• A little bit about FEHBP

    I don’t know enough as I’d like about the Federal Employees Health Benefits Program (FEHBP). In particular, I’d like to learn more about how it is actually governed and run, in contrast to Medicare Advantage, and what the results are for costs.

    I’ve just spent a half hour poking around and this is what I’ve found so far:

    A questionable Wikipedia entry. Read it. It is very pro-FEHBP and anti-Medicare. It is misleading about Medicare in at least one place, saying there is no bargaining with providers by original Medicare. That’s true but ignores Medicare Advantage, which do bargain with providers (excluding PFFS plans) . I’m not saying the entry is factually wrong (I admit I don’t know enough to judge). I’m just saying it seems very one-sided.

    Some info from Commonwealth. Here are a few bits from a longer Commonwealth paper on FEHBP:

    Since 1969, FEHBP has experienced slightly lower premium growth per enrollee than private health insurance overall (10.6% vs. 11.0%) but higher growth than Medicare (8.9%). …  In the last four years, Medicare has outperformed FEHBP by a far greater margin, with premiums growing at only about one-third the FEHBP rate. …

    [T]he savings FEHBP achieves through competition have not been greater than savings from Medicare’s system. …
    Although FEHBP has operated with little government intervention, its spending is only about one-tenth that of the Medicare program. It seems unlikely that government policymakers will remain immune from plan and provider pressure if the stakes are raised to Medicare’s level.
    From the Heritage Foundation. Here are some bits from a Heritage Foundation Backgrounder on FEHBP in which the author takes issue with Commonwealth’s analysis:

    Based on data comparisons over 28 years, the FEHBP ties Medicare in cost control without regard to benefit changes over time. Taking into consideration these benefit adjustments, FEHBP costs, as with private-sector insurance generally, have increased less than Medicare costs over most or all of the life of the Medicare program.

    I’m sure I am missing some good documents on this topic. Do you know of any?

    Later: This post has been edited to reflect corrections suggested in the comments.

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    • I just came across this post by chance; this is clearly a blog I should frequent more often. I’m the author of what I can reliably report is by far the most comprehensive evaluation of the FEHBP ever written: Putting Medicare Consumers in Charge: Lessons from the FEHBP, AEI Press, 2009. It should answer most if not all question about the functioning and performance of the FEHBP both in its own terms and in comparison to Medicare (hint: FEHBP outperforms original Medicare in every which way, contrary to the pedestrian Commonwealth Fund piece). I would have thought my book easy to find, and that anyone who knows me and my work on behalf of consumers would characterize me as an unbiased source, but buy the book (I get no royalties) and make your own judgments. Among other things, my book discusses a myriad of GAO and other studies of the FEHBP, finding major flaws in many. As to the Wikipedia article, it is true that “original Medicare” (Parts A and B) does not bargain with providers, which is what the Wiki piece says, so I’m a bit mystified at the criticism. Incidentally, and I won’t deal with the issue in detail here, my own conclusion is that Medicare Advantage plans likely save original Medicare a great deal of money (most of and perhaps more than the nominal 14% cost differential) because they displace 100% wraparound spending under Medigap plans, and thereby introduce cost consciousness among both enrollees and providers. (See the 2008 Michael Chernew et al article showing massive savings to Medicare from MA plans, “Managed Care and Medical Expenditures of Medicare Beneficiaries,” Journal of Health Economics, 27: 1451-61).

      • @Walton Francis – Thanks for your comment. Though your book did not come up in my searches, I am now aware of it. It sounds like a good reference.

        I stand by my sense that the Wikipedia entry had a strong anti-Medicare feel to it. That’s not because I am in great need of defending Medicare or attacking FEHBP. I am certain Medicare can benefit from a lot of change. I am not certain FEHBP is the right model for Medicare, despite its performance for a very different and smaller population.

        Though there may be spillover effects from MA to FFS Medicare, the Chernew paper (or, to be precise, the working paper version of it I have access to right now) did not consider PFFS plans, which are responsible for much of the recent expansion of the program at high cost to taxpayers. Also that paper considers a period well before the most recent increases in payments, using data through 2001. Quoting from their conclusion, “Our findings should be interpreted as applying to the range of HMO penetration influenced by payment policy. Given their substantial magnitude, we suspect additional large changes in penetration might translate into somewhat smaller effects.”

        Having said that, I’m not opposed to MA, I’m opposed to overpaying for MA. Attempting to expand MA or something like it for the entire population may cost more than it is worth.

        • @Walton Francis – Also, note that I edited the post to reflect the new information you provided. In general I think my comments were taken far too seriously. The post was meant to solicit suggestions for more reading, not to be part of any serious debate on FEHBP. However, I didn’t select my words well, and I do take seriously suggestions to correct the record, which I have.