should the federal government reform Medicare before it becomes unaffordable?
Answering your questions are Karen Davis, president of the Commonwealth
Fund; Robert Reischauer, a senior fellow at the Brookings Institution;
and Stuart Butler, vice president for domestic and economic policy studies
at the Heritage Foundation.
Donovan of Phoenix, Arizona asks:
I understand that federal employee health benefits supercede Medicare. Is this true?
Davis of the Commonwealth Fund responds:
· I'm not sure I understand the question or know the answer. In general if someone is working past age 65, their own employer coverage is the primary payer and Medicare is the secondary payer (the "working aged" provision). If someone is not working and retired, Medicare is the primary payer and the employer retiree coverage is the secondary payer. I assume a retired federal employee covered by Medicare has Medicare as primary payer.
· If the question is about the relationship between the Chairman's proposal and the federal employee health benefit plan (FEHB), FEHB has been cited as the model for premium support. FEHB is a good program and provides good protection to millions of federal employees - active workers and retirees. But over a long period of time, premiums under FEHB have risen at the same rate as Medicare per person costs and private health insurance premiums. Medicare and private health insurance have been equally successful (or unsuccessful) in controlling health care costs over 20 to 30 years. FEHB has experienced some adverse risk selection; that is, sicker people have joined certain plans causing those premiums to spiral upward; benefits are not standardized; even sophisticated federal employees have difficulty understanding the choices available.
· Medicare has an excellent record of achieving low administrative expenses, and offers substantial managed care plan options for those beneficiaries preferring care from those plans. Unlike FEHB, Medicare offers both a public fee-for-service plan options - giving those who wish to remain in traditional Medicare the option.
· Radical restructuring of Medicare to put beneficiaries financially at risk for premiums in excess of Medicare payment to plans may not work for a sicker, older population. Most federal employees are younger and healthy. Since plans have a strong incentive to avoid marketing to sicker, chronically ill patients or providing specialized care designed to meet their needs, they may not have an advantage over traditional Medicare. Yet, if sicker people stay in traditional Medicare and healthier Medicare patients join managed care plans - as has happened to date - the cost of traditional Medicare could spiral and become unaffordable. Marilyn Moon estimates that costs for those choosing traditional Medicare could increase to over $6,000 per person in 2025 (in 1998 dollars) if adverse risk selection occurs or if private plan premiums go up more slowly than the cost of traditional Medicare.
Reischauer of the Brookings Institution responds:
Some older retired federal employees are not covered by Medicare because they spent their whole careers in federal service and did not pay the Hospital Insurance (HI or part A) payroll tax. In retirement, they continue to receive coverage through the Federal Employees Health Benefits Program (FEHBP). Under FEHBP, they pay the same premiums that active federal workers pay and receive the same benefits, which provide more extensive coverage than Medicare. Depending on the plan chosen, these retirees can pay premiums that can run close to $400 per year.
After 1982, federal workers were required to pay the HI payroll tax and so they gained eligibility for Medicare. Older federal workers who held jobs in the private sector for part of their careers or were married to private sector workers also are eligible for Medicare. When these individuals reach age 65, Medicare becomes the primary payer for HI covered services (in-patient hospitalization, most home health care, some skilled nursing care, and hospice care)if they are not working and, therefore, are not covered by an employer-sponsored policy. Nevertheless, these retirees usually continue to participate in FEHBP and use their FEHBP plan as their supplemental insurance. Many of them do not sign up for Medicare Supplementary Medical Insurance (SMI or Part B) and do not pay the Part B premium because the services covered by Part B are covered more extensively through their FEHBP plan.
Butler of the Heritage Foundation responds:
Federal employee (FEHBP) health benefits are much better than Medicare. Some people say that's because Congress always keeps the best for itself, but the real reason lies in the contrast between the way benefits are changed over time in the two programs.
Under current law every major new or changed Medicare benefit requires an act of Congress and a political fight. That makes it hard to modernize the program and causes the benefit package to be constantly out of date (such as the lack of a drug benefit today). By contrast, the FEHBP benefits package is driven by customer pressure rather than legislation. If a plan in the FEHBP does not keep up with the latest benefits - at a reasonable cost - federal workers simply will not enroll in it and it will go out of business. Just ask any federal worker, including your mail carrier, and you'll realize how up-to-date the FEHBP plans are. Senator Breaux wants the same system in Medicare.