WASHINGTON, FEB. 25, 2003 -President Bush couldn't have picked a better model for Medicare reform than the Federal Employees Health Benefits Program (FEHBP), says a new paper from The Heritage Foundation.

The FEHBP covers the White House, members of Congress, congressional staff and 8.3 million federal employees, retirees and dependents-including administration officials and members of Congress. And, notes Robert Moffit, Heritage's director of domestic policy studies, it features the personal choice, effective cost control, flexibility and capacity for innovation that lawmakers should include when they fix the broken Medicare program.

"The FEHBP is not a theoretical abstraction," says Moffit, a former executive with the Office of Personnel Management (OPM), which oversees the program. "It's a working 43-year-old program with a long record of success. It's a proven winner when it comes to offering a wide variety of plans, satisfying patients and adapting to changes in medical technology. And it's time members of Congress explain why the features of this program they rate so highly shouldn't be made available to us baby boomers when we start to retire eight years from now."

The FEHBP offers a variety of plans, all of which cover major categories of health benefits required by law. As an employer, the federal government makes a generous contribution to each federal employee's chosen plan, up to 75 percent of its cost. (Most congressional Medicare reform proposals would be more generous than the FEHBP.) And federal employees and retirees can pick plans that meet their needs, from the less expensive to the more elaborate.

About 86 percent of eligible persons participate in the FEHBP, and fewer than 5 percent a year switch or drop their coverage, according to a recent report from the General Accounting Office. Surveys have shown high levels of satisfaction with the program.

Some critics of the president's proposal erroneously claim that seniors who want prescription-drug insurance would be forced to join health-maintenance organizations (HMOs). Yet, Moffit notes, the FEHBP shows that persons are not required to join HMOs to get affordable drugs. All the FEHBP plans offer solid prescription-drug coverage, including the fee-for-service and preferred provider plans chosen by 70 percent of FEHBP participants.

The Office of Personnel Management has been able to maintain affordable prescription drug coverage through negotiation and persuasion rather than coercion and regulation, Moffit says. In its annual letters to insurance companies asking them to participate in FEHBP, OPM has noted that increases in drug prices account for nearly half of the increase in insurance costs. Instead of imposing price controls on drugs, or dictating what plans should do, it has encouraged plans to consider using a variety of cost control mechanisms, including formularies-lists of preferred drugs-cost-sharing, the use of mail-order pharmacies and other measures.

"Through choice, competition and administrative flexibility, the program has built a solid record of cost control," Moffit says. "This year it will outperform private-sector health plans, reinforcing a historical record of superior performance.

"This is all the more remarkable when one considers that active employees in FEHBP plans are typically older than those in the private sector. Moreover, the program doesn't limit or exclude retiree coverage, doesn't require waiting periods, and doesn't limit or exclude coverage of pre-existing conditions. Unlike Medicare, FEHBP doesn't try to control costs by imposing indecipherable systems of administrative pricing and fee schedules on doctors and hospitals. Yet-again, unlike Medicare-it manages to cover catastrophic illness and prescription drugs.

  "Congress would do well to imitate the FEHBP as it works to save-and improve-our failing Medicare system."