This paper suggests that the Federal Employees Health Benefits Program (FEH
BP) is perhaps a model for Medicare reform. First, we introduce the FEHBP a
nd describe important features, such as the method for determining the gove
rnment's premium contribution. Second, we examine the cost performance of t
he FEHBP program, and conclude that the FEHBP has out-performed private hea
lth insurance programs and Medicare in its ability to control costs. Third,
we discuss the problem of adverse selection in the FEHBP. We conclude that
the FEHBP has experienced some selection problems, but not enough to preve
nt it from offering a wide variety of choices without standardized benefits
or direct risk adjustment. For a demonstration of competitive pricing in M
edicare, the fourth section compares the FEHBP to two models of Medicare re
form: "FEHBP for Medicare, " proposed by Butler and Moffit; and the "Denver
design."