Financial and Other Problems Facing the Federal Employees Health Insurance Program

In response to a congressional request, GAO examined a number of topics related to the Federal Employees Health Benefit Program to: (1) present the rationale and justification for the 1982 benefit reductions and rate increases in the program; (2) compare some Federal health plans to plans offered by some private sector employers; and (3) describe various suggestions to address perceived program problems.

GAO found that employees, annuitants, and their dependents experienced unprecedented benefit reductions and large rate increases in 1982 which meant that enrollees were paying more for less benefits. OPM had ordered the reductions and changes in an attempt to keep program costs within budget estimates and, through two rounds of benefit reductions, OPM eliminated the shortfall. A private actuarial firm concluded that the rate increases were reasonable and that they would result in better financial conditions by the end of 1982. GAO noted that the selective enrollment system is a unique feature of the program, because Congress intended to give enrollees a choice among different plans with different benefits. There is a disagreement as to whether and to what extent selective enrollment adversley affects the program. The program's major insurer, Blue Cross/Blue Shield, was so concerned with the potential adverse impact of selective enrollment that it threatened to withdraw from the program in 1982. GAO believes that the withdrawal of this plan with its high utilization experience would accelerate rate increases associated with selective enrollment. GAO also pointed out that some people associated with the program believe that eventually the issue of selective enrollment will drive the cost of comprehensive coverage out of the reach of those who need it most and reduce greatly the comprehensiveness of benefits.