Congress To Be Exempt from Medicare Reform

Published September 1, 2003

The U.S. House of Representatives on July 7 passed legislation guaranteeing federal employees and members of Congress will have prescription drug benefits better than those available through Medicare when they retire. Later that month, the Senate passed a similar measure.

Even as Congress wrestles with reconciling House and Senate versions of a Medicare reform package that includes prescription drug coverage, the new bills guarantee drug benefits for civilian federal retirees cannot be reduced to the level proposed for Medicare.

Daniel C. Adcock, assistant legislative director of the National Association of Retired Federal Employees, explained, “Our members fear the government will be tempted to reduce or eliminate drug coverage for federal retirees, in favor of a Medicare plan that would be inferior and more complex.”

Separate and Not Equal

The House and Senate bills to protect current and future federal retirees were introduced in late June by Rep. Tom Davis (R-Virginia) and Sen. Daniel K. Akaka (D-Hawaii). The bills also require the value of drug benefits offered to federal retirees be “at least equal to” the value of drug benefits offered to current federal workers.

Federal workers and retirees receive drug benefits through the Federal Employees Health Benefits Program (FEHBP), repeatedly cited by President George W. Bush and members of Congress as a model for Medicare. Nevertheless, the FEHBP drug benefit is significantly more generous than drug benefits described in Medicare reform plans passed in July by the Senate and the House.

Akaka said his proposal would preserve today’s level of drug coverage for federal retirees and added, “[Federal employees] should not face a situation in which they must rely on Medicare.”

Davis said the federal government should set an example for private employers to discourage them from dropping the drug benefits they already provide to retirees.

According to the New York Times, David Marin, a spokesman for Davis, said, “This is not about members of Congress protecting their own interests. It’s about protecting the interests of retirees.”

Robert E. Moffit PhD, director of the Center for Health Policy Studies at The Heritage Foundation, thinks otherwise. “That tells you a lot about the value of the proposed drug benefit,” he noted.

Fear of Falling Benefits

The Medicare reform legislation currently under negotiation authorizes the largest expansion of benefits since the health insurance program was established in 1965. Unless major revisions are made in the conference committee, analysts say Medicare reform will offer private and public employers a powerful incentive to curtail or even drop drug benefits for their retirees.

The Congressional Budget Office estimated one-third of retired employees with employer-sponsored drug coverage could lose their private benefit as a result of Medicare reform legislation.

Roughly 8.5 million federal workers, retirees, and relatives–including most lawmakers and the President–are covered by the federal employee health plan, Many worry Congress or the U.S. Office of Personnel Management would attempt to save money by reducing retiree drug benefits, knowing the federal retirees could simply go into the Medicare program.

The most popular FEHBP plan among federal workers is the Blue Cross and Blue Shield standard option. The Congressional Research Service estimates the drug benefits under that plan are worth about 50 percent more than the proposed Medicare drug benefits.

According to an analysis by Kenneth E. Thorpe, chairman of the health policy department at Emory University’s Rollins School of Public Health, the Blue Cross plan covers 80 percent of total drug costs, compared with about 49 percent in the Senate version and 55 percent under the House version. Thorpe estimated it would cost $300 billion more over 10 years to bring the $400 billion Medicare proposal up to the level of federal employee benefits.

All 188 plan options within the FEHBP include drug coverage valued at substantially more than the two Medicare reform bills. Under the Blue Cross plan, employees do not pay an additional premium or deductible for drug coverage, while both Medicare measures require an annual contribution of $420 and a deductible of at least $250.

Medicare beneficiaries who buy separate prescription drug insurance would, for example, pay higher co-payments and premiums than federal retirees typically pay. Medicare patients would have to pay all drug costs from $4,501 to $5,813 a year in the Senate bill or from $2,001 to $4,900 in the House version. Such lapses in benefits do not exist in the plans available to federal retirees.

Adcock said any cut in drug coverage for federal retirees would break the bargain under which they worked. “The bottom line,” he added, “is that this is an earned benefit–deferred compensation, no different from retirement income.

“Federal employees generally don’t earn as much as private-sector workers, but they make that sacrifice for the peace of mind of knowing they will have health coverage in retirement.”

Bush has suggested Medicare beneficiaries should not accept less than what lawmakers receive. Earlier this year and numerous times since, Bush said, “If it’s good enough for the Congress, it’s good enough for the senior citizens of America.”

Crippled Competition

According to Heritage Foundation analysts Edmund F. Haislmaier, Robert E. Moffit, and Nina Owcharenko, “The administration says the congressional Medicare legislation creating the ‘Medicare Advantage’ system will offer a variety of plans ‘modeled after’ the Federal Employees Health Benefits Program.”

Moffit explained to Health Care News, “Rep. Bill Thomas (R-California) and most of his colleagues on the House Ways and Means Committee do favor that model for Medicare. In the House bill, there is a provision that would begin Medicare’s transition to the FEHBP-style Medicare program but not until 2010.”

But, Moffit added, “196 members of the House of Representatives are on record opposing that transition to an FEHBP-like system, and 37 senators say that a transition to a competitive system is unacceptable in any final bill.

“In other words, they’re enrolled in a superior health plan, with reliable drug coverage, whose replication for the retiring baby boomers they steadfastly oppose.”

Unlike the House measure, the Senate reform bill outlines a “Medicare Advantage” system very different from the FEHBP, which is a system of mostly fee-for-service or preferred provider (PPO) health plans. All FEHBP plans compete for consumers across the country, and about 70 percent of all FEHBP enrollees are in national fee-for-service or PPO plans. The Senate’s “Medicare Advantage” program offers no national plan.

In lieu of competition, the Senate measure authorizes the administrator of a proposed Center for Medicare Choice to divide the nation into 10 or more regions, not unlike the health care regions promoted by former President Bill Clinton in his failed Health Security Act. The PPO option outlined by the Senate is restricted to the three cheapest plans in any given region.

In other words, according to the Heritage Foundation analysts, Medicare becomes a government-sponsored oligopoly “in which Medicare beneficiaries [seeking a PPO option] would only be allowed to choose [from among] three plans. This is not a model based on normal market forces of consumer choice and competition; it is instead a dramatic deviation from the FEHBP model, where many plans compete for consumers’ dollars.”

“In the case of the Medicare drug benefit,” Moffit noted, “one clear message coming out of Congress is this: Government-run medicine might be OK for all the little people, but not for us thank you very much.”

Conrad F. Meier is managing editor of Health Care News. His email address is [email protected].