A Health-Care Plan Most of Us Could Buy
Schnurer, Eric B.
A Health-Care Plan Most of Us Could Buy It's right under Congress' nose BY ERIC B. SCHNURER RUTH KAIN DIDN'T EXACTLY get the best deal possible. Kain lives in the little town of Ava, Mo.,...
...One might therefore expect that this Cadillac of coverage plans suffers from gold-plated prices...
...Thus, KPMG Peat Marwick recently concluded that adding all the uninsured to smaller state government employee-risk pools “should not raise premiums considerably...
...The huge federal buying co-op, then, would keep constant competitive pressure on the market to lower prices and improve satisfaction for all consumers...
...Governments everywhere are losing the abilities to tax, regulate, and redistribute resources...
...In fact, many of the uninsured are actually young people who don’t present high risks but see current insurance options as not worth the price...
...The full-family version prices out at $5,496 ($458 per month...
...Because of the Law of Large Numbers and the Law of the Market...
...If Congress just let the rest of us in on its health-care deal, insurance would no longer be a problem for the great majority of Americans The government’s role in this process would not be as a regulator or provider...
...One that it might even make sense to expand to all Americans...
...This, at least, was the argument in 1994 when thenSenate Majority Leader George Mitchell (D-Maine) proposed expanding FEHBP to these groups...
...If you’re on the Titanic, you wouldn’t invite more people to join you,” huffed one GOP congressman...
...Senator Stevens similarly declared that FEHBP “deserves to be recognized as a basic success in healthcare insurance...
...With government serving as a large purchasing co-operative into which any American could voluntarily buy (starting with the “critical mass” of 10 million federal employees), we would have the advantages attributed to a “single payer” system of health insurance, but without drawbacks such as inefficient government bureaucracy and involuntary participation...
...Is there anything to replace them...
...Most of FEHBP’s features are not available to the vast majority of Americans - including beneficiaries of Medicare, where more and more seniors are simply being herded into managed care...
...The Federal Employee Health Benefits Program, or FEHBP - pronounced, rather disconcertingly, as “Feeb...
...Guess which...
...All federal employees - as well as members of Congress, the Supreme Court, and the Cabinet - are eligible for coverage...
...We could, instead, allow Americans to buy into another existing government program, one that does not possess the problematic fiscal “pre-existing condition” that Medicare does...
...And while the average age of workers in the private sector is only 377 years, federal workers are significantly older - 43.8 years, on average...
...The FEHBP is a government sponsored, private-sector operated, nationwide health care delivery system,” Roth observed at the time...
...It allows enrollees to choose their own physicians...
...Of course, some of the same concerns about Clinton’s Medicare proposal would have to be addressed...
...Why...
...There is no cancellation for catastrophic illness...
...RUGS had been able to retain his company health insurance until he qualified for Medicare, at which point Ruth was allowed by Rufus’ former employer to buy a COBRA plan for 36 months...
...The Postal Service’s ability to compete successfully with private shippers has drawn similar opposition...
...Why does it achieve such good barpns then...
...But 82 percent of the population has overpriced coverage...
...Allowing anyone to buy into FEHBP, then, may not just encourage a lower-priced, more-competitive health insurance market for all Americans...
...health insurance for all Americans, not just the old...
...The Big Offer If Congress just let the rest of us in on its healthcare deal, insurance would no longer be a problem for the great majority of Americans...
...In short, if the government became the “buying cooperative” for all of us, it could use its market clout to obtain better and better deals in the private market...
...The end result: Even with Kennedy-Kassebaum ERIC B. SCHNURER is president of Public Works, a public policy analysis and consulting firm...
...What’s more, 40 percent of FEHBP enrollees are retirees...
...First, we need to separate the “high risk” group into two categories: statistical and actual...
...They are more like the members of the leper colony - and are treated as such in the marketplace...
...As with the Medicare expansion idea, the people who would find the chance to buy into FEHBP most appealing are those who arguably present the greatest risk of high health-care costs: small business owners and employees, other non-group members, and those who are legally entitled to coverage under Kennedy-Kassebaum but can’t afford it...
...And sure enough, as all such stories go, after shelling out $10,000 for a pacemaker that her policy didn’t cover, she began experiencing severe chest pains last November and wound up spending Thanksgiving in the hospital...
...One in which the sort of consumer choice that conservatives claim they want to inject into government-run health coverage - particularly Medicare - already exists, with a vengeance...
...It has a proven record...
...Many penalize agents who write such policies, while one - exploiting a loophole in the law that says insurers need not provide coverage for a condition that has gone uninsured for the last 63 days - actually stretches out the processing of applications from individuals with preexisting conditions for more than 63 days, and then routinely denies the request...
...With wider choice, greater consumer protections, higher satisfaction, and greater market power, the federal plan is a great deal if you can get it...
...The program that could do all this...
...And, strictly speahng, buy-ins aren’t about subsidies...
...Reform for whom...
...Consumer satisfaction is strikingly high: 87 percent for those in fee-for-service plans and 85 percent for those in HMOs...
...But the fact is that it can - aggregating the interests of millions of small economic actors, achieving economies of scale...
...The Blue Cross standard package available to FEHBP families costs $5,254 a year - about 13 percent less than the similar Blue plan offered to small groups, and $1,000 less than the average conventional plan available to the largest employers...
...The Holy Grail...
...And lowering the costs of insurance overall will ultimately lead to more of the uninsured population being able to afford coverage (as well as cutting the cost to taxpayers of subsidizing coverage for the rest, should the welfare state ever make a come-back - but that’s a different article...
...with a thousand, if you guess half heads and half tails, the odds are overwhelming that you’ll be reasonably close...
...William Roth of Delaware - coauthor of the Reagan-era Kemp-Roth tax cut intended to slash government - proposed several years ago that uninsured Americans, the self-employed, and members of small groups be allowed to buy into the program...
...Edward M. Kennedy (D-Mass...
...Not all (or even most) market-power enhancing combinations will be “government” - but there will still be some problems that purely “private” arrangements will be unable, or unwilling, to address...
...In 1994, Republican Sen...
...And why wouldn’t they...
...Thus, if members of a small group were suddenly made members of a large group, their “riskiness,” and therefore their insurance costs, would automatically decline...
...in place, Kain couldn’t obtain insurance that would cover her heart problems...
...Because of the Law of Large Numbers and the Law of the Market...
...Without doubt, it’s terrible that 18 percent of non-elderly Americans have no health insurance...
...When they do make coverage available, it is often at rates double the norm...
...Small businesses and their workers currently pay more for insurance than do large groups - not because they have higher health-care costs, but because they pose higher statistical risks...
...It may also mark what Bush White House adviser James Pinkerton has called “The Big Offer”: a revised conception of government’s role that addresses the new needs of the vast majority of people...
...With this kind of competitive pricing, it’s not surprising that fans ranging from Sen...
...The government would act purely as a market participant, as a voluntary association of citizens, as an aggregator of consumer preferences...
...I know: You are shocked - shocked - to hear that health insurers wouldn’t insure people who need health care...
...In doing so, they will drive up the cost of care for the insurance pool, resulting in either lower profit margins for the insurer or higher premiums for all other consumers...
...First they wheeled out the standard objection to Medicare expansion: With the impending retirement of the massive Baby Boom generation, the system is already too financially shaky to pile even more beneficiaries onto the program...
...In any event, it turns out that FEHBP already starts with a higher-than-average-cost insurance pool: As a general rule, the older the individual, the higher the health-care costs...
...Even before Kennedy-Kassebaum, it basically insured everyone in its population, regardless of preexisting conditions...
...And it will continue to do so even - perhaps especially - if large numbers of smallbusiness employees and the currently uninsured choose to join...
...The brass ring...
...Recall the Republican elegy to FEHBP as a program of private-sector provided services chosen by participants through market mechanisms...
...But, whatever the merits of their various concerns, on one very important point, the Republicans are right: This was still not the best deal Ruth Kain could have been offered...
...Think of it like this: Could you better predict the likely outcome of one coin flip or of a thousand...
...This, of course, is the real specter haunting the right, though they have yet to articulate why wiping out the ranks of the uninsured (without using tax subsidies, mind you) is such a bad thing...
...The Clinton administration’s directlending program for student loans, for instance, was so successful that banks, who were losing out on the business, demanded that the “pro-competition” Republican Congress curtail it...
...Some people might question whether this then undermines the point of health-care reform...
...While employees elsewhere hope for “cafeteria plans,” FEHBP enrollees are treated to a virtual Valhalla of smorgasbords: A total of 380 health plans nationwide participate in FEHBP, offering the average beneficiary at least a dozen options for coverage in her locality, ranging from managed care to traditional fee-forservice...
...Kain lives in the little town of Ava, Mo., where she and her husband of 47 ,years, Rufus, settled after he retired in 1990...
...So far, even Bill Gates hasn’t been able to put together the purchasing clout of the federal government...
...what...
...This, say critics, would eventually drive Medicare’s per-person costs higher, rendering it a not-so-good deal for those already in it...
...The point here is that FEHBP would be unlikely to be flooded by high-cost patients...
...One in which the phenomenon of “adverse selection” is minimized...
...Because they (or, at least, their employers) would always have the option of leaving their current plan and signing on with FEHBP if other players in the market didn’t keep pace with the federal plan...
...Under the Clinton plan, retirees from age 62 to 65, as well as people over age 55 who have been laid off and lost insurance, could buy into Medicare for more or less the actual price of such coverage...
...and that the program is voluntary, not mandatory like Medicare and Social Security (although, with the government paying a large share of the premiums, an eligible individual would have to be nuts not to enroll...
...Finally, Republicans fear The Slippery Slope and are aware that such a program could eventually lead to - gasp...
...Ted Stevens (ironically, in a statement opposing extending FEHBP to non-government employees) explained: “The system holds down growth in costs by forcing insurers to compete for customers by providing the best service at the lowest premiums...
...The People’s Choice With nearly 10 million enrollees nationwide, FEHBP constitutes the largest medical plan in the United States...
...But this begs the question...
...Those in the early retiree group would pay slightly lower premiums than other new entrants, but would make up for it with slightly higher monthly payments once admitted to “regular” Medicare at 65.:) This is a pretty good deal, cheaper-by-half than the $1,000-a-month that Kain could expect to pay a private insurer - assuming she could find one willing to issue her a policy...
...And therein lies not just the path to more affordable, more consumer-friendly health coverage for more Americans, but a template for the role of government in the future - a future in which there will be more competition and government will be less powerful, less like government as we’ve known it in the Industrial Age and more like...
...When that expired, Ruth was 63 and not yet eligible for Medicare...
...And the best part is: The more people who take advantage of the offer, the better a deal it becomes...
...It could serve as an excellent vehicle for providing health care to those in our country who need it but can’t afford it because they are not part of a large group...
...One would be wrong...
...If you’re at all risk-averse, or simply want to plan your finances intelligently, you’d prefer the relatively predictable outcome of a thousand tosses...
...nor, as a result of a heart ailment constituting a “pre-existing condition,” could she find a private insurer willing to cover her in the interim...
...Moreover, if FEHBP enrollment is open to anyone, it is not just these more marginal groups who will join: Employees of any business could switch, especially if their employer continues to pay the same share of the premiums...
...to the Heritage Foundation have hailed FEHBP as a model for health-care reform...
...This is what statisticians call “The Law of Large Numbers”: the bigger the group, the smaller the risk (unless, of course, the group is selected on the basis of some risk factor, such as being residents of a leper colony...
...To cover the bill for her stay - a daunting $14,000 - she and Rufus were forced to sell the farm they lived on...
...So just on the basis of health spending patterns, FEHBP already is not the insurance pool ideal...
...This would have three effects: It would provide new and improved options for the millions of Americans looking for a better deal on their health insurance...
...But Clinton basically rendered this argument moot by proposing that recipients essentially pay their own way...
...But this will prove less of a problem than it first appears - and certainly less than with the Clinton plan...
...Alas, private carriers have hardly been leaping to assume this new responsibility...
...Did anyone tell these guys that this is a government program...
...Unlike Social Security or Medicare Part A, the president’s buy-in program would be voluntary, which means a disproportionate number of the people flocking to sign up for it would be those having trouble finding alternative coverage at a reasonable price - i.e., those who present the worst health risk and thus bear the highest price-tag for coverage...
...One of the largest insurers in the program, the Government Employees Health Association, offers a fee-for-service plan for single individuals at a cost of $2,548 a year ($212 per month), including both the employee’s and the government’s share...
...But the main reason the Federal Employee Health Benefits Program can cut such good deals with insurers rests on the most basic of capitalist concepts: Market Power...
...Of course, the uninsured and those with preexisting conditions, whose actual health-care costs are typically higher than average, pose a somewhat different problem...
...With 10 million people looking to spend about $1,000 apiece each year - $10 billion...
...if they were to buy into FEHBP’s over-aged pool, they would actually improve the average risk...
...In reality, however, most of the people in these categories couldn’t afford to participate in a buy-in program without some sort of government subsidy like that proposed by Senator Roth under CareNet...
...If these folks are allowed to buy into a program like FEHBP at the same price as the average consumer, most will jump at the chance, because it’s significantly cheaper than what risk-related policies would run them...
...One that might actually save taxpayers money if it were expanded...
...Only here’s the catch: The predator exploiting its oligopsony (that’s the demandside version of “oligopoly”) power is the government...
...In fact - and this is a crucial point - so would the riskiness and costs of the large group, because it just got even larger...
...that market competition, not governmental diktat, determines both inputs and outcomes...
...How low...
...Examples of government acting in such a role already exist...
...Which brings us back to the issue of adverse selection...
...A Health-Care Plan Most of Us Could Buy It's right under Congress' nose BY ERIC B. SCHNURER RUTH KAIN DIDN'T EXACTLY get the best deal possible...
...In essence, it’s the same sort of advantage that entrepreneurs like John D. Rockefeller have understood and pressed since the time of Croesus...
...Yes, part of FEHBP’s success lies in the fact that private companies, not a government bureaucracy, design, offer, and administer the benefits...
...God forbid that the federal government should actually offer something moye efficiently than the private sector...
...Second, by enlarging the FEHBP pool, it would lower rates for FEHBP enrollees, meaning that the costs taxpayers are currently bearing for federal employee benefits would decrease...
...Roth‘s proposal, dubbed “CareNet,” would have also subsidized the purchase of coverage by the unemployed by eliminating uncompensated care reimbursements to hospitals - essentially buying the poor competitively priced insurance instead of waiting to pay for their expensive emergency room care...
...And if the plan you choose isn’t working out for you, the annual “open season” allows you easily to switch insurers within a year...
...Republican Sen...
...With one flip, the odds are as good that you’ll be completely wrong as that you’ll be right...
...Like FEHBP...
...A slightly more sophisticated criticism of the plan is that it would worsen Medicare’s financial problems through “adverse selection...
...In January, he proposed an expansion of Medicare, the federal health insurance program for the elderly, to cover people like Kain...
...Third, even those Americans who chose not to buy into FEHBP would likely experience improvement in their insurance coverage...
...And so white-haired Ruth Kain from Ava, Mo., stood by Bill Clinton in the White House three months ago as the president unveiled his grand plan...
...Yes: facilitating the ability of ordinary people to act together in the marketplace in the face of larger opposing interests...
...Clearly, Ruth Kain had gotten a bum deal...
...When it comes to access to health-insurance consumers, FEHBP is the 10-million-pound gorilla...
...Ruth Kain is just the type of person legislators were trying to help when they passed the 1996 Kennedy-Kassebaum bill requiring insurance companies to provide coverage even to Americans with pre-existing medical conditions...
...President Clinton seemed to agree...
...Republicans, with their usual flair, promptly declared the president’s proposal Dead On Arrival...
...And that could help cure more than just our health-care problems...
...As health-care costs exploded between 1982 and 1994, FEHBP’s average premium rose by approximately 3.5 percent less than did premiums for private-sector, big-business group plans...
...on your product, what insurer wouldn’t offer a sweet deal in order to get a piece of the action...
...Of course, the secret of FEHBP’s success can be pinned on a fact that has nothing - and yet everything - to do with its government nature...
Vol. 30 • April 1998 • No. 4
