NCPA - National Center for Policy Analysis

Medicare Could Use Federal Employees' Plan As A Guide

January 21, 1999

One means to reform Medicare might be to adopt the Federal Employees Health Benefits Program (FEHBP) as a model, health-care analysts note. That plan covers some nine million federal government employees and their dependents.

Here are some of its virtues:

  • FEHBP relies on choice and competition to keep costs down and quality high.
  • Beneficiaries can chose between a number of health-care options -- HMOs, PPOs and traditional fee-for-service, with the government paying a fixed portion of the premium and employees paying the rest if they chose a more expensive plan.
  • Members have the option of switching plans once a year, in what is known as the annual "open season."

It is being suggested that this model might be improved by limiting the "open season" to once every three to five years. The reason is that some people might try to game the system by going into the cheapest plan with the lowest premium when they are healthy and shifting over to a better or more comprehensive plan when they get sick. Less frequent "open seasons" would discourage this practice.

This factor might also be overcome by making all plans identical, but that would undermine the goal of promoting a range of health- insurance options.

Letting dissatisfied seniors return to traditional Medicare would result in a situation where most sick seniors were in Medicare, while those in good health remained in health plans.

Adopting the FEHBP model would allow people to begin seeing Medicare as a program that pays for health insurance. Then it would be easier to make the case that people should set their Medicare payroll taxes aside in a personal account that can be used to pay for health care after retirement.

Source: Pete du Pont (policy chairman, National Center for Policy Analysis), "Will Health Choice Fix Medicare?" Washington Times, January 20, 1999.


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