A plan under consideration by a bipartisan commission would model Medicare after the Federal Employees Health Benefits Program, the much-praised system that insures members of Congress, federal workers, and White House officials. But not everyone is sold on the idea.
The FEHBP has experienced its own financial turmoil since its creation in 1959, and it may not work as well for the elderly as it does for younger, healthier federal employees, critics contend.
"Saying that the FEHBP ought to be a national plan is like saying the Redskins are a good football team," said Bruce C. Vladeck, professor of health policy and geriatrics at Mt. Sinai School of Medicine in New York City, and a member of the National Bipartisan Commission on the Future of Medicare, noting the Redskins' losing record. Vladeck was appointed to the panel by President Clinton.
There are plenty of misconceptions about the FEHBP, said Rep. James A. McDermott of Washington, a Democratic appointee to the commission. "People who don't know [the FEHBP's] history walk around saying things that simply are not true. It's such an easy slogan or bumper strip. Give everyone the same thing we give Congress."
The leading proposal under consideration by the Medicare commission is called "premium support." The term refers to the principle that government pays for most of the premium for standard health care plans. Premium support is based on the FEHBP concept, and it is expected to be the centerpiece of the recommendations that the commission makes to the White House and Congress on March 1. The idea is to give Medicare beneficiaries more health plans to choose from and to make the system more cost-efficient by creating a greater private-sector influence over Medicare.
The FEHBP is the largest employer health plan in the United States, covering about 9 million federal workers, retirees, dependents, and survivors. The Office of Personnel Management has contracts with more than 300 health plans of varyious types to serve federal employees in different states. In some places, federal workers can choose from as many as 20 plans.
Early in the year, the OPM sends a letter to all of the participating insurance carriers, telling them what changes it wants to make in the program. For example, it may require coverage for a new benefit. The health plans then respond. Based on their previous year's experience and their projected costs, they calculate what the new premium is likely to be. (Health plans must provide a minimum set of benefits, but many offer more, usually at a higher premium.) Then the OPM sets the federal contribution based on what a handful of the largest health plans say they'll need. The idea is that the government payment covers most of the premium in a basic plan. Federal workers who want a plan with richer benefits would have to pay more. Workers who opt for a bare-bones health plan pay less. Toward the end of the year, the OPM sets the federal contribution based on what a handful of the largest health plans say they'll need.
The FEHBP has demonstrated during the past several years that it can offer people numerous choices and still keep premiums down (annual increases have been as low as 2 percent). Annual premium increases dropped from double digits in the late 1980s to below the rate of inflation in the past four years. Health care analysts attribute the recent small premium increases to the plans' adoption of tighter management controls, such as closely monitoring hospital stays.
But the idea that FEHBP premiums have been any less volatile since the program started in 1959 than premiums in the private marketplace is false, say health care analysts. For example, when inflation was high in the 1970s and 1980s, premium increases in certain years were 20 percent. Some analysts said the health plans were increasing premiums to make up for earlier years when they kept premiums low to build market share. Others speculated that the health plans were trying to make up for losses in their private-sector businesses.
"There was a lot of uproar about how significant premium increases were, [while] at the same time, employees weren't getting much in the way of pay raises. There were questions with regards to holes in the benefits package," said one consultant familiar with the FEHBP. "When you move onto the premium roller coaster, it's easy to move onto the benefits roller coaster."
In 1982, when faced with large premium increases, the government directed health plans to reduce benefits by 13 percent. What resulted, according to McDermott, was "across-the-board implementation of deductibles, co-insurance rates, and a hospital pre-admission certification that halved what would have been an average 1982 premium increase of 35 percent, and permanently reduced the enrollees' value of FEHBP benefits."
Moreover, some critics warn that what works for relatively young and healthy federal employees might not work for the elderly. Simply figuring out the complicated information brochures for numerous plans may be difficult for the elderly, critics say. "This whole business that you put 35 million seniors out there with a book in hand and have them try to pick a program that fits their needs is erroneous from the start," said McDermott.
The FEHBP is small in comparison with Medicare, and the beneficiaries are different. "When you get to Medicare, you're dealing with a lot of poor people and people who are in trouble in terms of making decisions," said Stuart H. Altman, a professor of national health policy at Brandeis University's Florence Heller Graduate School, and a Clinton appointee to the commission. Altman generally likes the idea of premium support for Medicare, but cautions that Congress would have to make sure that benefits couldn't be taken away.
Advocates of premium support point out that Medicare is already moving in the direction of giving seniors more choices. Even so, seniors are less likely to have as many choices in health plans as federal employees have, if for no other reason than federal workers are concentrated in metropolitan areas. Generally, it's easier for health plans to provide service in a metropolitan area than a in rural area, where there are fewer doctors, clinics, and hospitals. And that demonstrates why the FEHBP is one of a kind, said Vladeck.
Still, the FEHBP has experienced several problems directly related to the large number of options it offers. For instance, some FEHBP health plans that offer a broad set of benefits have attracted a disproportionate number of older and sicker people, according to a March 1998 briefing paper of the National Health Policy Forum, a nonprofit group affiliated with George Washington University.
Attracting a sicker population puts health plans at a competitive disadvantage because other plans have healthier enrollees and sicker people cost more to insure. When the government has based FEHBP premiums on the costs of its health plans with relatively sick members, it sometimes has ended up spending more than it intended on other health plans in the program, according to the briefing paper.
Advocates of premium support insist that the FEHBP model can work for Medicare, with adjustments to account for differences in the two populations being served. "It's the same concept, where we'll negotiate on premiums and price, but the marketplace will design the system for the elderly," said Sen. John B. Breaux, D-La., chairman of the Medicare commission.
For instance, Breaux's premium support proposal would base premiums on the weighted average of bids submitted by all health plans participating in Medicare, not just a few.
Altman praises the FEHBP for its flexibility in adjusting to changing circumstances. For example, Altman says that Blue Cross, Blue Shield faced financial problems in the 1980s, when older federal workers were enrolling disproportionately in its plans. Altman credits the FEHBP with providing the flexibility that Blue Cross, Blue Shield needed to survive.
In fact, he added, last year's exodus of health plans from the Medicare market shows how adding flexibility would help Medicare. Altman says that much of the blame should be placed on the government, because it wouldn't allow health plans to adjust premiums and benefits so they could remain in the Medicare markets.
Commission leaders need 11 of the 17 members to vote for premium support in order to make it an official recommendation for Medicare. All of the commission's eight Republican appointees are expected to vote for the recommendation, and several of President Clinton's appointees are leaning toward supporting it. Breaux, the chairman, is leading the charge for premium support. Two additional Clinton appointees who may back premium support are Altman and Laura D'Andrea Tyson, dean of the Haas School of Business at the University of California (Berkeley). In particular, Altman and Tyson are looking for assurances that there will be an adequate benefits package, including a prescription drug benefit, that will be available at a price seniors can afford.
But even if premium support doesn't get the necessary 11 votes, Breaux and Rep. William M. Thomas, R-Calif., the commission's administrative chairman, both said on Feb. 1 that they will pursue the concept in Congress this year. House Majority Leader Richard K. Armey, R-Texas, said that he hopes the House will take up Medicare restructuring this year.
NEXT STORY: House Y2K meeting postponed