THE PRESIDENT'S AGENDA

This is a priority for President George W. Bush. In March, the President laid out a comprehensive Framework to Modernize and Improve Medicare. This framework is designed to ensure that Medicare will always be there for seniors and people with disabilities. It modernizes and improves Medicare, guaranteeing all seniors access to a prescription drug benefit. It gives seniors more choices--the freedom and opportunity to select a health care plan that best fits their needs.

This approach is consistent with the President's overall health care principles. He envisions a system where all Americans have choices, a system that trusts patients, working with their health care professionals, to decide which treatment is best for them.

When the President and his domestic policy advisers set about developing their framework, they looked to a model that offers national availability, provides exceptional choice, and uses private-sector competition to keep costs reasonable, ensure high-quality care, and spur innovation.

It is a model no doubt familiar to many of you because it is the same system that insures Members of Congress and Hill staff, as well as federal employees and retirees across the country--the Federal Employees Health Benefits program, or FEHB.

AN EXEMPLARY PROGRAM

As Director of the U.S. Office of Personnel Management, my portfolio includes stewardship of this exemplary program. As a result, I have been spending a great deal of my time educating various people involved in public policy and health care about the FEHB program. I give a crash course--I call it "FEHB 101"--that helps explain the distinctive features of our program, to explain why it is cited so often as a model for improving Medicare.

The first thing we must be clear about is that the FEHB program is not centralized, government-run health care. Since its inception in 1960, the FEHB program has operated according to a decentralized model. When it was created, Congress envisioned the program as being in line with the best practices of private employers as part of a well-rounded personnel benefits package. That is still our goal 40 years later.

Incidentally, at OPM we are opening up exciting new territory on the "demand" side, incorporating consumer education and a new focus on personal responsibility in driving both quality and affordability. It is an approach that I believe holds great promise for the general health care marketplace.

We are committed to keeping the FEHB program the market leader it is today. The FEHB is the nation's largest employer-based health benefits program. To give you a sense of its size, last year's payments totaled about $24 billion annually. Yes, that is billion with a "B."

Over 8 million federal workers, retirees, and their families rely on the FEHB program for access to affordable health care. Close to 85 percent of our eligible active workers choose to participate--a testament to the FEHB's popularity.

It surprises people to learn that the average age of an active worker covered through the FEHB is 47. That does not include the 1.9 million federal annuitants we enroll. The federal government has a commitment, which we honor, to offer health benefits to the retirees who spent their careers working for America.

As an aside, I would note this is not the general trend among employers nationwide. When our retiree population is included, the average age rises to 61. So the FEHB does not apply to what one would describe as a "young" population.

THE PRIMACY OF PERSONAL FREEDOM

What distinguishes the FEHB program? What is behind its popularity and makes it a pacesetter and a model? The answer is not its size, but how the program operates.

Many of you have been through our annual "Open Season." During this time each year, you and all of our enrollees have the opportunity to shop around for the plan best suited to your personal situation. This is not the case with most employer-provided health insurance coverage, where workers are presented with a one-size-fits-all, take-it-or-leave-it policy where the "choice" is whether to elect individual or family coverage.

Federal employees and retirees covered through the FEHB are not "hostage" to a single carrier selected by their employer. Instead, they enjoy a broad array of options. In 2003, 188 discrete options are being offered by 133 health plans.

An important and distinctive feature of the FEHB program is nationwide availability. No matter where one lives--from Portland, Maine, to Portland, Oregon--every enrollee can choose from at least a dozen options offered by nationwide fee-for-service/preferred provider organization (PPO) plans.

Some members may elect one of the six nationwide plans limited to members of sponsoring organizations (such as the Foreign Service Benefit Plan). Many may select a health maintenance organization (HMO) in their geographic area.

New Web-based tools in 2002 let federal employees and retirees get on-line premiums and compare benefits and customer satisfaction ratings of national and local health plans. They can make the comparisons from their homes, from their offices, or any other place they can surf the Web. By increasing access to information, we are encouraging our employees to get the facts so they can make the best choice for themselves and their families. We continue to expand our use of the Internet as a communication and resource tool.

This is the future of health care. We know that young people especially are turning to the Internet as a primary source of health information. But do not underestimate the seniors. We are finding our retirees are quite computer-savvy. Close to a million annuitants accessed the OPM Web site in 2001, and that number continues to grow.

Young or old, all Americans want quality health care choices and options. And that is one of the great strengths of the FEHB model.

OPM is able to provide our employees and retirees this range of choices by contracting with scores of carrier partners in the private marketplace. Plans remain in the FEHB program from year to year unless they choose to terminate their contracts for business reasons, including failure to reach agreement with OPM on benefits and rates for the coming year. Under current law, the window for new plans to enter the program is essentially limited to HMOs.

A BUSINESS RELATIONSHIP WITH
PRIVATE HEALTH PLANS 

Our relationship with these carriers is a business relationship, not a regulatory one. That is important.

OPM conducts annual one-on-one negotiations with each plan. And on behalf of the taxpayers and our employees and retirees, we are aggressive in our contract negotiations and aggressive in overseeing our contracts, monitoring plan performance, and ensuring financial accountability.

Several factors are built into our contracts--quality assurance, patient safety, prevention of fraud and abuse, and compliance with accounting standards. We recently have begun centralizing plan performance data in a data repository. This move will facilitate analysis by our contracting staff. All of our contracts include mechanisms through which profits can be adjusted based on performance.

We maintain high standards; in fact, we insist on them.

The OPM Inspector General is an important part of this equation. He knows I support 100 percent his efforts to detect and control fraud and cultivate a culture of accountability within the FEHB. As a result of the close collaborative relationship between the contracting office and the IG, the FEHB program recovers on average more than $100 million a year.

Going into last year's contract negotiations, we challenged the carriers to come to the table with creative ideas for containing costs and maintaining quality. We did not prescribe to the carriers what they were to do. This Administration recognizes the best ideas are going to come from providers in the marketplace.

We were not disappointed. You can see the innovation in the approach introduced this year by the nationwide open enrollment plan of the American Postal Workers Union. Their "Consumer Driven" plan, which we are testing, is designed to give enrollees greater awareness and more control over their health care dollars. While it is too early to report any direct results for the new FEHB option, other employers have reported lower utilization, fewer prescriptions, and fewer doctor visits with consumer-driven insurance. We are hearing from other plans informally that they are looking at consumer-driven options for 2004.

This is just one example of how competition within the FEHB spurs innovation and improves choices. Carriers want to keep their current customers and attract new ones. So they have a market incentive to keep their plans on the cutting edge and make sure their customer service meets or exceeds expectations.

A dissatisfied customer can take his or her business elsewhere. If a plan's premiums jump, so can their customers--on board with another provider who will give them more "bang" for their health care dollars.

CONTROLLING HEALTH CARE COSTS

We know, because we have done the analysis, that consumer choice is helping us keep premiums affordable. One of the direct effects of enrollee choice was to cut annual premium payments by approximately $300 million in 2003--because enrollees moved to lower-cost plans. That knocked 1.3 points off of the premium increase.

In fact, this year's average 11.1 percent premium increase in the FEHB program, while higher than we would have liked, compared quite favorably in the overall health care marketplace. Indeed, it ranked among the lowest in the nation.

The new, lower-cost options that plans have come up with--such as the Government Employees Hospital Association Standard Plan that was introduced in 2001 and the Blue Cross/Blue Shield Basic option in 2002--are proving quite popular with our members. Not everyone wants a Cadillac, but they do want and deserve choices so they can pick what is best for them and their particular situation. It is what the President envisions for our nation's Medicare enrollees--more choices and better options.

One concern that has been raised in discussions about improving Medicare is access in rural areas. Let me illustrate how the FEHB addresses that concern, using the example of the Blue Cross/Blue Shield basic option.

To help keep costs down, this option was designed as an "in-network-only" plan. Since the plan does not cover out-of-network services, Blue Cross/Blue Shield made adjustments to their provider arrangements to ensure members' access to a nationwide provider network. Those adjustments may include covering a broader range of health care providers; utilizing community-based service centers; and, when absolutely necessary, deeming a provider to be in the network for coverage purposes.

Other plans take different approaches and guarantee out-of-network benefits in parts of the country where they cannot develop a strong provider network, such as rural areas. While there is generally more cost sharing, the difference in out-of-pocket costs may be fairly nominal.

Plans have considerable flexibility to deal with specific issues such as access to services. By statute, however, the FEHB has a provision that ensures that members in Medically Underserved Areas have access to health care providers. Our fee-for-service plans must pay for covered services by any licensed provider practicing within the scope of his or her license, even if that provider is not considered a covered plan provider.

There is no question that costs may be higher where there is a shortage of providers, such as in rural areas. However, if you are contracting nationally, or on a fairly broad regional basis (such as the HHS regions), there should be enough cross-subsidization so that these higher-cost areas can be accommodated affordably.

ADAPTABILITY TO CHANGE AND INNOVATION

Part of the beauty of the FEHB program is that benefits can adapt readily with the changing medical environment--changes in preventive care guidelines, for example. We were quite pleased with the response to our request to carriers in the Call Letter last year to add colorectal screening coverage. It was a suggestion, not a mandate.

Some of you may have heard me express--in fairly strong terms--my opinion about mandates. I do not like them. So we took what I believe is the appropriate approach by bringing the issue to the providers' attention and letting them decide. As a result, many plans now cover this important and potentially life-saving procedure as a screening under their preventive benefits. As industry norms change, OPM will continue this approach of recommending (rather than demanding) benefit changes in preventive care and treatment.

In the competitive market fostered by the FEHB program, new treatments and services are incorporated quickly by providers who do not want the patient--their customer--looking for better services elsewhere. There is not some government bureaucracy that determines and dictates additions to the benefit package, often a slow and grudging process. Providers recognize it is in their interest to keep customers happy--and healthy.

The President has appropriately asked why America's seniors should not have the same type of health care benefits enjoyed by members of Congress and other federal employees. He has put forth a sound framework for modernizing Medicare and offering choice along the FEHB model.

It is a sound model, one that has stood the test of time. As you move forward, our professional staff and technical experts at OPM are available to help you understand how this pacesetting program operates and how it can be applied to improve Medicare.

The Honorable Kay Coles James is Director of the U.S. Office of Personnel Management. These remarks were delivered at a meeting sponsored by The Heritage Foundation's Center for Health Policy Studies and held in the Rayburn House Office Building in Washington, D.C.