April 18, 2003

April 18, 2003 | WebMemo on Health Care

The Disparity In Value Between FEHBP and Medicare Coverage

President Bush has called for reform of the Medicare system, and the model he has chosen as the basis for this reform is the Federal Employees Health Benefits Program (FEHBP), the system that covers 8.3 million federal workers, retirees, their families, and Members of Congress. Some in Congress have questioned the value of such coverage.

 

Those eligible for FEHBP coverage include also federal workers 65 years of age or older, including many prominent Members of Congress.[1] There are 46,291 current federal employees and their family members in this category.[2]

 

The situation with federal retirees is mixed. There are 172,757 federal retirees and their family members who retired with coverage under the Civil Service Retirement System (CSRS) prior to 1983, were not eligible for Social Security under that system, and were not grandfathered into Medicare. Beginning in 1983, all federal employees, whether covered by the old CSRS or the new Federal Employees Retirement System (FERS), were automatically covered by Medicare Part A when they retire and attain age 65.[3]

 

THE COMPARATIVE VALUE OF HEALTH COVERAGE

 

Members of Congress often focus on the comparative effectiveness of health programs in controlling cost. More important is the success of health programs in delivering value for health care dollars.

  • Unlike ordinary seniors under the current Medicare program, FEHBP enrollees, including those 65 and older, have a much broader range of solid health care options from which to choose. Each year, they will have the opportunity in every area of the country to choose between 12 fee-for-service and preferred provider organization (PPO) plans and a varying number of health maintenance organizations (HMOs), depending upon region.[4] All health plans have prescription drug coverage.
  • Basic FEHBP coverage typically has significantly greater value than Medicare coverage. The Congressional Research Service (CRS) recently compared the actuarial values of a "typical" plan in the FEHBP (the BlueCross BlueShield [BCBS] standard option fee-for-service [FFS] plan with a PPO, which is also the most popular plan with nearly half of all enrollees) to the current Medicare package.[5] The CRS researchers took "the annual per-beneficiary values of the current Medicare program and of the Medicare program restructured with the benefit package of BCBS standard option in FEHBP."[6] Upon comparison, the benefits for the "restructured" Medicare, the BCBS standard option plan in the FEHBP, yielded an actuarial value of $6,340, not including the drug benefit. Current Medicare, on the other hand, has an actuarial value of $5,620, or 12.8 percent lower than the most common plan in the FEHBP.[7] In other words, the basic benefits package, even without a drug benefit, is worth $720 more in coverage value than Medicare.
  • The value of typical FEHBP coverage, with prescription drug coverage, is dramatically superior to Medicare. When a drug benefit, home health care, and skilled nursing facility care are factored in, the difference becomes even more dramatic. The total actuarial value of the current Medicare benefit with home health care and skilled nursing facility care (Medicare does not include a drug benefit) for 2003 is $6,570. The total actuarial value of a "restructured" Medicare (FEHBP) plan with a drug benefit (all FEHBP plans include a drug benefit) is $8,460, which is 28.8 percent more generous in coverage than Medicare.[8]

    The value of a drug benefit in the "restructured" Medicare plan (a plan based on the BCBS standard option plan in the FEHBP) is $1,870, totaling more than one-fifth the plan's value.[9]

Illustrative Annual Values Per Beneficiary of Current Medicare and A Restructured Medicare Benefit Package for 2003

 

Current Medicare

Restructured Medicare

 

 

% of Plan's

 

% of Plan's

 

$ per Year

Total Value

$ per Year

Total Value

Basic Benefits (Excluding Home Health, SNF)



$5,620



86%



$6,340



75%



Home Health

      

 $540

     

 8%

    

$250



3%


Skilled Nursing Facility (SNF)

      

$410

     

6%

     

    $0



0%


Subtotal


$6,570


100%


$6,590


78%

Outpatient Prescription Drugs

     

$0

  

 0%



$1,870



22%


TOTAL


$6,570


100%


$8,460


100%

Source: Congressional Research Service (CRS).

CONCLUSION

 

Members of Congress and federal employees and retirees have the opportunity to choose their health coverage. More so than any other class of American citizens, they are able to select a health plan that best addresses their particular needs, including the kinds of doctors, specialists, prescription drug options, or treatments they want. Medicare reform, as proposed by the President and many senior Members of Congress, would allow future Medicare beneficiaries the same level of personal freedom and quality of benefits and coverage. In terms of the value of that coverage, the evidence shows that an FEHBP program would offer value far superior to that currently offered by Medicare.

 

Derek Hunter is a Research Assistant in the Center for Health Policy Studies at The Heritage Foundation.

 

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[1]There are 89 Members of Congress who are 65 years of age and older.

[2]If a person is 65 years and older and is currently an employee of the federal government, the primary payer of the health care coverage is the FEHBP; if a person is a re-employed annuitant, the primary payer is also the FEHBP.

[3] Information from U.S. Office of Personnel Management.

[4]See Walton Francis, Checkbook's Guide to Health Plans for Federal Employees, 24th Edition, 2002.

[5]Chris L. Peterson, Comparison of Actuarial Values: Current Medicare Benefits to a "Typical" Health Plan Available to Federal Employees, Congressional Research Service, March 31, 2003.

[6]Ibid.

[7]Ibid.

[8]Ibid.

[9]Ibid. 

 

About the Author

Derek Hunter Research Assistant
Center for Health Policy Studies