Volume 55, No. 11 November 1999

SHIPWRECK AHEAD

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 soon at www.gao.gov/daybook/990806.htm.)

"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. 3).

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 Conference Committee.

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 Scandlen.

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 ( www.hcfa.gov/ORD/orevexec.htm).
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, go to 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 Alert 10/4/99).

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 News 7/19/99).

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 lifeboat?" unit?

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 five years?"

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 Association" ( 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" (PBN 9/28/99).

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- Speaker 7/30/99).

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 State)

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 hard,
While others sifted through the trash/ Collecting all the fallen cash.
"Now tell us what it's all about!"/ The little children cried.
"It is another payroll tax,"/ Old Kaspar soon replied.
"The cash will pay the doctor bills/ Of older folks with chronic ills."
"The Welfare State," said Kaspar then/ "Devours private wealth.
Whatever tax collectors miss,/ Inflation takes by stealth.
That's why we old retired folks,/ Have many ills but empty pokes."
"Who paid the old folks' doctor bills/ Before the Planners came?"
"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 grave."

H.P.B. Jenkins, The Freeman: Ideas on Liberty, August 1960

Members' Page

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 was happening....
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 it.
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.
Gerry Smedinghoff

Same thing at Blue Cross, but we also expedited politicians' claims.

Greg Scandlen, Alexandria, VA

AAPS Calendar

Oct. 25-28, 2000. 57th annual meeting, St. Louis, MO

Legislative Alert

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 work.

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 medical centers.

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 Foundation.