This could come from the “why mess with a good thing” department.
The Obama administration is considering fundamental changes to the Federal Employees Health Benefits program (FEHB), which is generally regarded as something Uncle Sam does right.
Yet, the Office of Personnel Management (OPM) thinks the good thing could be even better by giving workers more choice in health insurance companies. The OPM wants to do that by reviving legislation proposed during the George W. Bush administration.
“While the FEHB model has withstood the test of time and influenced the direction of health reform, the competitive environment is not as robust as it could be,” says an unsigned OPM briefing paper obtained by The Washington Post. “The health insurance market has changed dramatically over the last 50 years, but . . . the FEHB program lacks the flexibility to adjust in response to the changing market.”
Specifically, the OPM paper, which has circulated recently among congressional and industry officials, expresses concern about the growing dominance and market concentration of Blue Cross Blue Shield and the departure or diminished role of other health plans. The OPM did not respond to questions about the paper. Four government and industry sources attributed it to the agency.
The OPM is getting an assist, perhaps unintended, in its argument from Health Affairs, a health policy journal. In a June article about health exchanges under the Affordable Care Act, Health Affairs says that although insurance plans are widely available in FEHB, “enrollment was concentrated in plans owned by just a few organizations, typically Blue Cross/Blue Shield plans.” Health insurance premiums, the article continued, were lower “where competition was extremely high” and higher “where competition was extremely low.”
Two Blue Cross Blue Shield plans, standard and basic, together serve about 62 percent of the federal employee market. The next five largest plans cover 22 percent. In 1987, the Blues had 37 percent, about the same portion as the next five largest plans.
At the same time, other companies are fading from the FEHB scene. United Healthcare, for example, operated in 21 states in 1999, according to the OPM, and seven in 2010.
But, as you might expect, this is fine with Blue Cross Blue Shield, which takes an “if it ain’t broke, don’t fix it” attitude. OPM and Blue Cross Blue Shield competitors, however, see danger in concentration.
“It is well documented that health insurance markets are becoming increasingly concentrated and that this concentration is contributing to premiums rising faster than inflation,” the OPM paper says.
The OPM would like congressional authority to offer the option of health plans provided by regional preferred providers such as Aetna, Cigna, Humana and United Healthcare. “Allowing OPM to negotiate with these organizations as regional entities will enable them to participate in the most efficient and effective way while at the same time providing FEHB enrollees with greater choice,” the OPM said.
But federal workers already have greater choice than almost everyone, says the Blues.
FEHB “continues to be the gold standard for health insurance, offering far more choices and competition than other large employers,” said Alissa Fox, a senior vice president of the Blue Cross and Blue Shield Association.
She goes on to offer an argument that runs counter to the basic notion of capitalism. Increased competition, in this case, will result in increased prices, according to Fox. The regional plans could “cherry pick” low-cost regions, argues a Blue Cross Blue Shield paper, resulting in national plans being forced to charge higher premiums to cover higher-cost regions.
“Within a few years, the nationwide plans will become non-competitive and stop offering nationwide coverage all together,” the Blue Cross Blue Shield paper says. “This may leave certain areas of the country underserved.”
Walt Francis, an independent health economist and FEHB expert, doesn’t think so. Francis, primary author of “Guide to Health Plans for Federal Employees,” believes the more the merrier.
“I strongly agree with OPM that the program should be opened up to more plans,” he said. “More competition is better.”
Yet, he also says the Blues “are well-run and well-designed. They have ‘earned’ their position by attracting consumers. This is not a bad thing. But, nonetheless, I agree with OPM that this program could use more competition.”
More competition might be better in theory, but that theory falls short with FEHB, says Jacqueline Simon, public policy director for the American Federation of Government Employees. Arguments on both sides of this debate are invalid, she said, “unless and until there is one standard benefits package that all plans must provide, plans will not be competing on price and/or quality, and those are the only things that matter.”
Enrollees tend to stay with their health plans and “the resources and effort required to develop a health insurance product and bring it to market are significant and cannot be mustered quickly,” the OPM paper said. “For these reasons, we do not expect many new health plans to enter or expand their presence in the FEHB market, nor do we expect a sudden growth in plans. The most likely occurrence would be those regional insurers already in the FEHB would seek to expand their presence in the program.”
It won’t evolve at all until Congress acts, and at this point it’s not on the legislative agenda.
Previous columns by Joe Davidson are available at wapo.st/JoeDavidson.