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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
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Volume 55, No. 11 November 1999
The unsinkable Titanic went to sea with enough lifeboats for
only 1,717 of 2,223 persons on board. Despite warnings of
icebergs, the ship was sailing at 24.5 mi/hr at the time of the
accident. Even after the crash, passengers were reassured that
there was no danger and sent back to their beds. It was alleged
that some passengers were shot by officers as they struggled
desperately to get into a lifeboat.
The idea of unsinkability-as in being too big and important
and politically necessary to fail-nonetheless survives in other
contexts, coupled with the same human capacity for denial.
Politicians speak of "saving" Medicare, and rejoice that
expenditures will not exceed income until around 2015. The period
from 1994-1998, when the system did run a deficit, however, was
just the tip of the iceberg.
The real mass of the iceberg looms beyond. It is being more
widely admitted that the pay-as-you-go financing of Medicare Part
A is a Ponzi or pyramid scheme (see AMA President Nancy Dickey's
testimony on "Rethinking Medicare," May 27, 1999, at www.ama-assn.org). In
1965, there were 5.5 working-age American for each person over
the age of 65. Today, there are 2.9, and by 2070 there will be
only 2.0. Part A expenditures are projected to grow from 3.2% of
workers' earnings in 1998 to 6.8% in 2070-assuming that the rate
of cost inflation is controlled.
The conclusions to the 1999 Medicare Trustees Report
(available at www.hcfa.gov) are understated
but sobering. In the Statement of Actuarial Opinion, Richard A.
Foster writes: "the likelihood of a more adverse result ...
exceeds the likelihood of a more favorable result....The future
cost of the Hospital Insurance program is very uncertain....Thus,
regardless of the specific assumptions used, the need for prompt
attention to the fund's financial imbalance is apparent."
The unfunded liability of Medicare-the amount that would
have to be paid now to cover the future differences between
Medicare costs and revenues-is $2.7 trillion. Today's 22-year-old
worker is paying nearly three times the amount in Medicare taxes
that would be required to fund his own retirement with real
investments, yet it is virtually certain that he will never
receive benefits even close to those received today (P. Gramm
et al., N Engl J Med 1998;338:1307-1310).
Many hospitals and physicians have already drowned, and more
are on the way down. An instructive longitudinal analysis
prepared by George Garwood, R.N., administrator of Virginia Gay
Hospital from 1965 to 1983, shows that acute patient days went
from 11,037 in 1965 to 3,955 in 1988, while a net income of
$28,138 turned into a net loss of $502,073. Salaries increased by
a factor of 5.3, due to increases in the minimum wage, "more
employees due to government staffing patterns," and more complex
patients. Other costs rose by a factor of 9.2 (which includes the
cost of asbestos removal). In 1965, only 2% of charges was not
collected. In 1988, 12.6% was not collected from Medicare,
Medicaid, and BC/BS.
While "market-based" alternatives may be touted as a
solution, Medicare+Choice, the health policy centerpiece of the
Balanced Budget Act of 1997, actually expanded HCFA's regulatory
power and reduced the number of available options. Since the
program's inception, 100 HMOs have abandoned ship (S. Mahkorn,
Heritage Backgrounder No. 1319, 9/15/99).
HCFA is desperately trying to plug the leaks with its "anti-
fraud" initiatives. It has finally focused some attention on the
biggest scams-its own contractors. "Deceptions and improprieties
became a way of doing business" in some companies; eight
contractors have paid more than $275 million to the government
(R. Pear, NY Times 9/20/99). Yet attacks on individual
physicians are unrelenting and now involve "many mainstream
providers who, not long ago, probably assumed that they would
never be accused of fraud or abuse" (P. Kalb, JAMA
1999;282:1163-1168). To date, 2,800 medical practices have been
excluded from Medicare (Medicare Compliance Alert
9/6/99). And "the OIG wants you to remember that if it excludes
you, you're out of work" (Medicare Compliance Alert
10/4/99). HCFA rules in terrorem, and there are
apparently endless accretions of government antifraud authority
(W. Sage, JAMA 1999;282:1179-1181).
As to the DOJ's compliance with June 1998 guidelines
concerning fair and consistent application of the False Claims
Act (FCA), oversight is described as "superficial." Although
handicapped by the DOJ's withholding information, the General
Accounting Office (GAO) still finds evidence that U.S. attorneys
are making charges of FCA violations without sufficient reason to
do so (BNA's HCFR 8/99/99). (The report may be available
"Providers" are donning lead-lined life jackets, as they
face civil penalties of $10,000 per item if HCFA thinks they did
not try hard enough to get certain information (Medicare
Compliance Alert 9/20/99). For $645, you can attend a
seminar on distinguishing a consult from a referral. Stephen
Gleason, director of the Iowa Dept. of Public Health, has found
that the average family physician spends 2,000 hours learning
about HCFA regulations, and 500 hours per year tracking changes.
It's not just the billing rules. Care not meeting government
standards also violates the FCA (Kalb, op. cit.; and p.
Escape is not encouraged. The Medicare & You 2000
booklet sent to beneficiaries mentions private contracts on a
page filled with "nots" and warnings. Patients in managed care
should be able to pay for services out of network-but confusing
statements to doctors may make these unavailable.
The trend is toward total government control, to save the
ship by sinking lifeboats, throwing passengers overboard, and
attempting to nuke the iceberg (see p. 3).
AAPS Members Oppose Dingell-Norwood
More than 600 members (20% of those who received a letter on
the Dingell-Norwood and Coburn-Shadegg bills--see p. S1),
returned a signed resolution: That Congress should (1) defeat
Norwood-Dingell (H.R. 2723), Coburn-Shadegg (H.R. 2723) and other
bills that favor HMOs, regulator bureaucrats, and trial lawyers
while pretending to protect patients' rights; and (2) pass
legislation that ends tax discrimination against persons who buy
individually owned medical insurance policies. No one wrote to
support the bills. The resolutions will be delivered to the
Although advocated as a means to protect patients from
managed-care abuses, the bills would burden all insurance plans
with extra costs for reviews (although Coburn-Shadegg, as
amended, was said to have exempted fee-for-service plans). And
while the threat of litigation is supposed to make managed-care
treat patients better, an unnoticed provision of these bills
shields plans from punitive damages, as long as they go through
the mandated process of review. (One wonders whether this process
will resemble the Medicare "fair hearing.")
Most complaints about HMOs concern the corporate practice of
medicine. The states regulate the practice of medicine and
sanction malpractice; they are free to apply these laws to HMOs,
as Texas, California, and Georgia already have.
"Now that Congress has opened the door to federal control of
medicine, the AMA may rue its support for the bill," writes Greg
The Role of the State in Growing Managed Care
Government policy, including Medicaid policy, has played a
crucial role in the expansion of managed care. Before the Oregon
Health Plan (best known for explicit rationing with prioritizing
of services), in which the State made "an overt commitment to
managed care where feasible," managed care was concentrated in
the Portland metropolitan area and a few other urban pockets.
Under OHP, it rapidly spread throughout the state, new plans
springing up to claim a share of the government capitation funds.
Letters of intent were solicited from plans in 1991, and Phase I
implementation began in 1994. OHP eligibility peaked at 329,000
in 1995, out of a state population of about 3.0 million. By 1998,
HMO enrollment had reached 45%, up from 16.7% of the total state
population in 1986 (
Source: OAHHS/OMA HMO Survey; SMG Marketing Corp.
Body Parts for Sale
In 1988, President Bush banned federal funding of fetal
human-to-human transplants; in 1993, Bill Clinton lifted the ban,
with AMA support. Demand for fetal parts is burgeoning.
Researchers at universities and pharmaceutical companies
send specifications for needed parts-eyes, livers, limbs, hearts,
brains, gonads, and so on-to firms such as Opening Lines, a
division of Consultative and Diagnostic Pathology, Inc. There is
a price list-the parts of a single dissected human fetus can
bring thousands of dollars-although technically these are
processing fees ("fees for service") for "donated" material.
(According to the Institutional Review Board Guidebook,
"Payments and other forms of remuneration associated with the
procurement of fetal tissue are prohibited, except payment for
reasonable expenses occasioned by the actual retrieval, storage,
preparation, and transportation of the tissue.")
The processing is done, "within minutes of passage," in
rooms adjacent to an abortion facility. Procurers may pay a very
high rent, say $15,000 per month, for the space.
It is suggested that opposition to a ban on partial birth
abortion may be largely motivated by interest in the supply of
intact, well-developed organs.
Opening Lines claims to have an average case volume
exceeding 1,500 per day from facilities across the country. One
technician claims to have harvested 30 to 40 "late fetuses" each
week. Her testimony is offered on videotape by Life Dynamics,
Inc. (PO Box 2226, Denton, TX 76202). "Kelly's" moral perspective
on her work changed when she was presented with a pair of
perfectly formed twins, who were kicking and gasping for air-
until the abortionist drowned them.
For further information, including U.S. government policy,
northernlight.com and search on "fetal tissue."
There is also a critical shortage of adult organs. Proposed
solutions: paying for donors; presumed consent; exchanging organ
donation for prison time; and procurement of "non-heart-beating
donors," for which Upstate New York Transplant Services (UNYTS)
is developing a protocol. Such donors do not meet the criteria
for brain death. With the expectation that the patient will die
after extubation, femoral arteries are cannulated ("under local
anesthesia if needed"), organ preserving drugs such as heparin
may be administered, morphine may be given "if comfort measures
are indicated or desired," and the surgical team awaits death.
Lawrence Huntoon, M.D., notes that accreditation of the
procurers depends on harvesting a sufficient number of organs.
Government reimbursements vary; kidneys bring $5,000-$6,000.
Enforcing Medicine by Protocol
Recruiting patients to turn in their doctors to fraud squads
is "only common sense," states HCFA Administrator Nancy-Ann
DeParle. Moreover, reviewing benefit statements "could very well
strengthen the patient-physician relationship by promoting
dialogue. It might even improve compliance with treatment
protocols" [emphasis added] (JAMA 1999;281:2176).
Besides the FCA, the Emergency Medical Treatment and Active
Labor Act (EMTALA) is being used to "creat[e] a federal standard
of care, without looking at the physician's circumstances,"
stated attorney Robert Portman. The initial "anti-dumping"
rationale has been transformed into "a scheme for regulating and
micromanaging emergency care with in hospitals. It's being
achieved...by the government trying to apply the stabilization
standard as a strict liability standard" (Medicare Compliance
EMTALA is generally used as a means of forcing hospitals and
physicians to provide uncompensated care. But federal standards,
once established, can be (and with the FCA already are) invoked
to punish those who offer too much care.
The number of covered lives threatening the solvency of
federal entitlements can be reduced directly by effectively
forbidding "futile care," or indirectly by reducing the number of
physicians and medical facilities. The latter can be accomplished
by exclusion (see p. 1) and also by denying credentials.
HCFA has begun to credential physicians for specific
procedures, such as hyperbaric medicine. The requirement for a
minimum of 60 hours training would be impossible to meet because
the only training course in the U.S. is 40 hours long (AM
Is it relevant that younger physicians, who will be
developing or following management protocols, are veterans of
death education and "values clarification" programs in government
schools, which generally include a "who gets thrown out of the
The Enabling Role of the AMA
The application form on the AMA web site states: "Members of
the AMA abide by the Principles of Medical Ethics. To assist us
in upholding these standards, please provide the answers to the
following questions: Have you been convicted of a felony within
the last five years? Has any action, in any jurisdiction, been
taken regarding your license to practice medicine in the last
five years?... Have you been the subject of any disciplinary
action by any medical society or hospital staff within the last
The "ethical" physician, then, is the one who has not been
convicted or disciplined. And who defines the standards for
judgment? An increasingly important component is compliance with
the Evaluation and Management Guidelines. Besides justifying the
CPT code, the guidelines "will also help us ensure the accuracy
and thoroughness of history taking and examinations, and thus
enhance the quality of care received by Medicare beneficiaries,"
stated Joe Tilghman, Kansas City Regional Administration in
testimony on April 9, 1998.
"If Medicare billing codes seem complex, it is because
medicine is complex," Tilghman stated. "The codes we use
were developed by, and in fact belong to, the American Medical
www.hcfa.gov/testmony/1998/98%5F0409.htm). The AMA CPT
Editorial Panel delivered new guidelines to HCFA last summer;
pilot testing will begin after Jan., 2000 (PBN 9/13/99).
Continuing attempts to rewrite the E&M guidelines are the biggest
debacle at HCFA, stated former Administrator Bruce Vladeck. "This
is, fundamentally, an insoluble policy....As long as RBRVS is
tied to CPT you're going to have an impossible policy"
Doctor Sanctioned for Undertreating Pain
In the first action of the kind taken nationally, the Oregon
Board of Medical Examiners sanctioned Dr. Paul Bilder for
"unprofessional conduct" due to use of insufficient pain
medications. Dr. Bilder is a pulmonary specialist; in at least
three of six cases, fear of suppressing respiratory drive might
have been a factor in the physician's decisions.
Dave La Duca, the Board's ombudsman, "would not speculate on
whether Oregon's physician assisted suicide law had any bearing
on the ... decision" (BNA's HCPR 9/13/99).
Violated Girls Receive $7,500 from School District
Eight girls forced to undergo genital examinations by a
school pediatrician in East Stroudsburg, PA, were awarded $7,500
each in damages by a jury, which found that their civil rights
had been violated and emotional harm inflicted. The contracted
pediatrician, Dr. Ramlah Vahanvaty, was found immune for civil
rights violations but might have faced malpractice claims before
the settlement was reached.
The school claimed to have sent consent forms to parents; no
response was taken to imply consent (Hazleton Standard-
Universal Care: the Actuarial Logic
The reason usually given for universal coverage (if somebody
doesn't buy insurance and gets sick, others are burdened) is a
reductio ad absurdum, writes actuary Gerry Smedinghoff, recalling
a point from a textbook that was (and probably still is) required
reading for the actuarial exam:
An old age social insurance scheme is necessary, otherwise
old people without sufficient income will become wards of the
state. But, by definition and by law, a social insurance scheme
makes everyone a ward of the state. Therefore, unless we
make everyone a ward of the state, some people will become wards
of the state in their old age! Q.E.D.
Subsidized Doctoring (or Progress of the Welfare
It was a chilly afternoon/ At story-telling time,
Old Kaspar chewed a dead cigar/ And thinned his rum-and-lime,
While Peterkin and Wilhelmine/ Turned on the futurama screen.
They watched while pairs of burly men/ Within a factory yard
Would lift each worker by the heels/ And shake him long and
While others sifted through the trash/ Collecting all the
"Now tell us what it's all about!"/ The little children
"It is another payroll tax,"/ Old Kaspar soon replied.
"The cash will pay the doctor bills/ Of older folks with
"The Welfare State," said Kaspar then/ "Devours private
Whatever tax collectors miss,/ Inflation takes by stealth.
That's why we old retired folks,/ Have many ills but empty
"Who paid the old folks' doctor bills/ Before the Planners
"They paid their own," Old Kaspar sighed,/ "But times were
not the same.
A prudent man could always save,/ Enough to last him to his
H.P.B. Jenkins, The Freeman: Ideas on Liberty, August
Charity v. Plunder. I have cared for wealthy patients
who were extremely demanding and yet balked at paying the minimal
Medicare copayment. Then I have taken care of poor patients for
no pay at all, out of a sense of charity. The net financial
result is the same: zero. But the former zero is the result of
something taken from me out of a sense of entitlement, often
under auspices of government "protection," with no sense of value
by the recipient, while the latter zero is for a service freely
given by me, and gratefully accepted and valued by the recipient.
The two zeroes are at opposite ends of the "feelings scale."
Patients may not care about the doctor's feelings. But feelings
do matter. The threat of the patient not receiving care has
always been lurking underneath, and medical ethics and
professionalism can reach a breaking point.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY
Here's a Deal: If you in government can assure me that
you will only give my money to those who are incapable of helping
themselves, or who don't have families to help them, I won't
complain about your taking it. That means that the retired UAW
worker, who comes to his winter condo in Scottsdale with his 30-
foot motor home and retiree medical insurance, won't be allowed
to take tax money from the kid without medical insurance who puts
gas in the motor home for $7.50 per hour and who has to pay
thousands more for his car because of the retiree's benefits (and
for mandated safety gadgets)....If that young man understood what
Craig Cantoni, Capstone Consulting, Scottsdale, AZ
Back to Subsidiarity. The key concept of subsidiarity
was explained at an AAPS meeting by Rev. Robert Sirica [see www.acton.org]. With
subsidiarity, the person closest to the problem negotiates and
pays the bill. No fraud, no deception, no bill-padding, no third-
party administrative costs, and the lowest possible cost. This
would cover 80% of medical bills. Only when unforeseen medical
events occur should we look elsewhere for help, and then to
people we trust. Insurance is a possibility, and has certainly
worked in the past, but government mandates have all but ruined
Alieta Eck, M.D., Somerset, NJ
Fairness. When I worked for the health insurance arm of
an RBIC (really big insurance company), I was told that they had
a "secret list" of privileged executives whose claims were not to
be challenged, whether it concerned coverage, deductible,
coinsurance, network access, you name it.
Same thing at Blue Cross, but we also expedited
Greg Scandlen, Alexandria, VA
Oct. 25-28, 2000. 57th annual meeting, St. Louis, MO
Legislative AlertThe House Debate on the
"Patients' Bill of Rights"
As this piece goes to press, the House of Representatives
will be in the early stages of a confusing debate on managed care
reform, or, as it is popularly called, the "patients' bill of
rights." It appears that the House debate will be a raucous
affair, and that there will be reams of amendments. Already the
Clinton Administration has warned Congress not to add "poison
pill" amendments to the main vehicle to make it so onerous that
it would kill it. In the meantime, the Administration has
repeated its intention to veto the Senate bill. So, get ready for
a Jerry Springer style show on managed care reform, folks yelling
and screaming at each other, and everybody threatening to sue.
The main vehicle for the House Congressional debate will be
the Dingell-Norwood bill (HR 2723). The bill mandates direct
access to specialists and the right to an external appeal of
health care decisions. The distinguishing feature is a major
expansion of litigation, the creation of new avenues for
patients to sue employers" health plans for damages or injuries
in state courts, thereby getting around the ERISA restrictions.
The Clinton Administration strongly favors the bill. There are an
estimated 20 Republicans in the House who indicated that they
will vote for it; [68 did so--Ed.].
Look for competing measures to surface as alternatives. The
Republican Leadership is working on a measure to expand access to
health insurance, invoking the recent figures from the Census
Bureau that more than 44 million Americans are without coverage.
The prime mover, with the Speaker s backing is Congressman Jim
Talent (R-MO). The measure, would, according to the latest
reports, provide for 100% deduction for all health insurance
premiums for both individuals and the self-employed; the creation
of "health marts," or private cooperatives for businesses;
allowance of association health plans; and lifting restrictions
on medical savings accounts. [The Talent bill also passed--Ed.]
There is a good case to be made. The Congress, so the
argument goes, is now having the wrong debate. In spite of the
lowest unemployment rate in years and a booming economy, the
number of uninsured grew by about 1 million in 1998. The Left is
making the conventional noises about the need to expand Medicaid
and other government programs or adopt a national health
insurance system. The Conservatives are claiming that the
employer-based health insurance market is contributing to the
problem, because under the current system one s insurance is tied
to the job, and anything outside of the job must be paid for with
after-tax dollars. Analysts estimate that this curiosity in
the tax law, plus the distortions in the employer-based market,
can double the cost of a package.
Look for Congressional conservatives to plead with their
colleagues not to make the situation worse. The House Republican
"access piece" would reportedly contain targeted tax credits for
individuals and families who do not or cannot get their health
insurance through the place of work; an expansion of medical
savings accounts; and changes in the law that would enable
association health plans to offer coverage to individuals and
families just like employer-based group insurance. Before the
debate, the House Rules Committee will make a determination about
how the "access" provisions will be debated-as an amendment-and
included in the final version of the bill.
Congressmen John Shadegg (R-AZ) and Tom Coburn (R-OK) have
been crafting an alternative (HR 2824) that they say will be less
onerous to employers and will clarify the conditions for
lawsuits. Aggrieved patients would be able to sue in federal
courts. The bill requires the plaintiff to show that the plan s
decision was the proximate cause of injury or death. Congressman
Shadegg makes the point that businesses have opposed changes in
employment-based health insurance that would give individuals and
families the right to go outside of the employment-based system,
but then they also want to insulate employer plans from
litigation if the employer plans should harm them.
Congressman John Boehner (R-OH) is proposing another
alternative (HR 2926). Boehner, chairman of the House Education
and Workforce Employer-Employee Relations Subcommittee, has
introduced a measure that would address the problem of patient
complaints about employer-based health insurance through a
binding, external appeals process. The review process would be
final. Also, Boehner s bill contains provisions for association
health plans; refundable tax credits for an amount up to $3000
per family; a roll over of Section 125 accounts; and an
elimination of the cap on medical savings accounts.
The outcome is unclear; major differences between House and
Senate bills will be worked out in Conference. But it is fair to
say that the passage of the managed-care reform bills will
probably not improve the system for most Americans. More likely,
the mandates and litigation will increase costs and thus
aggravate the problem of uninsurance. And then, leftists in
Congress will give Americans another tiresome lecture on why "the
market"-their over-regulated and over-litigated market-doesn t
Quietly Smothering Choice and Competition
The Federal Employee Health Benefits program, the largest
group health insurance program in the world, is unusual for one
reason: Employees and their families can pick and choose among a
wide variety of plans and options, including 10 fee-for-service
plans, in 1999, while cost control has been effected through an
intense competition among the hundreds of carriers that compete
each year for federal workers dollars. But that could change.
The FEHBP is going over a rough patch. Next year the Clinton
Administration projects an average premium increase of 9.3%, the
second largest projected increase in recent years. Last year's
increase was 10.2%. Moreover, in the past two years, more than
100 managed care plans have left the program, a sharp reversal
from previous experience. The Clinton Administration s health
policy is akin to a regulatory "round up": spread it around and
private health plans die and disappear.
Of course, with private sector employment-based health
insurance, we are likely to see similar increases, so the FEHBP
numbers may not be that far out of line. C.T. Hellmuth and
Associates, a benefits consulting group based in Chevy Chase,
Maryland, is projecting a 12.1% increase in indemnity plans, a
10.2% increase in PPOs, and a 6.1% increase in HMOs -excluding
prescription drug costs. In all plans, the biggest cost
driver is expected to be prescription drugs. Looking at the
drug card programs with a flat $5 or $10 copay, Hellmuth says
that these costs are going to go up 17.6%.
Morphing into Medicare?
So what s the fuss? Plenty. Because of the historical
achievements in the FEHBP in controlling costs and providing a
wide range of personal choice for subscribers in the unique
system, expect leftists in Congress and elsewhere to seize on
this projected FEHBP increase and argue that choice and
competition don t work so well after all, and that the principles
of choice and competition are not, or should not, be relevant for
a reform of Medicare program. Make no mistake, the real battle
is over Medicare reform. Indeed, it s already started. Janice
Lachance, Bill Clinton s chief of the Office of Personnel
Management (OPM), the federal agency that runs the FEHBP,
recently stated that, "It is clear that competition in the
marketplace has not effectively slowed the growth in FEHBP
premiums. We must consider new and bold approaches so we can
continue providing affordable, high quality health care to our
employees, retirees and their families." What does Lachance
suggest? She says that OPM should raise the "quality and cost
effectiveness" of the plans competing in the program as a
condition of participation. Translation: fewer plans and less
choice and competition. She also says that OPM, as a government
purchaser, could achieve "efficiencies and economies of scale by
contracting directly for selected benefits." Translation: We-the
government-will control the benefit, and to control costs we will
impose the old-fashioned Medicare-style controls on the benefit.
Thinking down the short road: why not set up a separate
prescription drug program in FEHBP, with all of the paraphernalia
of price controls, formularies or other supply restrictions, and
use it as the forerunner for the big Medicare prescription drug
expansion that we ve had in mind all along. Right?
Ms. Lachance has called the recent premium increases
"unacceptable," and says she will ask for greater Congressional
authority to "control" costs. She needs no such authority; for
she has all of the authority she needs to negotiate a package
that is "acceptable." But the Clinton Administration wants to
transform FEHBP into a system that looks more like Medicare.
Please recall that the president proposed to abolish the FEHBP in
1993, as part of the big Clinton Health Plan, and note also that
the positive record of the FEHBP has been an embarrassment to the
Administration in the broader health care reform debate. If this
year s 9.3% projected increase is in fact "unacceptable", then
why does the Clinton administration accept it? OPM has virtually
unlimited legal authority in negotiating rates and benefits. This
is deeply rooted in Title V, and confirmed repeatedly in federal
courts. The current rates and benefits are only those that the
Administration agreed to in contract negotiations with the
private carriers over the past summer.
What is often overlooked is that the Clinton
Administration has used its broad contractual authority to
accelerate the imposition of benefit mandates and regulatory
conditions that drive up costs. The Clinton Administration
has largely broken with the past tradition of "passive
management" of the FEHBP program, which emphasized give and take
between the federal government and private plans and deference to
private plans in the development of combinations of benefits and
rates in meeting consumer demand. According to the staff of the
House Subcommittee on Civil Service, between 1990 and 1997 OPM
has imposed 27 specific mandated benefits on FEHBP plans. Blue
Cross/Blue Shield told Congress that these mandates alone have
added approximately $100 million to the cost of the Blues
plan. Under the terms of the Kennedy-Kassebaum and other
federal laws, plus an executive order issued by the Clinton
Administration concerning patients' rights provisions, FEHBP
plans are required to meet new federal benefit and regulatory
requirements. In 1994, for example, the Clinton Administration
ordered FEHBP plans to cover an expensive and experimental
treatment using bone marrow transplants to combat breast cancer
within 24 hours or face exclusion from the program, even though
the procedure was not widely tested and medical authorities
generally favored restriction of the treatment to major academic
Even with a projected 9.3% increase, FEHBP is likely to
outperform private employment health insurance in 2000.
Historically FEHBP has also outperformed Medicare; and FEHBP
plans cover catastrophic illness and prescription drugs, which
Medicare doesn t.
Controlling costs in the FEHBP is becoming more difficult
because of the changes in the federal workforce. The FEHBP
insurance pool is aging more rapidly than either the private
sector workforce or the general population. There are 4.2 million
active employees and retirees enrolled in the FEHBP. According to
the Congressional Research Service, the average worker
participating in the FEHBP is a little over 45 years of age.
Private sector pools are considerably younger. Moreover, as of
1998, 1.85 million federal retirees-average age 70-also
participated in the FEHBP. The range of FEHBP retirees is broad,
because federal workers, with years and service, may retire as
early as age 55; and some, in certain occupations, may retire as
early as 50 and get full health benefits. Even with Medicare
coverage, federal retirees are more expensive than active
employees. Unlike private employer sponsored insurance, where
retiree coverage has been cut, drastically reduced, or
discontinued, FEHBP continues to cover retirees, a growing group
of policyholders that has higher health care costs.
Of course, just as with private sector insurance, one of the
main reasons why FEHBP rates have increased in the past two years
has been the rising cost of prescription drugs. In employer-based
insurance back during the debate on the Clinton health plan in
1993, prescription drugs accounted for about 6% of total personal
health care expenses. Richard Ullman, Vice President and Chief
Actuary of the Group Health Inc. of New York, says that in many
plans today, especially those with prescription drug card
programs, drug costs run between 15 to 25% of the total costs of
health plans. Because employees are largely insulated from the
real costs, and enjoy the temporary protections of artificially
low, flat dollar co-payments, notes Ullman, many people getting
third-party payment for their drugs have little or no idea what
their prescriptions actually cost.
The projected FEHBP increase will be more than the real
increase because higher rates will cause enrollees to choose less
expensive plans, something that employment-based enrollees often
cannot do. The FEHBP would do even better if the Clinton
Administration and Congress would end OPM s bias against high-
deductible health plans, allow federal workers to take advantage
of flexible spending accounts that could be rolled over tax free
year after year, and allow generous medical savings accounts to
compete in the program.
Looks like a job for the next Presidential Administration.
Robert Moffit is a prominent Washington health policy
analyst and Director of Domestic Policy at the Heritage