Putting Medicare Consumers in Charge: Lesson from the FEHBP

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In an unplanned natural experiment between two fundamentally different program designs, the federal government has operated two major health insurance programs side by side for nearly fifty years: Medicare and the Federal Employees Health Benefits Program (FEHBP). Until a recent government decision to place it in the same tax-preferred status as most private-insurer health insurance, the FEHBP consistently outperformed Medicare in cost control; it still outperforms Medicare in service, benefit generosity, fraud prevention, and protection from catastrophically high health care expenses. In Putting Medicare Consumers in Charge: Lessons from the FEHBP, Walton Francis analyzes the successes and failures of both programs and proposes reforms that will revive the FEHBP and improve Medicare. Francis contends that the most needed reform for Medicare and the FEHBP is to reduce the tax preference for unlimited employee health care spending, a subsidy that swamps market incentives and engenders massive waste in the FEHBP and throughout the health care system. Although the debate on health reform has focused on tax subsidies as a source of financing, reducing the tax preference will save money by creating incentives for prudent shopping and prudent spending—what the Congressional Budget Office recently called "bending the curve" of runaway cost growth. Francis also considers redesigning health insurance to guarantee consumers coverage for needed medicine while offering them incentives to spend less on unneeded care. He finds that plan competition in Medicare has contributed substantially to reducing its costs, but is at risk from proposed budget cuts that may reduce this kind of plan competition. This careful analysis of Medicare and the FEHBP is an invaluable guide for policymakers considering major health reforms while juggling the twin problems of runaway health care spending and looming Medicare insolvency.

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Product Details

  • ISBN-13: 9780844742830
  • Publisher: Aei Press
  • Publication date: 11/16/2009
  • Pages: 300
  • Product dimensions: 6.20 (w) x 9.00 (h) x 1.10 (d)

Meet the Author

Walton Francis is an independent consultant and author who served for many years as a policy analyst in the Office of the Secretary at the U.S. Department of Health and Human Services. For thirty years, he has been the principal author of the annual CHECKBOOK's Guide to Health Plans for Federal Employees.

Walton Francis is an independent consultant and author who served for many years as a policy analyst in the Office of the Secretary at the U.S. Department of Health and Human Services. For thirty years, he has been the principal author of the annual CHECKBOOK's Guide to Health Plans for Federal Employees.

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Table of Contents

List of Illustrations ix

Acknowledgments xi

Introduction: The FEHBP as a Model for Reform 1

Part I A Tale of Two Health Insurance Programs

The Patchwork Quilt of Federal Health Insurance Programs 13

1 Medicare 15

The Creation and Basic Design of Medicare 16

The Evolution of Medicare 28

Medicare Advantage Offers New Options for Private Plans 29

Medicare Advantage Plans Limit Catastrophic Costs 32

Open Enrollment Season 35

Medicare's Private Plan Payment System 36

The Advent of Part D 41

Summary 44

2 The FEHBP 46

The Creation and Basic Design of the FEHBP 47

Plan Choices 48

Premiums 50

Open Season 55

Benefit and Other Design Decisions 56

Variation in Plan Premiums 60

The Evolution of the FEHBP 62

Medicare and the FEHBP Joined at the Hip 68

The Dominance of Blue Cross 73

Part II Dimensions of FEHBP and Medicare Performance

The Natural Experiment: The FEHBP versus Medicare 77

Threats to Validity 77

Irrelevant Comparisons 80

3 Risk Selection 91

Risk Selection and Consumer Choice 92

Risk Selection: The Actual Experience 98

The Dreaded Death Spiral 99

What to Do Next? 107

4 Cost Control 111

Dueling Estimates 111

Benefit Generosity 121

Medicare Secondary Payer 129

Aging Federal Enrollees 133

Competitive Medicare 135

Medicare and FEHBP Interaction 136

Cost-Shifting 138

Displacement and Crowd-Out 140

The Bottom Line for Cost Control Performance 142

5 Premiums and Benefits 144

Premium Design 145

Benefit Levels and Design 150

Optimal Benefit Levels and Cost-Sharing 150

Prescription Drugs 153

Benefit Standardization 155

Future Benefit Design Innovations 160

6 Access, Fraud Control, andGovernance 167

Access 167

Fraud Control 169

Governance 180

Political Oversight 181

"Good Government" Procedural Protections and Delays 189

Conclusion: Lessons Learned and Recommendations 193

Relative Program Performance 193

Recent Evaluations 196

Lessons for Both Programs 200

Lessons for the FEHBP from Medicare 209

Lessons for Medicare from the FEHBP 225

Lessons from Each to the Other 226

Afterword: Improving Information for Policy Analysis and Consumer Decisions 232

Notes 241

References 271

Index 285

About the Author 283

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