Federal Employee Health Benefit Plans: Private Insurance That Is Part of the Old, Flawed System

This is a Healthbeatblog.org Guest Post by Jim Jaffe

An Insider’s Perspective

Allowing America’s uninsured access to the health plans offered Members of Congress—along with everyone else on the Federal payroll – could help those who could afford it although many would probably find the premiums beyond their reach, to say nothing of the subsequent deductible and copay requirements. 

But such a step would do little to reform the nation’s healthcare system because the Federal Employees Health Benefit Plans differ little from insurance plans offered by other large employers.

Federal workers and retirees are may select a  plan at a cost ranging from just under $100 monthly for the cheapest individual plan to better than $500 for the most expensive family plan.  In each case, the government pays a significantly larger amount, generally about 70 percent of the total premium.  Current FEHBP premiums can be found here.

The Federal plans – including point-of-service, HMOs and consumer-driven options — mirror those offered by large private employers via the usual insurers.  Like a large employer, the federal government has the bargaining power to imposes some restraint on premium increases and to assure that human resources personnel negotiating the contracts have included basic benefits.  If a cancer is diagnosed, you don’t have to worry that the disease – or appropriate chemotherapy – is excluded from coverage.  And because the group is large, it is possible to immediately cover expensive pre-existing conditions.

Out of pocket expenses are capped in an effort to guarantee that a requirement to pay up to several thousand dollars in bills doesn’t balloon into a situation that throws the insured into bankruptcy.   The one unique thing about the government plans is that they’re analyzed by Consumer Checkbook in a way that makes comparison shopping a real possibility.

But such plans are not particularly user friendly or structured for efficiency.  My insurer finds it impossible to provide a current list of preferred providers, so it is necessary to check their status when an appointment is made, a sometimes confusing assignment because doctors are unaware that my insurer is affiliated with their network.

Assistance in navigating the system is limited.  If a question is too complex for those at the call center to answer, there’s no way to reach those higher up the food chain without writing a letter and patiently awaiting a response. 

Explanations of benefits or coverage are not always explicit.  Our insurer insisted on rejecting claims based on their incorrect assumption that we had Medicare Part B coverage.  And while they delivered on their promises of a free mammogram annually for my wife, they insisted that the mandatory $25 computerized reading fee imposed by the preferred provider network selected was not covered.  The way they read things, the mammogram was truly free.  Of course, if you wanted someone to read it and tell you what they found, there was this slight extra charge. . . .

There’s no help in selecting providers who rely on evidence-based medicine.  Calls to their help line about an immediate problem inevitably result in a recommendation to report to the local emergency room.

Granted from the perspective of an uninsured consumer having access to the fderal plan would be far better than no insurance—if you can afford it.   But the FEHBP plans are clearly part of the old, flawed system that reformers talk about changing.  From an economic perspective, they are more problem than solution.  Premiums regularly rise at a rate double inflation.

11 thoughts on “Federal Employee Health Benefit Plans: Private Insurance That Is Part of the Old, Flawed System

  1. Maybe either Jim or Maggie can answer this: Are providers more likely to move in and out of a PPO than an HMO, thus making the list of preferred providers more volatile? And if that is true, why is it true? My union participates in a PPO that has a very unstable list. We also have an HMO option with a much more stable list. Maybe it’s just the strength of those two plans, but I’m just curious.

  2. Federal employees and Congress should probably beware.
    I doubt many people realize how much those plans are worth. Letting the masses get a look at what they’d have to paid to belong to that club could result in some unhappy publicity.

  3. Ginber G and Martha–
    Good to hear from you.
    Gnger G– I am afraid you are right Most people don’t realize how much Federal Emp;loyee’s insuance would cost them. . .
    Matha-
    Doctors are more likely to move in and out of PPOs becaue they are looser networks of doctors who work for themselves in a solo practice (or a small pracice)
    HMOS are made up of cotors who are working on sslary or on contract fro the HMO.It’s more stable and there is more likely to be more collaboration among the doctors.
    So if you find an HMO where you like your doctors, you should stck with it.
    Right now, the ideal may be an insurance plan that gives you better prices if you stay “in network” but lets you go out network (ypically paying 20% less) if you want ot go out network for a particular healthcare problem.

  4. Hi Maggie:
    Regarding the HMO and PPO: My union Taft-Hartley plan is self-funded. It is a strange hybrid of fee for service and a PPO. There is an option to take an HMO buyout. This year the self-funded part of the plan costs trended lower than expected. The actuary took the cost per life of the self-funded part and subtracted it from the increased premium of the HMO. Because the average cost was lower than expected the buyout is higher than expected, it is jumping almost 30% for a family. At the same time my collegues in the self-funded part of the plan are complaining bitterly that the PPO is losing providers and is just too volatile. Here is my question: Do you think that we are going in the wrong direction with this plan? We seem to have successfully discouraged use and so costs trended more flat. But that inadvertantly punishes the people in the buyout. What do you think?

  5. The HMO as an entity is stable. I don’t know if it is more stable. The doctors who work at the HMO have a very high turnover, as the HMO struggles to find the lowest concievable salary and worst possible working conditions it can offer. We have a large one in town, and the doctor names are always changing every year or two.

  6. Martha–
    I really don’t have an answer to your question
    I would need to know a lot more about the plans, and even then, I’m not an insurance expert.
    Christopher-
    Some HMOs have low
    turnoover, some have high
    turnover.
    Do you consider Kaiser an HMO? It has very low
    turnover.

  7. “And because the group is large, it is possible to immediately cover expensive pre-existing conditions.”
    Size of the group doesn’t matter HIPAA requires all group policies to waive pre-ex, if they have 50 employees or 500,000.
    “Allowing America’s uninsured access to the health plans offered Members of Congress—along with everyone else on the Federal payroll – could help those who could afford it although many would probably find the premiums beyond their reach, to say nothing of the subsequent deductible and copay requirements.”
    Half the uninsured are already eligible for free or heavily subsidized care and choose to not enroll. How would offering them a more expensive alternative attract any takers? The 20-30% on uninsured making over $50,000 can already buy cheaper individual policies.
    This option would only appeal to the 3-5 million people that want insurance and can’t afford it.
    “My insurer finds it impossible to provide a current list of preferred providers,”
    Or……doctors terminate their PPO contracts everyday. As soon as any list is printed or provided it is wrong. The only way to know if your doctor cancelled his contract recently would be to ask him the day you are seeing him. If you have a solution please do share.
    “mandatory $25 computerized reading fee imposed by the preferred provider network selected was not covered. “
    What? PPOs don’t have fees. Are you trying to say the lab that read the test charged a $25 fee? What plan are you with that allows you to choose your PPO? There might be a contracted lab where your provider is required to send test to but that is not the PPO billing you. Further if you where to do a little research you would learn lab testing/reading was a major area of abuse which forced plans to require you use one they are contracted with. The current way of doing it is far better then the exurbanite fees provider owned labs where charging or the kick backs for sending business. If you prefer to pay $50-$100 you could use your own lab, no law says you have to use the in network lab.

  8. Martha,
    Yes you will see more movement in PPO networks then HMO networks and it has to do with the relationship. PPO are much larger networks, due to current law they will take just about anyone that accepts their fee schedule and passes credentialing. When a new doctor starts an office the first thing they do is join every network that will take them. As a practice matures they become more selective with who they work with. A provider usually doesn’t have nearly as much concentration of PPO business with any one PPO either.
    HMOs due to their operation require a much closer relationship with the carrier, with this relationship comes more commitment. HMOs are not nearly as broad and usually play groups of providers off each other for lower capitation and reimbursements. AN HMO provider is more likely to have a substantial portion of their patients through a single HMO. Breaking this relationship would mean an immediate and substantial loss of business and thus is more seldom.
    In a number of ways capitation is like crack to providers. That set monthly check everyone month is very addictive. It’s hard to give it up.
    Your Unions choice of networks could also play a big part in the problem. Regional or even local PPOs have a much stronger working relationship with the provider community and are more stable. If your part of a national union they might contract with a national PPO for ease of use. It’s easier to administer but the churn in national PPOs is much higher.

  9. “Do you think that we are going in the wrong direction with this plan? We seem to have successfully discouraged use and so costs trended more flat. But that inadvertantly punishes the people in the buyout. What do you think?”
    It would take a book to explain this. There use to be a substantial spread between HMO and PPO rates. Majority of it was artificial. From a numbers perspective an HMO should be more expensive then a PPO if they had equal provider unit reimbursement. The history of HMOs and the way they came to be gave them the advantage, going forward it has been and will continue to diminish.
    In 1973 the overwhelming majority of Americans did not like HMOs or even the concept. Ted Kennedy decided we where all idiots are should be in one.
    Following are excerpts from Senator Ted Kennedy’s opening statement at the March 3, 1978 hearing:
    “As the author of the first HMO bill ever to pass the Senate, I find this spreading support for HMOs truly gratifying. Just a few years ago, proponents of health maintenance organizations faced bitter opposition from organized medicine. And just a few years ago, congressional advocates of HMOs faced an administration which was long on HMO rhetoric, but very short on action.
    HMOs have proven themselves again and again to be effective and efficient mechanisms for delivering health care of the highest quality. HMOs cut hospital utilization by an average of 20 to 25 percent compared to the fee-for-service sector. They cut the total cost of health care by anywhere from 10 to 30 percent. And they accomplish these savings without compromising the quality of care they provide their members.”
    Time would should how deadly wrong he was but this was public policy at the time. To accomplish this the HMO Act of 1973 included a requirement that all private employers with more then 25 employees that offered insurance had to offer an HMO if one approached them. Knowing that American’s didn’t like HMOs this wasn’t enough though. They also heavily subsidized them so they could undercut the prices of the existing plans.
    Remember back in the 70s and 80s insurance was pretty cheap so even with the lower rates 90+% stayed in the existing plans. The one group of people who didn’t mind the HMO and all it’s rules where the healthy young people that never used insurance anyways. If your not going to use it the cheaper the policy the better.
    What played out over the next 20+ years was adverse selection. If you take a group and offer two plans but put the healthiest 5% in one and the other 95% in the old plan the average cost of the old plan will increase faster then the new plan with all the healthy people. Every year as the cost incrementally went up on the old plan another group of people found the HMO premium savings worth the hassle. It’s not that HMOs where more efficient or delivered better care they just had government regulation and healthier populations.
    In the 90s two big things happened. First groups started going all HMO, this means they know had to charge premiums that could support their healthy population but all the sick people from the PPO plans as well. You would have seen an immediate spike in HMO premiums but at the same time providers got hooked on crack. Providers through PHOs and IPOs took billions in risk off the insurance companies. Some smart ones bought stop-loss insurance to protect themselves, like your self funded plan most likely does, but the majority saw those big fat monthly checks and took all they could get. Needless to say in states like CA where HMOs where prevalent they went bankrupt left and right. They lost their shirts big time. Once the contracts where up a number of them stopped taking capitation altogether. Now that this risk was back on the carriers, late 90s, premiums took off.
    A large number of HMOs don’t even capitate any longer. It’s really more of a plan design then a business structure. And it is a terribly inefficient plan design but that is a different book. HMO cost will continue to rise faster then PPO and will eventually surpass them until they are done away with.

  10. If the argument here is that people can not afford FEHBP and therefore a new federal health plan is required, then I am confused. How will a new federal health plan address the issue of affordability (if it holds that a federal plan has to at a minimum break even)? I do agree that a portion of the population will still not be able to afford coverage even with the discounts afforded to large group plans. The answer in this case should be scaled subsidies for low income individuals and families.
    If we want to achieve lower costs (in addition to more access), we have to look at what drives cost, not at how care gets paid for. Changing a payer from private to public does nothing for the actual cost of the service provided.
    Opening up FEHBP is a quick and easy way to give small businesses and individuals more buying power. More bargaining power, lower premiums, more access. Admittedly, it is a short term fix that will only serve to increase access temporarily. That said, it is certainly a step up from what they can get today.

  11. A 100 dollars a month beats the pants off of 400 dollars a month – why does it have to be one way or the other – if they want competition – open up the Federal plan to the public and let them get a look at the rates – if they don’t like that then have medicare open up to everyone as another choice – then have your private sector insurance companies 1945 anti-trust exemption repealed.
    Wouldn’t that across the board lower cost – increase competition both within the public and private sectors…?
    Paul Burke
    Author Journey Home

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