The U.S. Senate Special Committee on Aging examined ways to strengthen and improve the Medicare program, the huge government health care program that insures 41 million senior and disabled citizens. The Special Committee, chaired by Sen. Larry Craig (R-ID) with Sen. John Breaux (D-LA) as the ranking minority member, held the hearing on May 6, 2003.

Three panelists testified on the value of patient choice and market competition:

1. Robert E. Moffit, Ph.D., director of the Center for Health Policy Studies at The Heritage Foundation, ( read full testimony)
2. Joseph R. Antos, Ph.D., health policy analyst at the American Enterprise Institute, and ( read full testimony)
3. Walton Francis, an economist and consultant on health policy, all. (r ead full testimony)

The witnesses cited the record and experience of the Federal Employees Health Benefits Program (FEHBP), the health plan that covers 8.3 million federal workers including Members of Congress, federal retirees, and their families. Also testifying before the Senate panel was Abby Block, senior advisor for employee and family support policy with the U.S. States Office of Personnel Management (OPM), the government agency that administers the FEHBP. ( Read Block's testimony)

Block outlined the flexible FEHBP structure and how it differs from the rigid Medicare program, where an act of Congress or a complicated administrative process is required to change or modify the health benefits package.

"While all participating plans offer a core set of benefits broadly outlined in statute, benefits vary among plans because there is no standard benefits package," Block told the Senate panel.

While Congress must approve new procedures and technologies in order for them to be covered by Medicare, the FEHBP offers competition among plans offering many sets of benefits so that members can choose what best suits their needs. Setting up a basic framework without micromanaging benefits, said Block, allows "OPM to focus on three key elements: policy design, contract negotiations, and contract administration including financial oversight."

The Demographic Challenge. Moffit questioned whether the existing Medicare structure was capable of absorbing the coming retirement of the baby-boom generation. "The central policy question facing Congress and the Administration" said Moffit, "is whether Medicare, as it exists today, can absorb the demographic shock of the baby-boom generation and continue to deliver high-quality medical care in an economically efficient fashion. I do not think that it can."

The Structural Design Problems. Francis called Medicare's design "obsolete," a "vintage 1960 design." Francis said that Medicare not only fails to cover prescription drugs, preventive care, dental costs, or care received abroad (with the exception of Canada and Mexico), but also "does not provide a catastrophic ceiling on costs even for those costs it covers." In sharp contrast, Francis argued, "None of these deficiencies affect the FEHBP. That program was also created vintage 1960, but it has painlessly evolved over time through the competitive, consumer-driven process that is its central feature."

The Record on Cost Control. Antos, a former Assistant Director of the Congressional Budget Office (CBO) addressed the issues of comparative cost between private-sector plans and Medicare, including recent research on the subject.[1] Antos noted "Medicare has been more successful than the private sector in constraining spending growth over the long term." Examining data over three decades, he further noted that "private insurance became more generous over that time period, covering a growing proportion of the total cost of health services. In 1970, private insurance paid for about 60 percent of the total private cost of hospital and physician services. By 1999, that had grown to 85 percent."

In conclusion, Antos said, "A Medicare reform modeled after FEHBP would provide both the incentive and the opportunity for seniors to choose health plans that best meet their needs." Echoing that view, Francis told the Senate panel that:

The choice before the Congress ultimately is between these two models--consumer choice or detailed legislative and bureaucratic control. By good fortune we have as an example the successful performance of the consumer choice model in meeting the health insurance needs of 9 million employees and retirees. Surely we can use that model to aid in reforming the Medicare program.

Moffit likewise urged the Senate panel to examine the FEHBP model as a way to accommodate the needs of a large and diverse baby-boom generation that is set to start retiring in eight years.

Read the complete testimonies:

1. Joseph R. Antos, Ph.D.
2. Abby Block
3. Walton Francis
4. Robert E. Moffit, Ph.D.

Watch the entire hearing (RealPlayer required)