The case for FEHBP-like universal coverage

The proposal to open the Federal Employees Health Benefit Program (FEHBP) to the general public is not new, as highlighted by Walton Francis in 2013: “It’s been proposed a number of times over the years…The notion is that it’s a model healthcare plan, why limit it to feds? Why not give everybody a chance on it?”

However, our proposal would not simply open the program to all Americans while keeping the  existing fragmented system of health insurance coverage. Rather, as we had described in an earlier post, what we propose is to put the entire population of the US into the same insurance structure (one similar to FEHBP) while sun-setting all other programs, including employer-based insurance and government-funded coverage (Medicare, Medicaid, VA, etc). Putting everyone into the same insurance scheme, birth-to-death, provides a number of benefits, e.g., stronger incentives for insurers to focus on prevention and health promotion, as well as a comprehensive risk pool to stabilize the insurance marketplace.

Employers could still make contributions to help employees purchase their own insurance that could include variable amounts to encourage healthy behaviors. Employers would not, however, be involved in the selection and management of health insurance coverage. In turn, the government’s primary role would be to provide means-tested premium support for citizens, in a manner similar to what is already being done for Medicaid and Medicare.

So, what is FEHBP and what makes it an attractive model for restructuring the current patchwork of health insurance coverage in the US? The FEHBP began in 1960 and is currently, “the largest employer-sponsored group health insurance program in the world, covering over 8 million federal employees, retirees, former employees, family members, and former spouses.” Some of the benefits of the FEHBP include,

• Consumer choice, a conservative notion and a long-standing component of the American society, is a major attribute of the program structure. Enrollees can choose from a variety of health plans, including managed care, conventional insurance, high-deductible plans, etc. Some plans are offered nation-wide, while others are locally-based, but as stated in the FEHBP information sheet, “No matter where you live, you have 11 or more health plan options to choose from….” Although the government typically subsidizes a substantial part of the premium, enrollees have the option to “buy up,” i.e., purchase a plan that is more expensive than the capped government contribution and pay the difference out of pocket.
• Broad coverage, a liberal notion, is also a hallmark of the FEHBP. In fact, a 2012 Kaiser Family Foundation study compared fee-for-service Medicare benefits with a typical FEHBP insurance plan and a typical large employer plan. Medicare had a) higher cost-sharing requirements for inpatient care; b) less generous drug coverage; c) no out-of-pocket limit on inpatient and outpatient services, and thus lacked truly catastrophic insurance coverage. It is of interest to note that although statute requires that all FEHBP participating plans cover basic hospital, surgical, physician, and emergency care, a standard benefit package is not required. 
• Light regulatory oversight provided by the Office of Personnel Management (OPM). The OPM is focused mainly on consumer protection and a level playing field for health plans. And while Congress can place conditions on the use of federal funds to drive changes in the FEHBP, OPM has broad authority over program implementation without the constant need for Congressional approval and intervention. As summarized by the Congressional Research Service in 2015,
  • “The FEHB model consists of competing insurers providing numerous types of coverage to enrollees with minimal intervention from OPM. Many view this model as generally successful in giving enrollees the opportunity to make cost-conscious choices and in constraining the program’s overall cost growth.”
• Financing that relies on real dollars, from federal discretionary and mandatory funds, as well as beneficiary premiums/cost sharing. This would replace our dependence on IOUs and the dwindling workforce of the future, as is the case for the Medicare Trust Fund. The OPM also maintains a contingency reserve fund to offset unexpected increases in costs or premiums.

Finally, it is of interest to note that the healthcare system in The Netherlands consistently scores high marks in international comparisons. The structure of their system bears strong resemblance to the FEHBP. It offers national insurance, that is administered by private plans, with means-tested government subsidies, and a Ministry of Health whose role is to “safeguard health care from a distance rather than managing it directly.”