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Federal employee health program: a model for Medicare?

Rural senators fear that dependence on private Medicare plans would hurt beneficiary access to local doctors.

By Markian Hawryluk, amednews staff. April 21, 2003.

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Washington -- Senators taking the lead on crafting Medicare legislation this year traded barbs over a potential model for reform that could increase the program's reliance on managed care plans.

Republicans claim that such reforms could help control rising costs and make a prescription drug benefit more affordable. But Democrats have warned that the changes could increase expenditures and limit beneficiaries' access to their local doctors.

At an April hearing, the Senate Finance Committee debated the merits of redesigning Medicare coverage along the lines of the Federal Employee Health Benefits Program, which covers federal employees nationwide. Under FEHBP, the federal government contracts with health care plans to offer coverage to employees then pays a share of the monthly premiums based on the average cost of participating plans, while enrollees pay the rest.

Participating plans compete for members based on the services offered and the premium and cost-sharing provisions. Under FEHBP, competition between plans has reduced premium growth by about 1% each year, according to estimates by the Office of Personnel Management, which oversees FEHBP.

If implemented in Medicare, that model would be a stark departure from the current program, which covers a defined group of benefits.

President Bush has announced a framework for Medicare reform that would add an FEHBP-like structure to the current program.

The plan would allow beneficiaries to remain in fee-for-service Medicare and have help paying prescription drug costs through a drug discount card and have catastrophic coverage at no extra charge. Others could choose from a slate of private plan options that would provide additional drug coverage.

Rural senators have doubts

Passage of an FEHBP-model Medicare plan faces a tough hurdle in the Senate Finance Committee, which is dominated by senators from rural states that have been spurned by FEHBP and Medicare+Choice plans. "The private plans just don't exist in my state," said Sen. Blanche Lincoln, (D, Ark.).

Proponents noted that even in states with no local plans, federal employees can choose to enroll in six national plans that have a single premium across the country and must meet certain access standards in every community.

Rural senators countered that even where plans entered rural areas, they might further limit Medicare patient access to an insufficient supply of physicians and facilities. One of the ways plans control costs is to negotiate lower rates with in-network physicians in exchange for providing them with more patient volume.

In rural areas, however, creating networks that include some physicians and exclude others could mean that patients would have to travel great distances to see an in-network physician or pay additional out-of-pocket costs to see the nearest doctor.

National plans must guarantee reasonable access in all areas of the country in an attempt to eliminate such problems, said Abby Block, senior adviser for employee and family policy for the OPM.

"Typically in areas where there are fewer providers, virtually every provider is in the network," she said.

Between 80% and 90% of claims under FEHBP are for in-network services, Block said.

Ranking member of the Finance Committee, Sen. Max Baucus (D, Mont.) said the inability of plans to create restrictive networks of physicians would raise costs for Medicare and for beneficiaries.

"My sense is that with higher administrative costs, profits and risk load, combined with an inability to contract with preferred providers in remote areas, PPOs would actually be more expensive than traditional fee-for-service Medicare," Baucus said. "And as I understand it, the Congressional Budget Office happens to agree with me."

On the other side of the debate, Sen. John Breaux (D, La.) said he supports the president's framework and believes the FEHBP approach would work in Medicare. Breaux said none of the three main objections to the FEHBP model -- that it's not going to work in rural areas, that Medicare patients are much older, and that seniors will be forced into HMOs to get outpatient drug coverage -- hold any water.

Federal employees in even the most rural areas now have at least six plans to choose from, and the average age of beneficiaries served by FEHBP is 61, he said. Breaux said he was in a PPO that offered drug coverage under FEHBP.

Drug coverage under Medicare is central to the debate. While Republicans want to slow the growth of the program before the baby boomers begin to retire in less than a decade, there is also strong demand for an outpatient prescription drug benefit driving the Medicare reform discussion.

Sen. John Rockefeller (D, W.Va.) said he had yet to hear from a beneficiary in his state who wanted additional managed care choices in Medicare. "What they want is a prescription drug benefit," Rockefeller said. "More privatization is going to decrease substantially the chances of getting a prescription drug benefit."

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