Still Off-Topic: Model Health Reform Public Plan on FEHB?

In Admittedly a Bit Off-Topic: A Public Plan, or Not? I strayed off the main topic of this blog: the environment and climate change legislation. Now, more of the same. My rationale is that the health-reform debate is so intense right now that no one is thinking about climate legislation.

The debate over health care reform/health insurance reform has indeed turned ugly. The "continental divide" between supporters and opponents of reform has at its very apex the question of a public option for health insurance. This option would, depending on who you ask, either open up Medicare, as presently constituted, to younger people or create a new, separate, government-run insurer that is something like (but not exactly like) Medicare.

The latter possibility is the one I discussed in the post I just mentioned. My assumptions were that premium rates would be set halfway between Medicare and private plans, and only people in certain categories would be allowed to join. Restricted access and rates above Medicare's would keep the plan from swamping the private insurance market, while allowing some competition between the public plan and private insurers. That competition would wind up putting pressure on health care providers, via private insurers, to restructure away from the omnipresent fee-for-service model that now drives health care costs skyward.


However, I shouldn't have so casually ignored another model that has been proposed for the public option: opening up the current Federal Employees Health Benefits Program to one and all.

FEHB, as the program name is abbreviated, provides yours truly, a retired federal employee, with health coverage. I am quite happy with the health insurance I get via FEHB, which comes from CareFirst BlueCross BlueShield of Maryland, a so-called Preferred Provider Organization or PPO. (A PPO is apparently a sort of fee-for-service plan that saves money by directing me to particular health care providers that have signed up to charge less.) My locally provided insurance coverage is, in turn, part of a national umbrella plan called FEP Blue (for "Federal Employee Program - BlueCross BlueShield").

If I stopped liking that coverage, each fall at "open season" I would be able to change. I could, if I liked, choose among straight fee-for-service plans, PPOs like the one I have, or health maintenance organizations (HMOs). There are, as well, "High Deductible Health Plans," "Consumer-Driven Health Plans,"Health Reimbursement Arrangements," and "Health Savings Accounts." Some of the options open to me are nationwide, and others are specific to my home state, Maryland.

Apparently, some of the political leaders who have spoken in favor of a public option have suggested opening up the Federal Employee Health Benefits program as one way to do it. According to this blog post, Senator Max Baucus (D-Montana), who heads the crucial Finance Committee, favors "keeping the public option 'on the table'," and FEHB expansion is one way he has spoken of for doing it.

It looks as if a great many of those who want a Medicare-style public option hate the idea of using an FEHB expansion in its stead. The blog post I just mentioned is a case in point, as are this post and this. The complaints are that FEHB is too expensive, since "100,000 federal workers don’t participate because they can’t pay the price"; FEHB just repackages private insurance, with its high overhead expenses and profit margins; and, as such, an FEHB expansion could not bend the cost curve down as well as a Medicare-style public option would do.


My thought is this: why not include a Medicare-style public option within an expanded FEHB umbrella program?

Call the Medicare-style public option "Medicare Plus," or MC+. MC+ would, I imagine, be just as supporters of a strong public option would hope. Of course, policymakers would have to decide how close to Medicare to make it — for example, would premium rates be right at the Medicare level, or halfway between Medicare and private insurance? But those are questions that would have to be faced if any sort of public option is implemented.

Meanwhile, MC+ would, like all other expanded-FEHB choices, be bought through whatever federal agency runs the program. FEHB is now run by the Office of Personnel Management (OPM), but opening it to non-federal employees would surely require putting it elsewhere. If it were me, I'd create an independent entity something like the Federal reserve to run it. I'll call whatever independent government entity administrates the program the Federal Health Board, or FHB.

The FHB, in administrating the program, would operate something like OPM does now. Mainly, it would negotiate with all of its insurance offerors (including whoever runs MC+) to get lower prices, which would typically originate with discounts from health care services providers — doctors, clinics, hospitals, etc.

Putting MC+ under the FHB would allow the latter to structure the whole umbrella program so that MC+ did not get "too big for its britches" and drive private insurers out of the marketplace. The FHB would, because it is independent of both the President and the Congress, not be subject to political pressures to liberalize MC+, which might ultimately sound the death knell for private health insurance.


A good question is, how would Joe and Jane Citizen pay for MC+ coverage? If they were currently in the FEHB program, either as current government employees or as retirees, they would have their paychecks or pension checks reduced by the amount of their regular contribution toward premiums — and the remaining cost of their coverage would come as a subsidy out of government operating expenditures.

But if Joe and Jane don't work for Uncle Sam, their expanded FHB coverage would have to be paid for in other ways. Likewise, any subsidy provided by the federal government toward the cost of Joe and Jane's health coverage would have to be handled differently.

Specifically, if Joe and Jane opted for MC+ coverage, the financial mechanics might have to be different than if they had the kind of coverage I have now.

My guess is that some or all of the MC+ premiums, for non-government employees, would be handled either as direct billings or in conjunction with filing income taxes. Subsidies could come as income tax credits or be paid directly into bank accounts.

These are details that would have to be worked out. But the main thing to keep in mind is that policymakers could bundle a Medicare-style public health care plan within an expansion of FEHB and get the benefits of both!