The Federal Employees Health Benefits Plan: implications for medicare reform

This paper suggests that the Federal Employees Health Benefits Program (FEHBP) is perhaps a model for Medicare reform. First, we introduce the FEHBP and describe important features, such as the method for determining the government's premium contribution. Second, we examine the cost performance of the FEHBP program, and conclude that the FEHBP has out-performed private health insurance programs and Medicare in its ability to control costs. Third, we discuss the problem of adverse selection in the FEHBP. We conclude that the FEHBP has experienced some selection problems, but not enough to prevent it from offering a wide variety of choices without standardized benefits or direct risk adjustment. For a demonstration of competitive pricing in Medicare, the fourth section compares the FEHBP to two models of Medicare reform: "FEHBP for Medicare," proposed by Butler and Moffit; and the "Denver design."