Federal Employees Protected from ‘Medicare Reform’

Published July 10, 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.

Even as Congress wrestles with reconciling House and Senate versions of a Medicare reform package that includes prescription drugs, the new House bill guarantees drug benefits for civilian federal retirees cannot be reduced to the level proposed for Medicare. A similar bill is in the Senate.

Daniel C. Adcock, assistant legislative director of the National Association of Retired Federal Employees, said, “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 Representative Tom Davis (R-Virginia) and Senator Daniel K. Akaka (D-Hawaii). The Davis and Akaka bills also require the value of drug benefits offered to federal retirees to 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 the national Medicare plan. The FEHBP drug benefit is significantly more generous than Medicare drug benefits described in plans passed last month 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.”

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, 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 are covered by the federal employee health plan, including most lawmakers and the President.

Federal employees 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 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 most popular federal employee 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 options within the FEHBP include drug coverage valued at substantially more than the two Medicare drug bills passed by the House and Senate. Under the most popular federal plan, employees do not pay an additional premium or deductible for drug coverage, whereas both drug bills 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.”

But 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.”

Just the Facts

According to Heritage Foundation analysts Edmund F. Haislmaier, Robert E. Moffit, and Nina Owcharenko, “The Administration says that the congressional Medicare legislation creating the ‘Medicare Advantage’ system will offer a variety of plans ‘modeled after’ the Federal Employees Health Benefits Program. Only in Section 241 of the House bill is there a provision to transition toward a system that broadly resembles the FEHBP. But that transition does not begin until the year 2010.”

In the Senate bill, the situation is different. A close reading of the language shows the “Medicare Advantage” system to be very different from the FEHBP. The FEHBP is a system of mostly fee-for-service or less restrictive PPO health plans. All compete for consumers across the country. About 70 percent of all FEHBP enrollees are in those plans. In the Senate’s “Medicare Advantage” program, there is no national plan.

In lieu of competition an administrator of a proposed bureaucracy called the Center for Medicare Choice would divide the nation into 10 or more geographical regions–not unlike the health care regions promoted by Bill Clinton in the defunct Health Security Act. The PPO option 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 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.”

Conrad F. Meier is a senior fellow in health policy at The Heartland Institute and managing editor of its monthly publication, Health Care News. His email address is [email protected].

For more information …

Contact Heartland Public Affairs Director Greg Lackner at 312/377-4000, 773/489-6447, email [email protected]

For The Heritage Foundation’s analysis of the FEHBP, see “An Analysis of the White House Position on Medicare Legislation,” by Edmund F. Haislmaier, Robert E. Moffit, and Nina Owcharenko, available on the Internet at http://www.heritage.org/Research/HealthCare/wm305.cfm.