Executive Summary: How Washington Can Improve Health Care Coverage for Federal Workers and Their Families
Members of Congress, their staffs, and
approximately 9 million other federal workers, retirees, and their
families in the 42-year-old Federal Employees Health Benefits
Program (FEHBP)--a consumer-driven system unmatched in the private
sector--are beginning the annual process of selecting plans and
benefit options for next year. Unlike most Americans, they are able
to choose a plan that best meets their needs from almost 200
private options nationwide, including fee-for-service, preferred
provider organization, and managed care plans, and those sponsored
by unions and employee organizations. They also can pocket any
savings they realize from their wise choices.
Though the structurally sound FEHBP historically has outperformed
both private health insurance and Medicare in controlling costs and
achieving high rates of member satisfaction, it is nevertheless
troubled. Next year, it will face a projected premium increase of
13.3 percent. One reason: It serves an aging and increasingly
costly pool of workers and retirees. Another, more basic reason:
Many of its difficulties are rooted in outdated policies
implemented by officials in the federal agency that administers the
program, the Office of Personnel Management (OPM). These policies
are incompatible with the free-market principles of patient choice
and competition upon which the program is based.
example, the FEHBP today is hampered by:
- Artificial restrictions on plan
options, including less expensive plans. Current policy imposes
restrictions on the supply of alternative health care options and
plans in the market, such as high-deductible plans, new
fee-for-service plans, medical savings accounts (MSAs), and
flexible spending accounts (FSAs). Restrictions on the supply of
services in a market constitute a deliberate distortion of that
market, which drives up costs and premiums.
- Steady growth in the equivalent of
health benefit mandates and regulation. Mandates and
regulations drive up costs, yet over the past decade, OPM imposed
many benefit requirements and expanded its regulatory reach.
Between 1991 and 2001, it imposed 44 benefit "changes"--often the
equivalent of mandates--and a variety of regulatory initiatives.
Meanwhile, state governments imposed over 1,400 similar mandates on
private health plans, and between 1996 and 1999, state legislatures
enacted over 1,000 laws governing managed care plans. OPM preempts
state rules for national plans or HMOs that operate in interstate
commerce but refuses to exercise its statutory authority to preempt
state-mandated benefit laws and insurance regulations for HMOs
headquartered, or "domiciled," in the several states. Consequently,
federal employees and their families enrolled in those plans are
forced to absorb the costs of these added mandates, requirements,
- Routine neglect of long-term problems
with the program, including the aging of its membership pool; the
persistence of adverse selection, in which older and sicker
enrollees gravitate to certain plans and drive up costs and drive
out younger and healthier enrollees; and the need to improve the
way in which the government contributes to competing health care
plans. Serious policy changes in these areas would restrain
costs and improve the functioning of the program.
New Policy Approach.
To enhance health benefits options for federal workers and their
families and improve the FEHBP, the Bush Administration should take
immediate steps to:
- Reaffirm the statutory authority of the
OPM Director to negotiate premium rates and health benefits without
congressional interference; in addition, the President should veto
any new benefit mandates Congress attempts to impose on the
- Preempt state-mandated benefits and seek
an independent evaluation of the cost impact of recent OPM
regulatory initiatives and benefit changes.
- Return to the traditional system of
cooperative negotiations with competing health plans and promoting
private-sector flexibility and innovation in benefit design and
- Empower consumers by incorporating the
emerging information technology into the program. Advanced
information technology can help patients more easily compare and
choose high-quality plans, doctors, and health benefits.
Congress has a role to play in ensuring
that federal workers have access to quality health care. Working
closely with the Bush Administration, Congress should:
- Enhance plan options by easing the entry
of new plans into the program, including the new fee-for-service
plans, MSAs, and FSAs available to millions of workers and their
families in the private sector.
- Change the insurance underwriting rules
and the government contribution formula to enable federal workers
and retirees to take full advantage of the potential savings that
accrue from wise plan choices while reducing adverse selection in
- Broaden the FEHBP pool by allowing young
military families and dependents and the families of reservists
called up for active duty to enroll in the program. This not only
would substantially improve health coverage for these families, but
also would stabilize health insurance premiums for all federal
workers and retirees.
In recent years, OPM has become a more aggressive regulatory
agency, imposing the equivalent of benefit mandates, promoting plan
standardization, and reducing the capacity of private plans to make
innovative changes. OPM policies have neither reduced health care
costs nor attracted more plans and benefit offerings.
Today, federal workers and their families
are paying higher prices with less real choice. Improving the FEHBP
can be the first step for the Administration and Congress to create
a new health care system for Americans in which individuals and
families, rather than corporate or government officials, make the
E. Moffit, Ph.D., is Director of Domestic Policy Studies at
The Heritage Foundation.