A health-care plan most of us could buy: it's right under Congress' nose - Federal Employee Health Benefits Program - Cover Story

Washington Monthly, April, 1998 by Eric B. Schnurer

It's right under Congress' nose

Ruth Kain didn't exactly get the best deal possible. Kain lives in the little town of Ava, Mo., where she and her husband of 47 years, Rufus, settled after he retired in 1990. Rufus had been able to retain his company health insurance until he qualified for Medicare, at which point Ruth was allowed by Rufus' former employer to buy a COBRA plan for 36 months. When that expired, Ruth was 63 and not yet eligible for Medicare; nor, as a result of a heart ailment constituting a "pre-existing condition," could she find a private insurer willing to cover her in the interim.

Ruth Kain is just the type of person legislators were trying to help when they passed the 1996 Kennedy-Kassebaum bill requiring insurance companies to provide coverage even to Americans with pre-existing medical conditions. Alas, private carriers have hardly been leaping to assume this new responsibility. (I know: You are shocked -- shocked -- to hear that health insurers wouldn't insure people who need health care) Many penalize agents who write such policies, while one -- exploiting a loop-hole in the law that says insurers need not provide coverage for a condition that has gone uninsured for the last 63 days -- actually stretches out the processing of applications from individuals with preexisting conditions for more than 63 days, and then routinely denies the request. When they do make coverage available, it is often at rates double the norm.

The end result: Even with Kennedy-Kassebaum in place, Kain couldn't obtain insurance that would cover her heart problems. And sure enough, as all such stories go, after shelling out $10,000 for a pacemaker that her policy didn't cover, she began experiencing severe chest pains last November and wound up spending Thanksgiving in the hospital. To cover the bill for her stay -- a daunting $14,000 -- she and Rufus were forced to sell the farm they lived on.

Clearly, Ruth Kain had gotten a bum deal.

President Clinton seemed to agree. In January, he proposed an expansion of Medicare, the federal health insurance program for the elderly, to cover people like Kain. Under the Clinton plan, retirees from age 62 to 65, as well as people over age 55 who have been laid off and lost insurance, could buy into Medicare for more or less the actual price of such coverage. (Those in the early retiree group would pay slightly lower premiums than other new entrants, but would make up for it with slightly higher monthly payments once admitted to "regular" Medicare at 65.) This is a pretty good deal, cheaper-by-half than the $1,000-a-month that Kain could expect to pay a private insurer -- assuming she could find one willing to issue her a policy. And so white-haired Ruth Kain from Ava, Mo., stood by Bill Clinton in the White House three months ago as the president unveiled his grand plan.

Republicans, with their usual flair, promptly declared the president's proposal Dead On Arrival. First they wheeled out the standard objection to Medicare expansion: With the impending retirement of the massive Baby Boom generation, the system is already too financially shaky to pile even more beneficiaries onto the program. ("If you're on the Titanic, you wouldn't invite more people to join you," huffed one GOP congressman) But Clinton basically rendered this argument moot by proposing that recipients essentially pay their own way.

A slightly more sophisticated criticism of the plan is that it would worsen Medicare's financial problems through "adverse selection." Unlike Social Security or Medicare Part A, the president's buy-in program would be voluntary, which means a disproportionate number of the people flocking to sign up for it would be those having trouble finding alternative coverage at a reasonable price -- i.e., those who present the worst health risk and thus bear the highest price-tag for coverage. This, say critics, would eventually drive Medicare's per-person costs higher, rendering it a not-so-good deal for those already in it.

Finally, Republicans fear The Slippery Slope and are aware that such a program could eventually lead to -- gasp! -- health insurance for all Americans, not just the old. This, of course, is the real specter haunting the right, though they have yet to articulate why wiping out the ranks of the uninsured (without using tax subsidies, mind you) is such a bad thing.

But, whatever the merits of their various concerns, on one very important point, the Republicans are right: This was still not the best deal Ruth Kain could have been offered.

We could, instead, allow Americans to buy into another existing government program, one that does not possess the problematic fiscal "pre-existing condition" that Medicare does. One in which the phenomenon of "adverse selection" is minimized. One in which the sort of consumer choice that conservatives claim they want to inject into government-run health coverage -- particularly Medicare -- already exists, with a vengeance. One that might actually save taxpayers money if it were expanded. One that it might even make sense to expand to all Americans. The program that could do all this? The Federal Employee Health Benefits Program, or FEHBP -- pronounced, rather disconcertingly, as "Feeb."