Let Them Eat Cake

Published August 26, 2003

In a rare burst of speed, the U.S. House of Representatives has passed legislation assuring federal employees, and members of Congress, will have prescription drug benefits better than those available to the people whose interests they presumably represent.

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

Taxpayers and voters–especially senior citizens–should be outraged. Apparently, the prescription drug benefit Congress is cooking up for the rest of us is so lousy the folks paid by our tax dollars want nothing to do with it.

A Weak Substitute

The Congressional Research Service estimates the drug benefits available through the Federal Employees Health Benefits Program (FEHBP) are worth about 50 percent more than the proposed Medicare drug benefits. Ever since the Medicare reform debate began in earnest, federal employees have expressed concern that Congress or the U.S. Office of Personnel Management would attempt to save money by reducing retiree drug benefits, knowing retirees could be funneled into the sub-standard Medicare drug program.

The bill exempting retired federal employees from Medicare reform was introduced in late June by Representative Tom Davis (R-Virginia) and Senator Daniel K. Akaka (D-Hawaii). Akaka is on record saying, “[Federal employees] should not face a situation in which they must rely on Medicare.” Roughly 8.5 million federal workers, retirees, and relatives are covered by the federal employee health plan.

Daniel C. Adcock, assistant legislative director of the National Association of Retired Federal Employees, said, “Our members fear that 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.”

Unless some major revisions are made to the House and Senate Medicare plans, the Congressional Budget Office estimates one-third of retired, private-sector employees with employer-sponsored drug coverage could lose their benefit coverage as a result of Medicare reform. As it stands, Medicare reform will offer private and public employers a powerful incentive to reduce or drop drug benefits for their retirees.

Cake and Crumbs

According to an analysis by Kenneth E. Thorpe, chairman of the health policy department at Emory University, the 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. Also, federal employees do not pay an additional premium or deductible for drug coverage, whereas the rest of us will face an annual contribution of $420 and a deductible of at least $250.

The current Medicare reform proposals require patients to pay all drug costs between $4,501 and $5,813 a year (Senate bill) or $2,001 and $4,900 (House version). Such lapses in coverage do not exist in the plans available to federal employees and retirees.

Emory University’s 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.

An analysis of the House version of Medicare reform system provides in Section 214 that a variety of plans will be modeled after the FEHBP. But the transition to something that barely resembles the FEHBP does not begin until the year 2010.

In the Senate bill, the situation is worse. A close reading reveals a plan very different from the FEHBP. The FEHBP is a system of mostly fee-for-service or less-restrictive PPO health plans. All these plans compete for consumers all over the country. In the Senate’s Medicare reform plan, there is no provision for anything that approaches the FEHBP structure.

New Bureaucracy on the Way

Instead of competition–which serves federal employees and retirees very well, thank you–the rest of us will get a new bureaucracy: The Center for Medicare Choice. This will 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 of 1994. At best, the reform bills’ PPO option is restricted to the three cheapest plans in any given region.

In other words, the Medicare reform proposals currently on the table look less like choice and more like a Hobson’s Choice: take it or leave it. If Congress has its way with us, Medicare will become a government-sponsored oligopoly, not a model based on the market forces of consumer choice and competition.

President Bush has repeatedly said of the FEHBP, “If it’s good enough for the Congress, it’s good enough for the senior citizens of America.” Despite this, the President seems eager to have set before him a Medicare reform measure that looks nothing like the FEHBP. While members of Congress, the White House’s maintenance staff, and retired federal employees dine on the best menu of benefits available, the rest of us will eat cake.

Conrad F. Meier is senior fellow in health policy at The Heartland Institute and managing editor of Health Care News. Contact the author at [email protected].

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