NCPA - National Center for Policy Analysis

Employer Drug Coverage at Risk

October 22, 2003

If the GOP is going to add the largest new entitlement in decades, says the Wall Street Journal, the least it can do is use that political carrot to purchase a real competitive alternative to Medicare.

The model for reform, is the Federal Employees Health Benefits Program (FEHBP), which lets government workers choose each year from a variety of insurance plans offered by private companies.

  • The feds pay each employee a percentage of the weighted average of the cost of all plans on offer; if the worker wants more expensive coverage, he or she makes up the difference out of pocket.
  • Private Medicare plans could also integrate the drug benefit into a total insurance package, and over time competition and private-sector ingenuity would control costs -- without the price controls that are slowly ruining the current Medicare system, claims the Journal.

The Congressional Budget Office (CBO) estimates that if a prescription drug benefit is added to Medicare, more than one-third of seniors with employer drug coverage could lose it. Retiree benefits are not guaranteed by law, and many companies will be only too happy to unload drug payments once the feds offer "universal" coverage.

When seniors discover that their "new" Medicare entitlement actually leaves them worse, they are going to blame the Republicans, says the Journal. That prospect is slowly dawning on GOP conferees, who are scrambling to design a new subsidy so companies don't drop retiree coverage. But why not design the benefit properly in the first place, by making it part of an FEHBP-style reform?

Source: Editorial, "Medicare Moment of Truth," Wall Street Journal, October 22, 2003.

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