, consumers indisputably have the uppe r hand and force plan providers to adapt to their demands or suffer the consequences. Big in surance caniers like Blue Cross and Blue Shield find themselves, each year, in a bruising battle for market share with plans offered by entrepreneurial employee or g anizations like the Mail Handlers and managed care plans 18 One valid criticism of the FEHBP actually underscores the power of consumer choice rhat is the problem of adverse selection, meaning that lower risk enrollees, free to shop imong competing health care plans each year, tend to gravitate to leaner, lower cost plans resulting in the cost of serving higher-risk individuals, concentrated in comphensive plans pushing up the cost of more comprehensive plans. But as Ben Lytle, President and CEO of the Ass o ciated Group, an insurance company based in Indianapolis, Indiana, explains, ad verse selection is the insurance industrys term for the consumer outsmarted us. He fig ured out that he could buy a policy and get more in benefits than we charged him in prem i ums.

Adverse selection, however, would be largely avoided if the governments sha of plan Eosts were revised to allow plans to charge higher prices for high-risk individuals, such as retirees, without the enrollees share of these costs rising significantl y. For opponents of consumer choice, adverse selection presents the supreme conundrum: they cannot logically argue that adverse selection resulted from consumer choice based on self-interest, while si multaneously holding the position that consumers are i ncapable of making rational choices Lesson #t2: Consumer information becomes readily available once consumers are permitted to make choices.

The ready availability of consumer information in the FEHBP exists because nine million A mericans have the right to choose a plan. If consumer choice of health plans were avail able to all Americans, there would be an explosion of usable consumer information Lesson 3: Consumer choice is a simpler and more effective way to control costs than r egulation and price controls.

While the huge federal Medica program, Americas foremost experiment with single payer government health care insurance, is characterized by mountains of increasingly unin telligible regulations governing doctors and patients, FEHBP remains simple. Medica is moving actively toward price controls an48ther features of centralized planning. FEHBP meanwhile, has been relatively passive. And largely devoid of consumer choice, pri vate sector health care plans are finding it hard to c ontrol costs, with larger average pre mium increases than the FEHBP, even though most private sector health care plans do not even cover high cost retirees Lesson #4: When consumers pay premiums directly, albeit with gov ernment help, they resist mandates which raise health costs.

If Congress mandates a benefit in a system where there is direct and immediate cost-shar ing between the government and the employees and retirees, the kt and immediate finan cial impact of this mandate shows up in higher costs f or both, as well as for the taxpayers.

This has made Congress very resistant to the kind of special interest medical lobbying that has been so successful elsewhere 30 CRS Report. p. 239 19 Lesson #5: A consumer choice system is simple and inexpensive to a dminister Even though they individually purchase their health insurance package, congressional and federal employees and retirees in the EHBP do not have to wony about making sure that their insurance premiums are paid; the federal government, as employer , pays them to the carriers A payroll deduction is made by the federal government each pay period, and the funds are deposited in a government account for transmission to the private carriers.

In designing a consumer-based health care system for America, w here families would have the option to choose among many different types of plans with the same tax breaks employers, like federal agencies in the FEHBP, also could be required to make payroll de ductions for premiums for workers and transmit these premiu m payments to the insurance carriers of the employees choice Lesson M: A consumer-choice system is better than regulation in encouraging cost saving health care innovations, like managed care When consumers can choose health plans on the basis of quality a n d price, providers that use innovative ways to deliver care at lower cost have a competitive advantage. When em ployers pay for the plans, consumers understandably want generous plans without regard for value. That is why managed care, union plans, and ot her innovations are common in the FEHBP but rarer in the private sector or in all-payer programs like Medicare. Innovation similar to the FEHBP could be expected if all Americans had a choice of health plan.

If a federal worker moves from the Treasury to t he Pentagon, or takes a job on Capitol Hill, he or she keeps the same health plan and there is no interruption in benefits. If private sector employees lose their jobs or change jobs, they do not lose their homeowners insur ance, their auto insurance or t h eir life insurance. They only lose what is arguably their most important insurance their familys health insurance. With a consumer-based system, in which the tax relief goes directly to individuals and their families, either in the form of cred its or vou c hers, irrespective of where they work, employees could choose a health coverage that had nothing to do with their place of work, and would accompany them from job to job HOW CONGRESS SHOULD REFORM AMERICAS HEALTH CARE SYSTEM It would be Rlatively simple f o r Congress to amend current law so that every working American family in effect would have the same type of choices available to Congress and other federal employees. Doing so would require three basic steps First, the tax treatment of health care would h a ve to be reformed, such that families would have the same system of tax =lief wherever they chose their health plan and wher ever they worked Second, the tax relief would have to be changed to give more help to lower-paid workers and those facing higher i n surance and medical costs, and a limit placed on the tax break for plans purchased by affluent Americans. These changes would deal with most of the adverse selection problem experienced in the FEHBP system 20 And third, there would have to be some changes in insurance regulations to discourage plans from turning down potentially high cost enrollees or charging them prohibitive premi ums.

A proposal to accomplish this has been advanced by The Heritage Foundation. Known as the Consumer Choice Health Plan, th is would replace the current tax-free fringe benefit sta tus of company-provided plans with a refundable tax credit for buying health insurance or medical services. All families would be required to obtain at least a basic plan. And insur ance companies c o uld not cancel coverage because of high claims, nor could they refuse to cover an individual or apply a premium surcharge higher than a specific percentage. In addi tion, just as in the FEHBP, employers would be required to make a payroll deduction on be h alf of each employee and send premium payments to the plan chosen by the worker The Heritage Consumer Choice Health Plan not only would guarantee all American workers and their families access to coverage, but would do so without Equiring massive tax incr e ases or deficits. According to an analysis on the plan conducted by Lewin/ICF, one of the nation's leading econometrics firms, the tax and market changes proposed by The Heritage Foundation would result in a net savings of $10.8 billion in the health care system in first year. And most American families would be better off than they are today. Using a combination of tax credits and vouchers, a typical family earning between $30,000 and 40,000 per year would benefit most by The Heritage Foundation's propose d tax and insur ance market changes.

The Heritage Foundation's Consumer Choice Health Plan is embodied in S. 3348, intro duced this fall by Senator Orrin Hatch, the Utah Republican. Under the Hatch bill, each family would be eligible for a refundable credi t for the purchase of insurance and the pay ment of out of pocket expenses. And like members of Congress and federal employees American families would be able to pick and choose the kind of health cam plan that best fits their needs. Mmver, every American family would benefit from a comprehensive set of insurance market reforms. Like members of Congress and federal employees, for in stance, American families would have the right to renew their coverage each year 31 CONCLUSION Members of Congress would not e ven think of giving up the benefits of choice and com petition in their own health care system. Indeed, they have taken pains to exeqt them selves from many of the "reforms" they would impose on all other Americans. Lawmak ers should reflect on this in de veloping a national health care system for all Americans.

Instead of trying to build upon the employer-based model that does not restrain costs and contains many other flaws, or instead of introducing a massive nationalized system based being rejected by t heir former admirers throughout the world, Congress should adapt and re I I on rationing, price controls and all the other crude instruments of central planning now 31 See Butler, Talking Points Part II, p. 21 32 For example, Senator George Mitchell's "pl a y or pay" proposal (S. 1227 which is one of the leading hdth uue reform proposals now before Congress, explicitly exempts members of Congress, their staffs, and other federal employees. See Edmund F. Haislmaier, "The Mitchell HealthAmerica Act A Bait and Switch for American Workers Heritage Foundation Issue Bullerin No. 170, January 17,19

92. See also Moffit, op. ur 21 fine the system that works so well for federal workers: a system characterized by consumer Ehoice and competition. This system should be pe rmitted to all Americans By building upon these principles, Congress would improve its model Federal Employee Health Benefits Program and also lay the foundation for a genuine consumer-based national health program. Driven by the same dynamics of consumer choice and market competition that work so well in the rest of the economy, such a consumer-based system would mean af fordable and adequate coverage for every American family. What is available for Congress and its employees should be ma& available to ev ery American family.

Robert E. Moffit, Ph.D.

Deputy Director of Domestic Policy Studies 22

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