August 11, 2003

August 11, 2003 | News Releases on Health Care

Model Medicare Reform on Federal Employees Plan

Congress faces a choice this fall, according to a new paper from The Heritage Foundation: Reform Medicare to encourage consumer choice or add a giant new prescription-drug entitlement that will speed the bankruptcy of the struggling program without actually solving its problems.


The best approach, writes economist Walton Francis, would be to use the Federal Employees Health Benefit Program (FEHBP) as a model for reform. FEHBP is the program that covers 9 million federal employees, retirees and their dependents, by offering a variety of plans. Every one of them includes a prescription drug benefit. Medicare doesn't. That's just one reason that when he compared plans, Francis found the FEHBP is at least equal to -- and almost always superior to -- Medicare. (Section 241 of the recently enacted House Medicare bill would start the transition to an "FEHPB-style" competitive system in 2010.)


In his paper, Francis lays out nine tests Congress should use to reform Medicare. He writes that the government should:                      

  • Be a good business partner. This means it should set a few simple, clear rules, and follow them.

  • Establish a reasonable and predictable level of financing, so insurers will know what they'll be paid for their services.

  • Allow flexible service areas, so patients can move from place to place, even overseas, and still be covered.

  • Exempt competing plans from state mandates, so plans can offer the most comprehensive coverage available and not have to deal with 50 different sets of regulations.

Following these rules would allow Congress to reform Medicare along free-market lines -- a model that works well in FEHBP, Francis says. It would also allow retirees to be confident in their plan, and would allow insurance companies to compete for customers knowing that the rules wouldn't change from year to year.


Introducing market competition will save money in the long run, while providing the best possible coverage for Medicare recipients, according to Francis.

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