Making a Federal Case

November marks the opening of the big hunting season. Not for deer, moose or bear. But for federal workers, retirees and their families.

This group of 9 million people is the huge target selected by dozens of health maintenance organizations (HMOs) and insurance companies eager to capture a chunk of the biggest private health-care market.

It is a veritable bazaar, with the companies and HMOs hawking their wares in mailings, on television, at health fairs in the auditoriums of federal buildings, and at meetings sponsored by members of Congress.

And what a highly lucrative market it is. Federal workers and retirees spend a hefty $16 billion a year in their health plans.

They also have a range of choices undreamed of in the ordinary corporate world, where even the most generous menu of selections is limited to four or five plans picked by the company.

The federal government, by contrast, has certified a huge roster of 388 plans participating nationwide to compete in the annual selection process under the Federal Employees Health Benefits Program, which administers the annual selection of insurance carriers.

Among federal workers and retirees in Southern California, there is a lavish roster of choices. They may pick any of 14 HMOs and seven fee-for-service plans, the traditional systems that permit unrestricted choice of doctor or hospital.

Prices of the plans vary significantly, depending on the detailed benefits sought by the workers, and the deductibles they are willing to pay. The government’s contribution is set by a formula--it pays about 72% of the average premium charged by the six biggest plans.

This year, the formula translates into a maximum payment by the federal government of $1,633.58 for the annual coverage for an individual, and up to $3,508.44 for a family.

The government will pay no more than 75% of the cost of coverage of any particular plan.

The federal plan “has a set of dynamics that exists nowhere else in the cosmos,” said Robert Moffit, deputy director of studies for the Heritage Foundation, a conservative think tank lavish in its praise of the government program. “People from congressmen to the mailman make decisions on the plans they want, the benefits and deductibles and premiums they are willing to pay.”

If a consumer doesn’t like the way a claim was paid, or has a newborn and wants to choose among pediatricians, or has cancer and wants a plan that covers all treatment costs, or has “any reason at all to shop” for a new plan, there is a vast opportunity to choose, said James Morrison, who ran the program as associate director of the Office of Personnel Management from 1981 to 1987.

“It is important for the agency not to see itself as too much of a corporate benefits manager,” said Morrison, underlining the key difference between the free-wheeling federal system and the much more restricted world in which typical American workers make their health insurance choices. The federal government has minimal regulations and maximum choices compared to most businesses, where the benefits manager rather than the worker determines health policy.

An individual federal worker can decide to buy a comprehensive fee-for-service plan for which the average cost is as high as $3,400 a year, or select the cheapest HMO, with an average annual cost of $670, according to figures in the annual guide published by Washington Consumers’ Checkbook, a research organization. The worker must make up the difference between the plan’s full cost and the federal government contribution.

“Instead of giving you one ‘take it or leave it’ choice, the government licenses plans to compete for your premium dollar,” said the Consumer Checkbook guide, a traditional bestseller during open enrollment season.

About 5% of participants change plans annually.

The most popular plan is a Blue Cross and Blue Shield program with about 2.8 million participants on a nationwide basis, according to figures compiled by the federal government. Another popular selection is Kaiser Permanente, with about 460,000 enrolled, with a heavy concentration in California.

Open enrollment is highly attractive to individuals, but it can result in workers in poor health ultimately paying somewhat more for coverage, noted Jacqueline Simon, an economist with the American Federation of Government Employees, a union representing 200,000 workers.

“People game the system to some degree--if you plan to have an elective surgery in the next six months, you might switch to a fee-for-service plan to choose the doctors and hospital you prefer,” she said. “Then, the next year, when you don’t expect any high costs, you switch back to a cheaper plan or an HMO.”

As a result, many high users of health care could be grouped in a few plans. This drives up the cost, making those plans--such as Blue Cross High Option--somewhat more expensive than if they had a true cross-section of federal workers.

But this extra cost is a price federal workers willingly pay in return for the freedom of choice they exercise each year in choosing among a plethora of health plans.