The Agenda

The FEHBP as an Alternative to Obamacare

Josh Barro takes Rep. Darrell Issa (R-CA) to task for floating the idea (in a tweet no less) of allowing all Americans to participate in the Federal Employee Health benefits program (FEHBP) as an alternative to Obamaca. Josh’s criticism is that the FEHBP is already quite similar to Obamacare’s exchanges, and that making FEHBP plans affordable for large numbers of Americans would require expensive subsidies, one of the core GOP criticisms of Obamacare:

In fact, FEHBP is similar to the Obamacare exchanges in a lot of ways.

* If insurers want to participate in the FEHBP, they can’t exclude coverage for pre-existing conditions, just like Obamacare.

* They have to accept applicants “without regard to age, race, sex, health status, or hazardous nature of employment.” This is called guaranteed issue, and it’s just like Obamacare.

* They have to charge all applicants the same premium for a given plan. This is called community rating, and it’s more restrictive of insurers than Obamacare, which allows for substantial premium variation based on age.

The key way that FEHBP differs from Obamacare now is that only federal employees can participate in it. Those federal workers have 75% of their plan premiums paid by the federal government, and their own 25% contribution is deductible on their federal tax return.

I asked Issa’s office what financial support he would propose to help non-government workers buy FEHBP plans and haven’t heard back yet. If he’s going to heavily subsidize those purchases, then his plan will really look a lot like Obamacare.

Josh’s point is well taken. Any overhaul of the U.S. health system that features competing private insurance providers, regulated health insurance exchanges, and premium subsidies will indeed bear a family resemblance to Obamacare, just as it will bear a family resemblance to health insurance markets of the Netherlands or Switzerland. But I find Issa’s idea intriguing. It’s a promising sign that at least some Republicans are breaking out of their reactive posture on health-system reform.

A number of candidates and elected officials have called for opening the FEHBP to all adults over the past two decades, and most of them have been Democrats. Rep. Pete Stark (D-CA) proposed using the FEHBP as a foundation for universal coverage in 1999, Bill Bradley campaigned on allowing all adults to enroll in the FEHBP in 2000, John Kerry proposed a closely related idea in 2004 (as did Wesley Clark and Howard Dean), Rep. Jim Langevin (D-RI) introduced the American Health Benefits Program Act of 2009, and Sen. Amy Klobuchar (D-MN) floated the idea during her last campaign. Former Sen. William Roth (R-DE) is one of relatively few Republicans to have called for opening the FEHBP to the uninsured, having introduced a bill to do so in 1994. A number of Republicans have explored the idea of applying the lessons of the FEHBP to Medicare, and the American Enterprise Institute released a monograph (Putting Medicare Consumers in Charge) on this theme by Walton Francis in 2009. Issa is proposing something far more ambitious, assuming he’s serious. 

In 2009, Randall R. Bovbjerg released an Urban Institute report on the FEHBP as a model for health-system reform, which identifies lessons while also cautioning that the FEHBP itself might not be well-suited to a more diverse population (in age, health needs, preferences, and income, among other things), having been designed to meet the needs of federal employees and retirees. A Commonwealth Fund report released that same year was somewhat more optimistic about the prospects of creating an FEHBP-like initiative to cover the uninsured, though it raised many of the same caveats as Bovbjerg’s paper. Annie L. Mach of the Congressional Research Service prepared a detailed report on insurance options available under the FEHBP in February, and though she doesn’t weigh in on the FEHBP’s lessons for health-system reform, she provides useful context.

There are things about the FEHBP model we shouldn’t want to scale up, e.g., its limits on age rating, and there are others that we simply can’t, e.g., the fact that the FEHBP pool largely consists of employed individuals, most of whom are highly-educated office workers. Yet the FEHBP model appears to be superior to Obamacare’s exchanges — which, keep in mind, are meant to account for no more than half of the law’s coverage expansion (Medicaid expansion is supposed to account for the rest) — along the following dimensions:

1. FEHBP grants insurance plans more freedom to change benefit structures in response to consumer demand, while the regulations governing plans sold on the exchanges are more prescriptive. This relative flexibility creates the potential for biased selection among participating health plans, a potential that is limited by the structure of the federal contribution. (A coverage expansion effort modeled on the FEHBP might make use of a reinsurance mechanism to limit the negative effects of adverse selection should it become a serious problem. Suffice it to say, this reinforces Josh’s basic point that any coverage expansion effort won’t be easy.)

2. FEHBP is exempt from state mandated benefits while Obamacare’s insurance exchanges are not. John Cogan, Glenn Hubbard and Daniel Kessler have called for a federal insurance market that would exist alongside state-regulated insurance markets, an approach designed to bring the benefits of lightly-regulated ERISA plans, which are subject to federal and not state regulation, to individuals and small groups. They argue that state regulations, like “any-willing-provider” laws, have a strong tendency to raise costs. Chris Pope has argued along similar lines in his National Affairs essay on “The Perils of Health-Care Federalism,” concluding that “allowing states free rein to intrude in markets has created a costly, confused, and dysfunctional mess.” If the FEHBP were our starting point, we would effectively be following a “one government at a time” approach to regulation, and that would be a good thing.

I’d love to see Darrell Issa flesh out his tweet. Let’s hope he gives this idea some more thought.







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