The Push to Open FEHBP

July 1, 1997

Many military associations would like to see the government open up its Federal Employees Health Benefits Program to military retirees and their families. However, the Department of Defense opposes any move to FEHBP.

Pentagon officials say that a broad switch to FEHBP would lead the military health-care system back to a “troop clinic” type of practice, essentially treating only healthy young people in peacetime and causing severe negative consequences for the medical readiness of the force. They also claim the FEHBP option would prove to be more expensive for the average military beneficiary.

However, most military associations–including the Air Force Association–now view FEHBP as the most reasonable alternative for those military retirees who have been physically and legally shut out of the military health-care system. The Pentagon, so far, has simply not provided a solution that will cover all of its older retirees and their families.

During most of the Cold War, the active-duty force outnumbered military retirees. Many retired near military bases and enjoyed relatively easy access to military health care at the base hospital. Even after they entered the Medicare rolls at age 65, retirees could still usually receive space-available care at the base hospital, the system they had used for most of their adult lives.

Winning the Cold War had a price. As part of the ensuing military drawdown, the Pentagon cut its medical infrastructure by about 36 percent and its medical personnel by some 15 percent. Bases and their associated military hospitals closed. As they did so, retirees found themselves with fewer and fewer places to turn for treatment. Space-available care has dried up.

Those still under age 65 are eligible for the military’s new managed health-care program, known as Tricare. However, by law, those 65 and older can no longer participate in the system. Thus, now they must rely exclusively on Medicare–most likely also needing to purchase a commercial policy to cover the gaps.

Gone is the virtually free health care that long was promised to military retirees and their families as a benefit of serving a full military career. However, Pentagon officials acknowledge that DoD has a moral obligation to provide health care to military retirees.

To help those retirees currently prohibited from participating in Tricare, the Pentagon last year proposed a plan called Medicare Subvention. Under this plan, Medicare-eligible military retirees would participate in Tricare but be restricted to using a military treatment facility. Medicare would then reimburse DoD, as it does other Medicare providers, but at a reduced rate since care can be provided more cheaply within an MTF, thus saving the government money.

That is a key feature of the plan because any increase in pressure on the already overburdened Medicare system would be a nonstarter in political terms.

Congress will consider the subvention legislation this year and could approve a three-year demonstration project that would start in 1998.

Unfortunately, even if the demonstration were successful, Medicare Subvention still would not cover all Medicare-eligible military retirees. It will work only for those who live near an MTF, which would account for roughly half of the Medicare-eligible military retirees. For the others, DoD would have to contract privately for health care–which would eliminate any cost advantage.

About 380,000 military retirees and dependents age 65 and older used MTFs exclusively in 1995. Another 600,000 used them occasionally. In all, about 1.3 million military beneficiaries are currently eligible for Medicare.

Enter FEHBP-65

Most military associations support the Pentagon’s Medicare Subvention proposal. However, because it would not cover all of the retired community, the associations have also urged Congress to approve the FEHBP-65 option.

Kenneth A. Goss, director of National Defense Issues for the Air Force Association, said AFA views Medicare Subvention as “an important first step in improving the health-care situation that Medicare-eligible military retirees currently face.” He added, however, that “we believe that allowing these seniors an opportunity to enroll in FEHBP would be a much more prudent and permanent solution to the problem.”

In the view of the military associations, FEHBP access is a simple matter of equity. They maintain that opening FEHBP to older military retirees only provides them the same coverage now afforded to other federal employees. FEHBP not only covers all federal employees but also members of Congress and their staffs. Goss noted that FEHBP is currently available to all federal retirees except retired military members.

Under FEHBP, the federal government pays about 72 percent of premium costs. The exact amount varies with the type of plan in which a member enrolls. FEHBP pays either 60 percent of the average premium for six of the most expensive options or 75 percent of the chosen plan’s premium, whichever is less.

Unlike Tricare/CHAMPUS, FEHBP does not bump its Medicare-eligible retirees. Thus, other federal retirees, like retirees of many private employers, already have insurance to supplement Medicare. Military retirees, on the other hand, experience coverage gaps and must navigate a patchwork system on their own.

To manage under Medicare’s deductible and copayment requirements, older military retirees often have to purchase Medigap policies from private insurers [see “Over the Cliff,” January 1997, p. 38]. According to the General Accounting Office, such plans feature annual premiums that range from $400 to more than $2,100. Only the most expensive plans cover outpatient prescriptions, and none pay for dental or vision care.

The Military Coalition, which includes the Air Force Association, has pushed for FEHBP-65, which they believe will offer better coverage at less cost than commercial Medicare supplements.

The coalition admits that implementing FEHBP-65 nationwide would not be a “small-change” step. However, a coalition representative emphasized to Congress: “The government does not balk at spending $4 billion per year on FEHBP for federal civilian retirees, including large numbers with less than 20 years of federal service.” He added, “The coalition cannot see any rational justification to support the allocation of the government’s health-care dollars for the two groups as $4 billion for one and zero for the other.”

The Congressional Budget Office (CBO) estimates that under the FEHBP-65 proposal additional annual costs could exceed $1 billion, assuming that military retirees’ cost-sharing equals that of other federal retirees. (If military retirees had access to FEHBP at the same premium rates used by Tricare, as some have proposed, the additional costs would range from $3.7 billion to $4.2 billion annually.) The FEHBP option would also impose new administrative responsibilities and related costs on DoD and the Office of Personnel Management.

Whether the true cost is $1 billion or four times that, the Pentagon does not have the money. For the past two years, it has underfunded its medical budget. Still, for the second year, Rep. James P. Moran (D-Va.) has submitted legislation to establish the FEHBP-65 option. Sen. John W. Warner (R-Va.) proposed a similar measure in the Senate.

FEHBP vs. Readiness

Another Congressman has even decided that, despite the estimated cost, it is only fair to open FEHBP to all military beneficiaries other than active-duty members.

Rep. J. C. Watts, Jr. (R-Okla.), submitted a bill to that effect on April 16. He, like the National Military Family Association, concluded that the most equitable approach is to provide the FEHBP option across the board.

According to NMFA’s Sydney T. Hickey, “As the budgets for readiness and modernization are squeezed, every likelihood is that the [military] health-care benefit and/or the population offered the benefit will be negatively affected. It is for this reason, in 1992, that NMFA first proposed that military beneficiaries be offered the option of enrolling in the FEHBP. In 1992, we were the sole voice calling for such an option; most other military associations were still asking for free health care for life.”

The restrictive FEHBP-65 option alone has created significant concern at the Pentagon. The prospect of an open, unrestricted FEHBP option has raised serious alarm, with DoD officials claiming that it could endanger the very fabric of military medicine, driving it back to its pre­World War II status.

Lt. Gen. Charles H. Roadman II, USAF’s Surgeon General, explained that before World War II, the military only had troop clinics. “All they took care of was runny noses, upper respiratory infections, sprained ankles, and occasional social diseases.”

If they treat only a healthy, primarily 19-year-old crowd, military doctors do not have many opportunities to treat more-serious diseases. “What we’ve got to have is a balanced system,” said Roadman. “Clearly, we have to take care of the active-duty, but we need dependents, retired, and we need over-65 [patients] in order to get the right spectrum to maintain our clinical skills.”

He compared the time put in practicing this kind of medicine to flying hours needed to train aircrews. “You don’t want a pilot landing his aircraft once every three months,” said the General. “You don’t want [a doctor] cracking a chest every three months. You don’t want them doing that only in wartime.”

Some defense analysts have taken exception to the contention that treating patients in a range of ages with a variety of health problems equates to practice for the battlefield. However, even a layman can see that a doctor who treats sniffles and sprains would be less prepared for battlefield injuries than one who has to cut into his patients, even if they are older, for major surgery.

Roadman said that the prospect of FEHBP is “the biggest threat” facing military medicine. “If I look at the darkest outcome we could have, [it would be] putting everyone out on FEHBP–taking the money out of their pocket but also taking us down to troop clinic­type medicine. That’s the worst alternative I can imagine.”

Other Options Equally Expensive

However, what is not clear is how badly either the FEHBP-65 option or the open FEHBP option would deplete the military medical system of its range of patients or what the actual cost would be.

The Military Coalition has been advocating a demonstration project for the FEHBP-65 option at selected sites, to provide better data about likely participation rates and costs.

The CBO worries about the estimated $1 billion that it claims the FEHBP-65 option could add to the federal health bill. The open FEHBP option would undoubtedly cost even more but would probably accompany an even greater reduction in the military health-care system.

The General Accounting Office, a Congressional watchdog agency, has looked at two other possible options to provide care to older military retirees. Under one, the Defense Department would provide Tricare Standard/CHAMPUS as a second payer to cover most expenses that Medicare does not now pay. GAO noted that beneficiaries and providers alike have expressed some dissatisfaction with Tricare Standard/CHAMPUS. It estimated that the approach would cost about $2 billion annually.

In the other option, GAO suggested that DoD could pay the Medicare Part B premium, Medigap plans, or both. This option would cost roughly $630 million for Medicare Part B and up to $2 billion for Medigap plans annually.

As with the FEHBP-65 option, the last two would still deprive the military system of older beneficiaries. Only Medicare Subvention would enable DoD to treat at least some of its older military retirees in-house.

A big problem remains: How will the government provide affordable care for those who, because they do not live near a military treatment facility, won’t get to participate in Medicare Subvention? At this point, the Defense Department has yet to propose a solution.

FEHBP: A Model Program

The Federal Employees Health Benefits Program (FEHBP) is the country’s largest employer-based health-insurance program. It has more than $16 billion in annual revenues. It contracts with nearly 400 insurance plans and health maintenance organizations for some nine million beneficiaries.

It has an annual open season to enroll new participants, during which current participants may change plans. There are at least a dozen different plans, at varying costs, available in any area of the country. It does not exclude its retired participants once they reach Medicare-age.

It is the health-insurance program that members of Congress have chosen for their own use.

The President, members of Congress, national policy analysts, as well as the American Medical Association, have proposed FEHBP as a model for Medicare reform.

According to the Heritage Foundation, “It is virtually the only system in the country where individuals and families can pick and choose the kinds of benefits and insurance plans they want at prices they wish to pay.”

In 1996, premiums under FEHBP rose an average of only 0.4 percent, compared to an average private-sector premium increase of more than six percent.

However, burden-sharing in FEHBP could shift in 1999 if Congress fails to extend what is known as the “Phantom Big Six.” In 1999, FEHBP is slated to shift its calculation from an average of the six largest plans–one is an estimate of a plan that no longer exists, hence “phantom”–to an average of the top five.

According to the Office of Personnel Management, that shift would increase the cost for enrollees by $164 for single policies and $326 for family plans in 1999.

Said Kenneth Goss, AFA’s director of National Defense Issues, “FEHBP would offer Medicare-eligible military retirees a broad choice of health-care providers.”

He acknowledged that most military retirees never expected to wind up in a health-care system requiring them to pay premiums. Even so, he added, “AFA strongly urges the adoption of legislation that will enable Medicare-eligible military retirees and their dependents the option to enroll in FEHBP.”