The Federal Employee Health Benefits Plan

Walton Francis has a new and very substantive book on health care policy, with the exciting title: Putting Medicare Consumers in Charge: Lessons from the FEHBP.  It starts with a simple premise:

During the last half-century, the United States has operated a half-dozen major health-care financing systems in parallel, each operating in its own world, and with only minimal attempts to observe and learn lessons in program A that could be useful in program B. 

Francis studies one of these programs, namely FEHBP, in detail.  He portrays FEHBP as "premium support" in contrast to the "defined benefit" approach of Medicare.  On top of it all are competing private insurance plans and the details of the plan you end up with are decided by competition, combined with some regulation.  I now think of FEHBP as a somewhat indirect voucher scheme, albeit with complications.  Francis argues that FEHBP is a better model for health care reform than is Medicare and that FEHBP is better for both offering diverse programs and inducing cost control.  The employee pays about a quarter of the price and FEHBP also covers many retirees, apparently with reasonable success.  Here is Wikipedia on FEHBP.  Here is the program's own home page and it does I should add touch the Cowen family.

One question I have is what FEHBP would look like when scaled up to an entire country, including to people who have never had enough human capital to work for the U.S. government.  (Here is one critique of a scaled-up FEHBP but I don't find it so convincing, at least not compared to the problems with other approaches.)  Still, this book is essential reading for anyone interested in health care policy.  I can't call it exciting, but it is a model of clarity and substance throughout.

Here is one report, from last night, that a modified version of the FEHBP idea will be substituted in for the public option.  I don't yet have reliable details on what this might mean, or who it might cover (just the people on the exchanges?) but that is why I am accelerating this post even though I do not have fully formed thoughts on FEHBP as a model for broader reform.

Addendum: Michael Tanner offers related comments.


But isn't the FEHBP just an insurance exchange with "subsidies"? (Of course, those subsidies aren't really subsidies but are employee compensation in the form of health benefits). I don't see what's so different between insurance exchanges and allowing people to opt-in to the FEHBP. I guess FEHBP allows purchasing across state lines, but so could exchanges.

Put a stop to this needless debate about the public option. Require that any government health plan must cover its expenses from the fees/premiums charged. That's what the Federal Reserve has to do if it wants to compete with the private sector for financial services. And expenses means the cost of pensions too. I'll bet no one in Washington would agree to this. They know the public option is just another entitlement program.

It's interesting that one plausible option is rarely spoken or analyzed:

We have too few doctors who are paid too much. Flood the market with doctors.

Rahul, you realize it takes years to train doctors, right? And that nobody is going to put in the substantial number of years of training if the salary drops? And that one reason there are too few doctors is that people aren't entering the field/leaving the field (order of magnitude of 10% every few years leave) because compensation is dropping?

Most evidence actually supports the idea that doctors are underpaid - a major problem when you consider creating an eventual-monopsony public option.

Incidentally, what do you think about this?

Other commentors here are rightly afraid of monopsony, but what about monopoly? No, I'm not referring to uncompetitive insurance markets, but rather Rahul's point that entry into the medical field is tightly controlled by the American Medical Association's grasp on medical school admittance. The AMA has successfully restricted competition among doctors, causing their salaries to rise way above other countries, increasing health care costs.

Contrary to many other commentors' beliefs, becoming a doctor is still a glamorous career choice for many young people, and still pays quite a bit. The lack of doctors is because the AMA won't let more of them get licensed.

People who want strong penalties for not enrolling in insurance, well, they are not evil, because Tyler doesn't like that.

They are misguided.

Not all healthcare is emergency medical treatment, and to treat it that way so that you can get your agenda over on people who don't want to dump money into a technically broken (as opposed to fiscally broken, which it is too) is, well, not evil, but close.

Not everyone who doesn't subscribe to your favorite magazine is a free rider if one day they decide to pick up a copy from the news stand.

I am amazed at the comments on health care on this blog. Reference to the health care programs of other countries are never mentioned. It's as if the there is an invisible filter protecting the debate from real world examples of much better and fairer systems, which, not coincidentally are highly regulated and/or government run.

Rahul is right; one major factor of why health care costs so damn much in the US as % of GDP compared to say, everywhere else, is that it simply costs so much more, everything. Every little thing (except for OTC aspirin maybe, but bought at CVS, not through the hospital) and every big thing costs multiples of what it costs elsewhere, and of course that includes doctors' compensation. The US cannot get from here (16 ish percent of GDP and generally high but VERY uneven levels of care) to there (10 ish percent of GDP and generally high but much more even levels of care)without scrpping what we have and starting over, which includes, among other things, roughly halving of doctors' wages. Ain't gonna happen. There'll be no big bang, and there probably shouldn't be. Best case: there'll be small-ish and large-ish chanbges over a generation to get there, more or less. Anyone: what % of healthcare is spent during the last 12 months of lives? If we can deal with that in an honest and humane way, then it can be tackled.

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The employee health care programs that now exist will soon have major problems and this might turn into a general conflict. The government should finish once and for all with this system. The US needs a system like the European countries have: the health care system should be guaranteed by the state and not by companies that want to make a profit and don't care about who dies and who lives. That has to change. hr consulting firms

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