August 4, 1993 | Backgrounder on Social Security
953 August 4,1993 We view the federal employees program as a terrific system and we don't want to do anything that would hurt its gectiveness Robert Boorstin, Special Assistant to the President for Policy Coordination The President's Task Force on National Health Care Reform I can say we're leaning toward [dissolving FEHBP absolutely Rob e rt Boorstin, Special Assistant to the President for Policy Coordination The President's Task Force on National Health Care Reform2 INTRODUCTION Question: At the end of the national debate over health care reform, will all new rules and regulations governi ng the access of Americans to health care services be ex actly the same as those that .apply to Congressmen and mailmen?
For both taxpayers and federal employees alike, this question takes on a special ur gency. The reason: Inside the Washington Beltway, t he clash of powerful political forces now taking place will influence significantly the outcome of the national health care re 1 2 Quoted by Dana Priest and Stephen Barr Clinton Weighs Dissolving U.S. Employee Health Plan The Warhington Post, May 29, 1993 .
Quoted by Carol Emert Apparently Doomed Health Plan Being Touted as National Model The Baltimore Sun June9.1993. form debate? At stake in this struggle are the personal health care benefits of Members of Congress, congressional staff, members of federal employee unions, military families postal workers, and the very same federal officials who are writing and will administer the Clinton health care plan for all other Americans. The cast of characters in this Capitol Hill drama Members .of Congress andcong r essional staff. Currently, Members of Congress and congressional staff are covered under the 33-year-old Federal Employee Health Benefits Program (FEHBP This is a unique, consumer-driven health care system cov- 4 ering nine million federal, postal, and co ngressional employees and their dependents.
In the past, Members of Congress have proposed major health care reforms while spe cifically exempting themselves, congressional staff, and federal and postal workers from the system to be imposed on businesses a nd employees in the private sector-so that they can remain in the FEHBP? A key question for taxpayers today is whether Members of Congress will subject themselves to the same laws and regulations on health care that will govern all other Americans Federal workers and retirees. Powerful federal employee union leaders publicly back the Clinton Administration's comprehensive national health care reform-but strongly oppose including federal workers in such a system. The major reason: federal workers and their f amilies fear they will pay more for health care services, but receive less for their dollars. These federal and postal workers, retirees, and their families also are enrolled in the Federal Employee Health Benefits Program. And in sharp contrast to the pr i vate sector employer-based system, many federal employee organizations, in cluding unions, sponsor their own health insurance plans. Indeed, over one-third of all federal employees and their families are enrolled in union- or employee-sponsored health ins u rance plans Military families. At the very time the Clinton Administration is thinking of abolishing the FEHBP for federal workers and their families, the National Military Families Asso ciation (NMFA) wants military wives and children to have the right t o enroll in the FEHBP under the same terms and conditions as the families and dependents of federal civilian employees. Right now, almost six million military dependents and retirees are enrolled in the costly Civilian Health and Medical Program of the Uni f ormed Services CHAMPUS In speaking of the FEHBP option, NMFA Executive Director Dorsey 3 For a general description of the evolving Clinton health plan and its implications for.the public, see Stuart M. Butler Why the Clinton Health Plan is in Trouble Heri ruge Lecture No. 452, June 21, 1993; see also, Stuart M. Butler The Contradictions in the Clinton Health Plan Heritage Foundation Buckgrounder No. 924, January 12,1993.
For a detailed discussion of the Federal Employee Health Benefits Program, see Robert E. Moffit Consumer Choice in Health: Learning from the Federal Employee Health Benefit Rogrm," Heritage Foundation Buckgrounder No 878, November 9,19
92. See also Open Season for America? A Symposium on the Federal Employee Health Benefits Program Heritage Lecture No. 431, November 9,1992.
For a detailed analysis of these exemptions and the treatment of Members of Congress, congressional staff, and federal workers under major congressional health care reforms, see Robert E. Moffit, "Congress and the Taxpay ers A Double Standard on Health Care Reform Heritage Foundation Issue Bulletin No. 174, April 16,1992 4 5 i 2 Chescavage says: Its operational and its successful. Why reinvent the wheel? We could go into the program during the next open season in November . 6 The reason the Clinton Administration is considering trying to abolish the FEHBP is that it is politically impossible for White House officials to advance a national health care reform while excluding from it themselves, Members of Congress, and other f e deral workers. But if the Clinton Administration is successful in abolishing the FEHBP, con gressidnd and fedefal workerS, plus%dllions-bf %tirees and dependents, would be denied a system in which wide personal choice and intense competition have kept ave rage an nual premium increases as much as one-half to one-third below increases in the private sector in recent years? And unlike those with private sector health plans, families with FEHBP plans enjoy benefits that are portable between jobs.
Rather than s olving their ethical dilemma by abandoning the successful EHBP and forcing all Americans into an untested and questionable new national plan, lawmakers would be wiser to retain the FEHBP, improve it, and use its principles of consumer choice and competiti o n as the basis for health care reform for all Americans. In other words, Members of Congress should guarantee to every American family the same kind of choices that they and other federal workers already enjoy Consumer Choice Plan. This could be done by i n stituting a reform based on the cen tral elements of the Heritage Foundations Consumer Choice Health Plan and giving every American family direct control of their own money-including the money their employer now spends on their health insurance. Every Ame r ican family would be em powered also by changes in the federal tax code and by a tax credit or a voucher (for low income families) to help offset the costs of purchasing health insurance, to pay routine out-of-pocket medical expenses, or to open up a tax- f ree medical savings account. Leg islation based on the Heritage proposal S.3348) was introduced last year by Senator Orrin Hatch, the Utah Republican. A group of Senators and House members currently are developing a revised version for introduction this s ummer 8 9 Quoted in Soraya Nelson, CHAMPUS May Be Transplanted by Federal Health Care Plans, Amy Times, June 14 19
93. Open season is the period in the fall of each year when all postal, federal, and congressional employees choose their health care plans. The overwhelming majority of federal employees tend to stay with their plans, but they have the option of dropping them for a better alternative if they wish. About 5 percent do so, on average, each year In 1993, for example, FEHBPs annual increase is pro j ected at 9 percent. Updated figures show that in 1992, FEHBP premiums increased by 8 percent, while private sector plans increased by 12.6 percent. In 1991, FEHBP premiums increased 6 percent, while private sector plans increased 12 percent. For an update d comparison of cost control in the FEHBP, private sector insurance, and Medicare, see Walton Francis, A Health Care Program Run by the Federal Government that Works, The American Enterprise, Vol. 4, No. 4 (July/August 1993 pp. 54-56.
For the details of th e Heritage Foundations Consumer Choice Plan, including an econometric analysis of the impact of the plans tax and insurance changes, see Stuart M. Butler, A Policy Makers Guide to the Health Care Crisis Part II, The Heritage Consumer Choice Health Care Pl an, Heritage Foundation Talking Points, March 5,19
92. See also Stuart M. Butler and Edmund F. Haislmaier, eds A National Health System for America (Washington D.C.:The Heritage Foundation, 1989).
The concept of the medical savings account was developed b y the National Center for Policy Analysis, based in Dallas, Texas. Families would be able to make tax-exempt deposits into such an account, to use for purchasing health insurance or for paying medical bills 3 Such comprehensive changes would enable all Am e rican workers and their families to purchase the health insurance plans of their choice, including plans offered through unions or other employee organizations, just as Members of Congress and federal and postal workers do now. They could even obtain plan s sponsored by churches, the local farm bureau, or any other major organization. Moreover, federal tax relief for health in surance no longer would be tied exclusively to the place of work, as it is now, but would be available to. workers,regardless of whe r e they worked or even their status of employ ment This would make health benefits both portable and secure. This change in the tax laws also would enable workers who retire to carry their health insurance plans directly into retirement, and thus enjoy the unique security and peace of mind now reserved to congressional and federal retirees BREAKING UP A GOOD THING IS HARD TO DO If the FEHBP is abolished, federal workers will be forced to buy one of the standard ized health care plans offered by the Clinton A dministration's proposed "regional health alliances new government-sponsored health care purchasing cooperatives to serve the self-employed, the unemployed, employees of small businesses, current Medicaid recipi ents, and the currently uninsured. These re g ional alliances are likely to be an even more highly regulated variant of the health insurance purchasing cooperatives (HIPCS) envi sioned under the original "managed competition" reform model proposed by Professor Alain Enthoven, the Stanford University economist, Dr. Paul Ellwood of the so-called Jackson Hole Group, and Representative Jim Cooper, the Tennessee Democrat.
John Sturdivant, President of the American Federation of Government Employees AFGE), the largest federal union, worries that if the Clin ton Administration exempts big private companies from participating in these pools as some officials hint, federal work ers and their families then would be thrown into plans serving the most expensive pa tients, with consequently higher costs for federal families l For federal workers and retirees and their families, the Clinton Administration's pro posed abolition of the Federal Employee Health Benefits Program raises a number of spe cific concerns. Among them 10 WORRY #l : A reduction in choice of benef i ts. Federal employees and retirees could not expect to have access to the same wide choice of health benefits packages, with vary ing premiums and deductibles, that they now enjoy. Almost 400 plans now compete to satisfy federal consumers, who normally ch o ose between a dozen and two dozen plans in any given geographical area of the country. Instead their "choice" will be between 10 For a critical discussion of the role of these purchasing cooperatives, see Peter J. Ferrara Managed Competition Less Choice a nd Competition, More Costs and Government in Health Care," Heritage Foundation Backgrounder No. 9
48. June 29,1993; Robert E. Moffit, "Overdosing on Management: Reforming The Health Care System Through Managed Competition Herifage Lecture No. 441, February 23,1993 11 "You could very well end up with a plan that is simply public employees, Medicare, Me d icaid and the uninsured said Sturdivant I think that could have a detrimental impact." Quoted in Priest and Barr, op. cit see also Emert op. cif 4 minor variations of a standard one-size-fits-all health benefits package. As Washington Post reporters Dana P riest and Stephen Barr note The standard package might in clude fewer or different benefits than some [federal] workers now receive, and the fed eral government might decide not to pay for supplementary coverage to close the gap."12 This prospect of being forced to accept an unknown level of benefits and costs an- gers mostfederid union 'leaders.'SayS'George"Gould,.Washington representative of the National Association of Letter Carriers We all support the concept of national health care for people who don' t have health care coverage or can't afford it but we resent the presumption that we have to be drafted into a program when nobody knows how the hell it will work Suppose someone went up to Congressman X and said, 'Lets put 300,000 of your 550,000 constitu e nts in a system that we don't know what it will cost, don't know what benefits it will offer or what it is going to be union official suggests an altemative-just throw Members of Congress and Clinton Administration political appointees into the Clinton pl a n, but leave the rest of federal workers and retirees alone. Says Ken Parmelee, Washington representative of the Rural Letter Carriers Association It makes sense for Members of Congress and oliti cal appointees, but not regular workers and retirees, to be part of a national plan."
Notes Mike Causey, veteran reporter on civil service affairs for The Washington Post, there are approximately 37,000 elected and appointed officials in the federal govern ment. This is just a small fraction of the nine-million-me mber enrollment of the Fed eral Employee Health Benefit Program.
But if any federal union leaders want to insulate themselves and federal workers from the health care system Congress imposes on private sector workers, then they should at least offer Membe rs of Congress, whom they are ready to consign to the new health care system, a compelling justification for the difference in treatment 9,913 Rather than throwing all federal workers into the Clinton health plan, one prominent Y4 WORRY #2: The eliminatio n of employee-sponsored plans. Federal workers probably would lose the right to remain in plans offered by unions and various employee organi zations. Such employee-sponsored plans are a characteristic feature of the FEHBP, and do not exist to a comparable degree anywhere else. Indeed, plans sponsored by unions and other employee organizations have been a feature of the FEHBP since its in- ception in 1959, and they now enroll over one-third of all federal workers, retirees, and dependents 12 Priest and Barr , op. cit. 13 Quoted in Mike Causey Health Plan Guinea Pigs The washington Post, June 6,1993 14 Q uoted in Mike Causey, "Running From Health Plan me Washington Post, June 31,19
93. Indeed, Congressman Fortney "Pete" Stark, the California Democrat and Chair man of the House Ways and Means Subcommittee on Health, recently introduced legislation (H.J.Res. 241) that would force Members of Congress to enroll themselves in the "cheapest" health plan approved by the regional alliances under the Clinton health plan 5 WORRY #3: Paying more and getting less. The most fundamental concern for federal families is financial: how the Clinton plan will affect the paychecks-the bottom line of federal workers and retirees. The key financial worries center on future costs and premiums of their health insurance. Other Americans also share these concerns.
According to Hillary Clinton, whose special task force has been hammering out the details ofthe Administrations plan, these concerns are misplaced. During a recent trip to Balti more, Maryland, Mrs. Clinton said I can guarantee you that an program the president proposes to you will cost you less than you are paying now.
Notwithstanding Mrs. Clintons promise to a small group of Baltimore businesspeo ple, federal union leaders wony that their members and retirees will end up paying more for health insurance, but getting less under the Clinton health plan: People with health insurance are going to end up paying more for less coverage, worries Ameri can Federation of Government Emplo y ees resident Sturdivant. Thats what were concerned about with federal employees. Similarly, Robert Tobias, president of the National Treasury Employees Union, says, If the federal employee program is elimi nated and theyre rolled into the new federal heal t h care plan, were concerned that they will receive less benefits and be paying more dollars in premium Paying More for Less. Private sector unionized workers are beginning to echo those worries. Observes Representative Jim McDermott, the Washington State D emo crat, If Im going out to my Boeing workers, who stood outside for 30 years to earn their benefit package, and tell them theyre going to give up 20 percent of those bene fits-and pay more in taxes, too-theyre going to ask me to have my head exam ined. Indeed, recent surveys show that most Americans think that they will be pay ing more for less.
They are probably right. Under the emerging Clinton health plan, private sector em ployers likely will be required to pay a portion of their employees health car e bene fits; employees also would be required to pay some portion of the cost of their plans in the form of a payroll tax, as well as copayments and deductibles. In fact, a recent study by Lewin-VHI, a leading Virginia-based econometric firm specializing i n health care shows that about one-fourth of all households could end up paying at least $1 ,OOO more each year for their health care than they do today? In the case of the FEHBP the federal government this year contributes up to $1,675 for individuals an d $3,630 11 1 19 15 Quoted by Frank Swoboda, Hillary Clinton Hears Health Care Woes, The Washington Post, May 23, 1993 16 Karen Riley, Federal Workers FearTheyll be Cash Cow for New Health Plan, The Washington Times May 19,1993 17 Ibid 18 Quoted by William M. Welch, Health Care Reform Wont Fly, Say Boeing Employees, USA Today, May 19,1993 19 According to a recent Washington Post-ABC News Poll, 56 percent of those surveyed think they will be spending more for health care, and 43 percent, a plurality, believe that the quality of the health care they get will be worse than it is today. Richard Morin, Surveys Find Doubts About Costs, Quality Under Health Reform, The Washington Post July 7, 1993 20 See Stuart M. Butler, Implications of a Payroll Tax to Fund the C l inton Health Plan, Heritage Foundation FYI July 6, 1993 6 for federal families, approximately 72 percent of the premium cost for congressional and federal workers If the rules in a new system based on the Clinton proposal were to be the same for the feder a l government as they are expected to be for employers in the private sector-and if private employer contributions are lower than the current fed eral contribution-then the federal government likely would lower its contribution to premiurns2l The only othe r option for Members of Congress would be to set up one set of rulesfor..employers and employees..in the private sector and another, far more generous, set of rules for themselves and federal workers and retirees-an option which would generate intense publ ic opposition THE GREAT ESCAPE FOR FEDERAL UNIONS Federal union leaders use various arguments to justify their demands for a special dis pensation from the Clinton Administration's evolving national health plan.
One such argument is that the federal govern ment is like a big corporation, and the Clinton Administration has already indicated a willingness to consider exempting large self-insured companies from participating in its regional alliances Ap roximately 97 percent of all companies with 5,000 or more employees are self-insured means a company directly assumes all the risks and the financial liabilities of its employees' health plans. Under current laws, this gives a company an exemption from state laws mandating certain health benefits. If large, self - insured companies were ex empt from key provisions of the Clinton plan, they might not have to pay a full payroll tax. They would become, in practice, their own health regional alliance, offering their own plans to their employees. If big businesses can b e exempted from the Clinton health plan, union leaders argue, then so should the federal government. If the Clinton Adminis tration exempts these corporations from participating in the regional alliances, a different set of benefit and tax rules is likely to apply to them.
This would create a two-tiered health care system-one for most large corporations and their employees, and another for small businesses and their workers.
One key difference between many large corporations and the federal government toda y is that the federal government is not self-insured. And if the federal government were to self-insure, it would not be for the same reason that large private sector compa nies self-insure-the state taxation and regulation of their health insurance plans , particu larly the imposition of mandated benefits. But Congress already protects FEHBP plans from state-mandated benefits and their attendant costs. They have also protected compet ing FEHBP plans from state taxes on their premium EL3 Self-insurance 21 P riest and Barr, op. cir 22 See Hilary Stout and Rick Wartzman Health Plan Might Include Surcharge For Fms that Avoid Insurance Pools,"
The Wall Street Jounurl, May 4, 1993; Mike McNamee, et al Clinton's Health Care Sell-A-Thon: He's Going All Out to Line U p Business Backing Business Week, May 24, 1993 23 See Thomas A. Darold, Health Insurance Answer Book, 1993 Cumulative Supplement 24 See Moffit, "Consumer Choice in Health op. cit p. 10 7 THREE Members of Congress also know there is an enormous difference b etween self-insur ance for private companies and for the federal government If private companies self-in sure and assume the financial risks of health insurance, and then have grave difficulties meeting their financial obligations in paying their employee s health care costs, the dam age is limited to the bottom line of the company, its stockholders, its managers, and its employees. But if the federal government were to self-insure, all of the financial obliga- tions .of.healthjnsurgce of federal,.employees simply.would--be shifted to the taxpayer Thus, treating the federal government like a self-insured corporation under the Clinton plan would exonerate private insurance carriers in the FEHBP from all financial risks they now assume, and instead saddle Amer i cas taxpayers with another increase in the unfunded liabilities that already burden other federal entitlement programs DECADES OF SUCCESS It is perfectly understandable why federal employees and their organizations oppose the abolition of their health car e program. It works.
The FEHBP is the program of Presidents, Supreme Court Justices, the FBI and the CIA, biomedical research scientists at the National Institutes of Health and astrophysi cists at the National Aeronautics and Space Administration. But it is also the program of.
Capitol Hill cops and maintenance workers, mechanics and technicians postal workers and Capitol Hill couriers.
It also is open to all Members of Congress and thousands of congressional staff, includ ing the congressional staff members who worked on Hillary Clintons Health Care Re formTask Force. Altogether 37,000 congressional and political employees are covered u n der the FEHBP, and about one-half of all residents of the Washington, D.C metropoli tan area are enrolled in one of its 35 competing health care plans26 Official Washington from the First Family to the animal cage cleaners at the National Zoo, is covered under this unique health care program.
After Congress enacted the Federal Employee Health Benefits Program in 1959, Presi dent John F. Kennedy enrolled in it and chose the Aetna health plan for himself and his young family; President Lyndon B. Johnson took his Blue Cross and Blue Shield plan into ~tirement.2~ Those coming into government are often as delighted with the program as those going out of government. During the 1992 Clinton presidential transition and congressional orientation, many of the new po l itical appointees of the Clinton Adminis l tration and Members of Congress were introduced to the FEHBP for the first time and The FEHBP covers millions of federal employees and retirees in the executive branch I 25 In 1990, the Bush Administrations Offic e of Personnel Management surprisingly proposed government self-insurance along with a sharp reduction in choice and competition. While OPMs 1990 attempt to turn the FEHBP into a self-insured Medicarestyle program never materialized, the proposal has been a recurrent theme of some union officials, especially those who do not now offer health benefit plans See, for example, Revitalizing the Federal Government, a Report to President-Elect Bill Clinton from the American Federation of Government Employees, AFL- C IO, 1992 26 Mike Causey, An Insurance Paradigm, The Washington Post, February 1,1993 27 Ibid 8 were pleasantly surprised at the choice of benefits they now have. At least two Cabinet officers have requested and gotten briefings on health insurance benefit s because of spe cial medical problems in their families, reports the Washington Posts Mike Causey.
Most are delighted at the relatively low group-rate premiums 700 to $4,500 a year for family coverage, half that for sin les and the fact that pre-existing medical conditions are fully and instantly covered. Causey adds that, Most presidents, past and current Members of Congress staff members and Cabinet officers sign-up as soon as they can. It is one of the least advertised, best perks of office, especially for retirees.29 Cost Control. It is ironic that the Clinton Administration is targeting for oblivion the one government health care program that works well in controlling costs and simulta neously gives millions of American families a solid range of benef i t choices. Since 1975 the average annual premium increase in the FEHBP has been about 10 percent? Lead ing independent studies, such as those conducted by the Congressional Research Service and Lewin-VHI, show that average annual premium increases over th e past twelve years are two to three and one-half percentage points less than those in private, employer based insurance. As Dana Priest and Stephen Barr of The washington Post note FEHBP is one of only a handful of national health benefits pro ams in whic h costs ap parently have grown less rapidly than in private sector plans This cost control is all the more remarkable, given that the federal program, unlike many private or corporate health plans, is open to all retirees. Retirees are much more costly on a verage to insure than active workers, and many federal retirees are not eligible for Medicare. Moreover, the FEHBPs comparative superior cost-control performance is even more noteworthy because private sector health plans in recent years have been mov ing away from first dollar coverage, shaving benefits, increasing employees share of premiums, or a combination of both, and cutting back on coverage for dependents and re tiree Retirees, especially, have been hit hard by private sector health insurance cut b a ck While private sector plans have been retreating from first dollar coverage and in creasing the size and number of deductibles and copayments, federal benefit packages in recent years actually have been getting progressively more genero~s So, federal un i on 4 3P 28 Mike Causey, Perks and Appointees, The Washington Post, February 2,1993 29 Causey, An Insurance Paradigm, op. cit 30 See remarks of Walton Francis in Open Season for America, op. cit p. 6 31 For the most recent evaluation of comparative cost co ntrol data, see Francis, A Health Care Program Run by the Federal Government that Works, op. cit pp. 54-
56. See also Mofllt, Consumer Choice in Health, op. cit pp 13-16; U.S. Congress, House, Committee on Post Office and Civil Service, The Fedeml Employee s Health Benefits Program: Possible Strategies for Reform, A Report Prepared by The Congressional Research Service, Committee Print 101-5, May 24,1989 (hereafter CRS Report 32 Priest and Barr, op. cit. The Post writers observe, however, that while the FEH B P premiums have risen generally less than private sector plans (10.8 percent since 1980 this is a rate much faster than the [Clinton] administration considers acceptable. It is not yet clear exactly how the Clinton health plan will control costs, but prop o sals for both global budgets and price controls have surfaced 33 First dollar coverage means that the health insurance plan covers medical expenses with no deductible 34 In 1992, about half of workers in companies with more than 200 employees were promise d retiree benefits, down from two-thirds, in 1983, reports consulting fm KPMG Peat Marwick, notes Robert Samuelson in RIP: The Good Corporation, The Washington Post, May 30,1993 35 Francis, A Health Care Program Run by the Federal Government That Works, op . cit p. 56 9 leaders, employ ees and retirees are right to be nervous about the critical de tails of the Clin tonhealthcare The reason the FEHBP, un like other gov ernment health programs, keeps cost increases in check is because market forces rather than regu lation are the pri mary tool for cost control in the FEHBP.
Says Walton plan I I Federal Employees Health Benefits Plan Quality Care with a Fraction of the Bureaucracy FEHBP Medicare FEHBP Medicare I I Federd Enpbyees Adminiing per Million Peapk Cove red 16 I Pages of US. Same and Rquhtion per Million People Covered I Sources: I992 Green Book unplwihed data from US olfi OtPerroMd MaMBement October I992 Cited in Moncbte for Chnge. Prupssk Polii Institute, 19
93. Herioge DmChai Francis, a Washington bas ed economist The paradox of the program is that it is success ful because it is relatively unmanaged.36 The FEHBP consequently is burdened by both fewer bureaucrats and less red tape. Federal employees enjoy a far wider degree of per sonal choice in healt h care than most other Americans. Unlike most private employer based insurance, and all other government health care programs, individual consumers not employers or government officials, make key personal decisions about price and ben efits in their plans. Insurance companies have to compete by satisfying these federal con sumers directly in order to keep their business A WORKING MODEL FOR REFORM Uniquely based on the twin principles of consumer choice and competition, the FEHBP is broadly similar to the ki n d of health care system embodied in the Heritage Foundation Consumer Choice Health Plan. If all Americans had the same opportunities to make choices in health care that are practically denied them now, they and their fami lies would enjoy many of the same benefits now reserved to Members of Congress, con gressional staff, and federal workers as special privileges. Among them d A wide choice of plans. All over America, Members of Congress and federal workers can choose between a dozen and two dozen plans, f r om traditional fee for-service options to Health Maintenance Organizations (HMOs) and other man 36 Ibid emphasis in the original. aged care programs. Uniquely, federal consumers can even choose union plans and plans sponsored by organizations that represe n t federal employees in other ways. And unlike workers in the private sector, they are not tied to an employer's narrow set of health care options-if the employer offers any options at all. If federal workers do not like the annual performance of their hea l th plan, they can simply change it the following year ily, armed with tax credits or vouchers, could pick from a wide variety of plans, in cluding plans sponsored by unions, employee organizations, trade and professional associations and even churches, fr a ternal, and religious organizations. Right now for example, farm bureaus offer health insurance plans in rural areas, but tax relief for these plans is not available unless they are offered to farmworkers through the place of work. So, many lower-paid far m workers without company plans cannot af ford these plans. But under the Heritage proposal, workers would receive tax credits or vouchers to enable them to afford at least the basic plan of their choice Likewise, under the Hehtage Consumer Choice Health P l an, every American fam d Portability. Federal workers do not have to woq about losing coverage when they change federal jobs. They simply keep the same plan. It belongs directly to them. Likewise, congressional and federal workers do not have to worry abo u t carrying their health insurance into retirement because they 'rown" the plan. Un like private sector workers who often worry about losing their insurance when they retire, or facing arbitrary benefit cuts by their former employers, retiring fed eral wor kers can enjoy peace of mind.
Likewise, under the Heritage Foundation Consumer Choice Health Plan, there is not only portability in health insurance for active workers, who can change jobs without losing their health insurance plan, but also portability in to retirement. Under the Heritage proposal, there would be no obstacle to a worker taking his or her health insurance plan into retirement, or choosing to keep it at age 65, paid in part with a voucher from the Medicare program, rather than being forced t o enroll in Medi~are.3 d A wide range of benefits. Members of Congress and federal workers can pick from a wide range of benefit packages, benefits and prices to fit a family's wants or needs. Responding to strong market demand, virtually all plans competi ng in the FEHBP now offer catastrophic coverage. Some plans offer excellent dental benefits for young children. Other emphasize prescription drug coverage. Some plans, the most expensive, offer generous mental health benefits.
Many organizations keep premi um prices low by incorporating managed care op tions with traditional fee-for-service medicine. Significantly, managed care options voluntarily chosen by federal families as good value for money, are far more preva lent in the FEHBP than in government or private sector programs.38 37 See Edmund F. Haislmaier A Policy Maker's Guide to the Health Care Crisis, Part lV: The Right Road to Health Insurance Reform Heritage Foundation Talking Points, November 5,1992, p. 22.
Example: The 1993 plan offered by the Beneficial Association of Capitol Employ ees (BACE) serves Members of Congress and legislative staff exclusively. It is, as one might expect, one of the best health care options available in the federal market.
For individual Members of Congress or congressional staffers, the monthly premium cost of the BACE plan is $43.57, with the federal government picking up the remain ing $130.
70. For family coverage, the monthly premium cost is $109.93, with the government contributing,,$302.47.For.the sme premium ra tes, the BACE plan of fers Members of Congress and congressional staff an option of participating in either a preferred provider organization (PPO) or a more traditional health insurance plan.
Aside from catastrophic coverage, the traditional BACE option offers Congressmen and staffers 100 percent coverage for hospitalization and outpatient surgery, plus routine physical examinations, well child care, dental benefits, and even home health and hospice care. The BACE PPO option offers Members and staffers h e alth care services without deductibles or coinsurance, including 100 percent coverage for hos pitalization, surgery, and routine medical care. Out-of-pocket costs are limited to a 5 copayment to the primary care physician, a $10 copayment for the speciali s t, and a 25 for allergy testing and emergency care. Like the Postmasters Plan and the American Postal Workers Union plan, the BACE plan offers a mail order prescrip tion drug service masters, offers self and family coverage, including standard option and h igh option benefit packages. The Postmasters plan features not only 100 percent coverage for accidental injury and catastrophic illness, along with its hospitalization and physi cian services, but also quick and efficient claims processing, coverage for r o utine an nual physicals, and a mail order prescription drug program, as well as wellness benefits for both active and retired employees and their families copayrnents, congressional and federal employees now enjoy a range of choice in health care practica l ly denied every other American. Likewise, under the Heritage Consumer Choice Health Plan, every American would be able to choose the health care plan best suited to meet his family needs-from any licensed source. Thus, con sumer choice would directly prom o te a range of health care benefits even broader than that now found in the FEHBP Example: The 1993 Postmasters Benefit Plan, run by the National League of Post Given the wide range of options, plus the wide variety of prices, deductibles, and d Strong Com p etition. In the FEHBP, congressional and federal employees exercise a degree of economic control that is practically denied most other Americans. So insurance companies, including the largest insurers, must work for and satisfy federal employees and their families-not just the employer-to continue in business.
Likewise, under the Heritage Consumer Choice Health Plan, while basic groundrules for protecting consumers would be established and enforced, consumer choice and competitive innovation among insuranc e carriers in the delivery of care 38 Walton Francis, A Health Care Program Run by the Federal Government that Works, op. cir p. 54 12 would be rewarded in an open market. Doctors, hospitals, group practices, and clin ics, as well as the underlying insure r s, would be forced in the market to deliver qual ity care as efficiently as possible d Consumer Information. Members of Congress and federal workers are not left alone in a bewildering and confusing health care market, but are given solid, her-friendly in formath from agencies and private .organizations on the op tions available to them. Federal consumers generally are more knowledgeable about the details of their health insurance than their private sector counterparts.
The reason: they are the key decision-makers and their demand for information has created a whole private information industry. Booklets and consumer guides complement seminars, congressionally sponsored health fairs, newspaper col umns, and television an d radio advertising to a degree that is unknown in private employer-based systems.
Likewise, under the Heritage Consumer Choice Health Care Plan, all Americans would be able to take advantage of the same kind of information made available to Members of Con gress and federal workers, and so new sources of information and advice would flourish. Moreover, health care plans, doctors, and hospitals would want to advertise their success in treating and curing various kinds of illness, and solid empirical evidence indicating performance would be in strong demand.
Al ready, U.S. News and World Report, in conjunction with the National Opinion Re search Center, a social science research group based in Chicago, Illinois, using new methods to quantify and assess hospita l performance objectively, has completed a comprehensive assessment of hospital performance, something no government agency or research group has done before on a nationwide basis.39 The problem for most Americans today is that they cannot take full advan t age of such information be cause their choice of health plans-if ky-is so limited. In a highly competitive open market, in which consumers can pick the best value for their money, there would always be a premium on such solid and readable health-related i n formation d Payroll Deductions. Members of Congress and federal workers do not wrestle with administration in the payment of health care premiums. After they pick the plan of their choice, the clerk of the House or Senate or their employing agency simply makes a payroll deduction, which is processed by theTreasury Depart ment and transmitted to the carrier.
Likewise, under the .Heritage Consumer Choice Health Plan, private employers would be subject to a simple requirement: make a payroll deduction for the premium from the employees paycheck, adding in the federal tax credit available to the em ployee and his family, and transmit it to the plan of the employees choice 39 Doug Podolsky with Katherine T. Beddingfiels, Americas Best Hospitals, U.S. News and W o rld Report July 12.1993, pp. 66-74 13 d Financial Help. Members of Congress and all federal workers also get some fman cial help from the federal government in the purchase of their insurance. The gov ernment makes a contribution up to a certain dollar am o unt, an average of a little more than 70 percent of the premium. In effect, congressional and federal work ers are the unique beneficiaries of a voucher system for health care. But because they make the decision whether their plan is a rich plan or a lean plan, a tradi tional indemnitjr-plan or an HMO&xe.consumers p&t the savings and thus are very sensitive to price. Unlike so many private sector workers, they tend to be costconscious.
The Heritage proposal would change the law to give employees directly t he fi nances they need to obtain a plan. First, at the direction of its employees, firms would have to cash out the value of the current plan and give the money to the em ployee. This also makes employees realize that the employer contribution is, in fact , the workers money. Second, the Heritage proposal would change the federal tax code so that all Americans would be given tax relief in the form of tax credits or vouchers, regardless of their place of employment. With this money, they could then select th e best plan for themselves and their families. But changing the tax code would also make private sector workers more cost-conscious. They, too, would at tempt to get the best value for their money and pocket the savings directly d Insurance Reforms. Member s of Congress and federal consumers enjoy the bene fits of certain insurance practices that are designed to make the health care sys tem work better. They are not blocked from enrollment in a health plan because of pre-existing medical conditions and they d o not have to endure a waiting pe riod to enroll in the plan of their choice. Moreover, they can renew their insur ance plan each year, with no questions asked. Nor can they be dropped from cov erage by their insurance company simply because they or a mem ber of their fam ily gets sick.
Likewise, the Heritage.Foundation Consumer Choice Plan also provides for changes in health insurance underwriting practices to guarantee consumers greater peace of mind. These include new rules to stop insurance companies fr om forcing sick people to drop their coverage and guaranteeing individuals and families the right to renew coverage at the average premium increase for all those enrolled with an insurer. 40 40 For a detailed description of the Heritage Foundations propos e d changes in the health insurance market, see Edmund F. Hailsmaier, A Policy Makers Guide to the Health Care Crisis, Part III: Whats Wrong with Americas Health Insurance Market? Heritage Foundation Talking Poinfs, August 14,1992, and Haislmaier, A Policy M akers Guide to the Health Care Crisis, Part IV, op. cir 14 CREATING A FAIR AND COMPREHENSIVE REFORM In the sensitive area of national health care reform, Members of Congress are faced with some tough political and personal decisions. These decisions will a ffect every Amer ican in a very personal way. Families will not welcome a decision to create a large, im personal bureaucratic system, replete with big tax increases, national health boards global .budgets,:.price.controls,.or.endless rules .and regulatio n s governing every facet of the delivery of medical services. In addition, Congress will retain public support for change only if lawmakers are fair to federal workers and retirees and military families, as well as to taxpayers and workers in the private s ector. This leaves them some clear policy options 1) Members of Congress should retain the FEHBP and strengthen its market features.
Close examination of the FEHBP indicates that virtually all its imperfections stem pre cisely from government policies that inhibit the full functioning of free market forces. As economist Walton Francis argues, It is noteworthy that the FEHBPs greatest failures have tended to arise in areas where the program is constrained by law.* This includes the Office of Personnel Manag ements (OPM) unnecessary meddling in the details of rates and benefits, and congressional insistence on retaining insurance underwriting prac tices that aggravate the programs problem of adverse selection.
Instead OPM should simply enforce basic groundrule s for insurance and consumer pro tection. If it did so, the variety of health care options would be even richer, the competi tion among private plans keener, and the cost savings to federal workers and taxpayers even greater. The strong basic framework of consumer choice and competition has made FEHBP a solid system, and it has been functioning well for over three de~ades.4~ It should not be abandoned. It should be improved by increasing, not decreasing, the role of free market forces 2) Congress should cr e ate a consumer choice system for all Americans. Instead of dis solving the FEHBP, as the Clinton Administration threatens to do, or choking it with the kind of regulations and paperwork that burden Medicare,44 Congress should rebuild the American health c a re system on the programs principles of consumer choice and compe tition. It can do so by making the federal tax and insurance market changes embodied in the Heritage Foundations Consumer Choice Health Plan 41 Francis, A Health Care Program Run by the Fed e ral Government that Works, op. cir p. 61 42 Adverse selection occurs whenever an insurance plan is chosen by individuals who are higher health risks, and therefore more costly than others in any given group of consumers. For specific recommendations on re f orming the FEHBP, see Moffit, Consumer Choice in Health, op. cir pp.16-18 43 CRS Report, p. 23 1 44 Consider the complex and cumbersome Medicare reimbursement system for doctors and hospitals. For a summary of Medicare physician reimbursement, in particul ar, see Robert E. Moffit, Comparable Worth for Doctors: A Severe Case of Government Malpractice, Heritage Foundation Buckgrounder No. 855, September 23,1991; Robert E.
Moffit, Back to the Future: Medicares Resurrection of the LaborTheory of Value, Regulati on, Vol. 15, No. 4 (Fall 1992 pp. 54-63 15 3) Congress should let military families join the FEHBP. While Members of Congress are debating comprehensive health care reform for the rest of the nation, they could, in the interim, allow military families int o their own health care system. Currently military families and the dependents of servicemen and -women are covered by CHAMPUS, a government health insurance system. If Congress would allow military families to join the FEHBP as these families want, they c o uld do so on the same terms as congressional and;federal .e,xnplopes..No spwial..treatment. is necessary This...not only means that mili tary families would generally have the same range of choices as Members of Congress and federal workers and their fami l ies, but alsothat military associations, just like federal employee organizations, could sponsor health insurance plans for their members and oth ers. For example, the American Postal Workers Union Plan and the Mail Handlers Plan could compete with plans sponsored by military or fraternal organizations.
As consumers, military families would get to know the value of their health benefits package and pocket any savings from paying directly for those services. They would also enjoy the security of knowing tha t they could not be dropped from coverage. Says the National Military Families Association executive director, Dorsey Chescavage, It would probably cost a little more, but in return for paying more you would have security and choice, no more space availab l e, care and people over 65 would not be d~mped Aside from the personal benefits of consumer choice and competition for military spouses and children and retirees, enrolling these families in the FEHBP would also be a boon for federal taxpayers. According t o a preliminary study for the United States De partment of Defense, conducted by Birch and Davis Associates, a consulting firm based in Silver Spring, Maryland, the enrollment of military dependents in the FEHBP would save American taxpayers 435 in health care costs per military family each year46 If Members of Congress sincerely want to help military wives and children gain access to a better health care system, they can open up their own system to these families on the same basis as other congressional a n d federal employees CONCLUSION If Members of Congress enact a comprehensive reform of the health care system, fair ness dictates that the same rules and regulations they impose on workers in the private sector must apply with equal force to themselves and workers in the public sector. Mem bers of Congress must not set up a system of special exclusions from the Clinton Admin istration health plan for big business, for federal workers or postal workers, or for them selves If Congress insists on restricting c h oices and imposing new regulations and taxes in the new system, all current beneficiaries should be subjected to exactly the same rules and regulations, without exception. If Americans cannot have the benefits of consumer choice in a free market, then nei t her should Members of Congress and federal workers 45 Nelson. op. cit 46 Ibid 16 But instead of abolishing the FEHBP and joining other Americans in an untested new system, Congress should instead build upon the principles underlying the successful FEHBP, p articularly consumer choice and competition, and extend the benefits of such a system to the entire American population This could be done by adopting the Heritage Consumer Choice Health Plan Time to Share. The best public policy was articulated by Kay Ba i ley Hutchison, the new TexsiS'Re'piitilican'Senatoi; Fn'her'siZond sfale-wide dexalk with then-Senator Robert Krueger, the Texas Democrat The difference between us is, you don't want to give everybody in America what you have as a Member of Congress. You h ave exactly the choice I am trying to give everyone You choose the one plan that is best for your family. You get the tax credit and you are able to spend the money the way you want to. I want everyone to have the choice that Bob Krueger now has In the up coming debate on health care, Congress has the chance to share the best fea I tures of its own health system with the rest of America.
Robert E. Moffit, Ph.D Deputy Director of Domestic Policy Studies 47 Quoted in Butler Why the Clinton Health Plan is in Trouble op. cir p. 1 1 17