Making the Case for FEHBP

March 1, 1998
Military retirees know the problem well: The Department of Defense has become the only large employer in the United States that kicks former workers out of its own health care system once they become eligible for Medicare at age 65.

These older retirees can still receive on-base care at Military Treatment Facilities on a space-available basis. However, waiting list slots are becoming increasingly difficult to find as bases close across the nation and the military health infrastructure gets smaller and more efficient.

Many military retirees and military associations–the Air Force Association included–believe the answer to this crunch is to open up the Federal Employees Health Benefits Program to those who wore the country’s uniforms. Such a move would simply give them the same health care options that are now open to, say, Interior Department retirees–or retired members of Congress.

Proponents say 1998 may be the breakthrough year for this effort. Congress will consider legislation that would approve a limited test of FEHBP­65 at two sites. If lawmakers approve of the idea, and President Clinton doesn’t stop it, the experiment could settle the controversial issue of the financial viability of FEHBP­65.

Rep. James P. Moran, the Virginia Democrat who has been at the forefront of the FEHBP­65 campaign, believes the test is critical. When he introduced the legislation that would authorize the experiment, he said, “I believe this test will demonstrate that the FEHBP option is cost effective, does not impact military readiness, and provides superior health insurance coverage.”

Moran also said that he believes the Department of Defense may support the effort. In the past, the Pentagon has been leery of embracing the FEHBP option because of the high price estimates it generated. However, DoD said in a report to Congress on the subject last year that “the Department is not opposed to an FEHBP demonstration program at a few limited sites where Tricare Prime is not offered.” Tricare Prime is one of the Defense Department’s current options for health care.

The Broken Promise

The roots of this issue can be found in the promises that DoD made to today’s retirees when they originally signed up for military service.

Without question many, if not all, were told they would receive free or nearly free health care for as long as they lived, as part of the deferred compensation for the rigors of a career in military service. FEHBP­65 advocates note that, as recently as 1991, an Army recruiting brochure said that health care would be provided to enlistees and their families “while you are in the Army and for the rest of your life if you serve a minimum of 20 years of active federal service to earn your retirement.”

Moran said that after he became interested in the health care problems of military retirees, some of his retired service member friends produced similar documentation. Then, at a hearing, a Pentagon official said such words were “recruiting language, not legal language,” he remembers.

“I couldn’t believe it,” Moran said.

Pentagon officials and their Congressional overseers for decades have considered the combination of Medicare and space-available treatment at military facilities to be the fulfillment of their health care commitment to older retirees. For decades, this combination worked.

The active duty force outnumbered retirees for most of the Cold War period, so retired service personnel and their families represented a relatively small proportion of the Pentagon health care workload. Many retirees settled near military bases in order to be as close to on-base care as possible.

However, two powerful forces have changed this picture in recent years: the Congressionally chartered Base Realignment and Closure commissions and the skyrocketing cost of medical care generally.

Several rounds of BRAC have helped Congress take politically tough steps to close excess military infrastructure. While necessary to get the most national security possible out of the shrinking Pentagon budget, these closures have left many retirees isolated, in terms of health care.

Meanwhile, the cost and complexity of modern medicine have led DoD to consolidate the services’ health care programs, including CHAMPUS (Civilian Health and Medical Program of the Uniformed Services), into the new Tricare system, which combines access to MTFs with civilian health provider networks.

Tricare, however, is limited to beneficiaries under 65 (just as CHAMPUS was before it). Increasingly, MTF commanders are focusing their own scarce on-base resources on Tricare needs. Military readiness is their top priority, after all, but that means that space-available slots for non-Tricare participants are becoming scarcer.

And Now, “Lockout”

Older retirees argue that MTFs increasingly have developed an institutional preference against them.

“It really goes to expectations,” said Moran. “When people enrolled in the military and were paid really low incomes, it was the benefits–particularly retirement and health care–that encouraged them to stay. It was a contractual thing.

“Now, when they go into military health care facilities, they go to the doctors they’ve always been served by, but once they turn 65, it’s, ‘Sorry, we will serve you only if there’s no one else waiting.’ ” For older retirees, the result is Tricare “lockout.”

Military retirees age 65 and over can participate fully in Medicare, of course, as can all US citizens who reach that age. Even so, many big US corporations provide their retirees health benefits to supplement Medicare. And, ironically, other federal retirees do not have to depend on the Medicare bureaucracy as their sole health provider. They continue to be eligible for the Federal Employees Health Benefits Program as long as they live–and their survivors can stay enrolled in the program after their passing.

One lawmaker who opposes this dual standard is Sen. Christopher “Kit” Bond, a Missouri Republican who has introduced in the Senate a bill similar to the House version introduced by Moran. “This is an issue of fairness,” said Bond. “Compared to what other federal and private sector retirees receive in terms of health care options, our treatment of military retirees is woefully inadequate and downright inexcusable.”

Congress has already made one move that could lead to an improvement in the health care of some over-64 military retirees. As part of the total package of 1998 Defense Department legislation, lawmakers approved a test of Medicare Subvention in selected sites around the country.

Under the subvention approach, the Medicare program reimburses the Pentagon for medical services that DoD provides to over-64 military retirees in Military Treatment Facilities. This allows older retirees to remain in the health care system they are used to, receiving the medical care most feel they were promised.

The problem is that, to take advantage of Medicare Subvention, retirees must live near an MTF and, as noted, that is becoming less common. Nine states now have no such facilities at all. Six have no inpatient facilities. Eight others have only one hospital. Overall, of the approximately 1.2 million military retirees currently eligible for space-available MTF treatment, only 380,000 live near military hospitals with 50 beds or more, according to statistics complied by the General Accounting Office, a Congressional watchdog agency.

Not Enough

Medicare Subvention is all well and good, say many military associations, but it needs to be accompanied by a further step–opening FEHBP to all service retirees over 64.

Congress agrees that more work is needed. In the final conference report of the 1998 Defense Appropriations Act, the key House and Senate negotiators had this to say: While encouraged by the advent of the Medicare Subvention effort, “alternative options, such as providing FEHBP to Medicare-eligible military retirees, exist and could serve to

further ameliorate the problems caused by Tricare lockout.”

FEHBP, the federal government’s premier voluntary health services program, was established in 1960 and now covers some nine million current and retired government employees, ranging from Supreme Court justices and Presidents to Congressional staffers and Environmental Protection Agency clerks, at an annual cost of $16 billion.

The system offers participants a wide choice of health plans, including traditional fee-for-service, Preferred Provider Organizations, Health Maintenance Organizations, and 100 percent prescription drug coverage. Enrollees pay a monthly premium, which varies according to the expense of their chosen plan, but the government subsidizes up to 72 percent of this outlay.

Military retirees, military organizations, and their supporters argue that FEHBP would provide military retirees better and cheaper wraparound coverage to supplement Medicare than can be obtained in commercially available Medigap policies. They say that, depending on which plan they choose, older service retirees could have nearly 100 percent coverage of their medical expenses, including costly prescriptions and dental care.

“FEHBP serves as a model for the managed health care programs offered by other large employers,” said an Air Force Association position paper.

Now, it looks as if the changeover finally will happen. Proponents of FEHBP­65 legislation say there are a number of reasons why this could be their year. One is that this is no longer a new issue. Military association representatives have now had several years to educate lawmakers about expanding retiree health care options. Another is that the approval of a Medicare Subvention demonstration shows that Congress believes there is, indeed, a problem that needs to be fixed. And it’s an election year, when lawmakers are often somewhat more open to the entreaties of important constituencies. Finally, the experience with subvention has taught proponents that they may need to start with small steps. Many are putting their weight behind an FEHBP­65 test bill that could help settle the question of the move’s cost, and its effect on existing federal health policyholders, once and for all.

Three-Year Test

The proposed bill–introduced as H.R. 1766 in the House by Moran and as S. 1334 in the Senate by Bond–would set up an FEHBP­65 demonstration program that would last three years and run at two different sites.

One of the sites would be within an MTF catchment area, meaning close to a DoD-run hospital. The other would be far from any military facility. Total participation would be capped at 50,000 Medicare-eligible retirees. Under the terms of the bill, the cost of the test would be offset by reductions in the administrative costs of the Pentagon’s travel budget and by the sale of platinum and palladium from the National Defense Stockpile.

The question of cost–perceived by some to be too high–has long been a major factor weighing against the FEHBP­65 campaign. In today’s budget-conscious era, any program whose price tag features a long row of zeros faces harsh Congressional scrutiny. Moran said, “There are legitimate concerns about the cost of this option.” These concerns, however, are overstated, he added.

The Congressional Budget Office has estimated FEHBP­65 could cost as much as $1.6 billion a year. However, this estimate is a worst-case scenario. It assumes that older military retirees receive no space-available MTF care and that 95 percent of the eligible 1.2 million retired service personnel and dependents enroll in the federal employee’s health program.

The Military Coalition, a group of military and veterans organizations, believes the true cost would be much lower.

This is how the coalition derives its lower estimates: First, take the 1.2 million possible enrollees and subtract those who would be covered by nationwide Medicare Subvention. Eliminate those who have health coverage from post-military employment, either with the government or the private sector. Eliminate those who will be reluctant to pay FEHBP premiums on top of their Medicare Part B costs. The result? A possible beneficiary population of 160,000 to 240,000 persons.

The marginal cost of covering these individuals would range from $236 million to $354 million, according to the coalition. It might even go lower, coalition analysts added; unlike most other FEHBP enrollees, military retirees would have Medicare as first payer for many of the health costs.

Would allowing retired service personnel into the FEHBP system make it more expensive for those already enrolled? Proponents of the move argue that would not happen. The test legislation envisions placing them in a separate risk pool, for purposes of establishing premiums.

“We will only combine them if we establish that it would not increase the premium for those already enrolled,” said Moran. “I think they’re going to find that the military retirees are in fact lower cost,” because Medicare would shoulder many of their largest expenses.

Of Nose and Tent

FEHBP­65 backers admit that they consider their proposed demonstration program to be simply a legislative camel’s nose under the tent. Their real aim is to demonstrate viability and then pass a full-scale program. Moran has also introduced a bill (H.R. 76) to that effect.

Some other lawmakers would take a different approach. Rep. J.C. Watts (R-Okla.) is sponsoring a bill (H.R. 1356) that would allow all military retirees, regardless of age, to participate in FEHBP if they live outside an MTF catchment area and do not have access to Tricare Standard.

There is “some latitude and flexibility” in his bill that other legislation does not have, said Watts, but he added, “We need to work and come up with a way to provide this coverage. If someone has a better way, then come up with a plan.”

Recent improvement in the US government’s fiscal situation may make it easier, politically, to adopt some sort of FEHBP plan for military retirees, according to Watts. As yet, he has no cost estimate for his own plan. Still, “the fact that we can see light at the end of the tunnel hopefully will give us the courage to at least put this thing on the front burner,” he said.

Just because the federal budget now is close to being in balance does not mean that FEHBP costs are irrelevant, however. Even a $300 million increase remains a large one in today’s fiscal context, and the Department of Defense might yet object to the effort. However, Moran claims that a majority of House members will support FEHBP­65 legislation if it reaches the floor of the House. The problem is driving such a bill through the committee process to get to that point.

“If the grassroots of military retirees and military associations keep pushing for it, I’m sure we’re going to get it,” said Moran.

Peter Grier, the Washington bureau chief of the Christian Science Monitor, is a longtime defense correspondent and regular contributor to Air Force Magazine. His most recent article, “Going Gray,” appeared in the February 1998 issue.