Federal Employees Health Benefits Program
Premium Growth Has Recently Slowed, and Varies among Participating Plans Gao ID: GAO-07-141 December 22, 2006Average health insurance premiums for plans participating in the Federal Employees Health Benefits Program (FEHBP) have risen each year since 1997. These growing premiums result in higher costs to the federal government and plan enrollees. The Office of Personnel Management (OPM) oversees FEHBP, negotiating benefits and premiums and administering reserve accounts that may be used to cover plans' unanticipated spending increases. GAO was asked to evaluate the nature and extent of premium increases. To do this, GAO examined (1) FEHBP premium trends compared with those of other purchasers, (2) factors contributing to average premium growth across all FEHBP plans, and (3) factors contributing to differing trends among selected FEHBP plans. GAO reviewed data provided by OPM relating to FEHBP premiums and factors contributing to premium growth. For comparison purposes, GAO also examined premium data from the California Public Employees' Retirement System (CalPERS) and surveys of other public and private employers. GAO also interviewed officials from OPM and eight FEHBP plans with premium growth that was higher than average, and six FEHBP plans with premium growth that was lower than average to discuss premium growth trends and the variation in growth across plans.
Growth in FEHBP premiums recently slowed, from a peak of 12.9 percent for 2002 to 1.8 percent for 2007. During this period FEHBP premium growth was generally slower than for other purchasers. Premium growth rates for the 10 largest FEHBP plans by enrollment ranged from 0 percent to 15.5 percent in 2007, while growth rates among smaller FEHBP plans varied more widely. The growth in average enrollee premium contributions--the share of total premiums paid by enrollees--was similar to the growth in total FEHBP premiums from 1994 through 2006, and was generally comparable with recent growth in enrollee premium contributions for surveyed employers. Projected increases in the cost and utilization of health care services and in the cost of prescription drugs accounted for most of the average premium growth increases for 2000 through 2007. Other factors, including benefit changes resulting in less generous coverage and enrollee migration to lower cost plans, were projected to slightly offset premium increases. In 2006 and 2007, projected withdrawals from reserves significantly helped offset the effect of other factors on premium growth. Officials from most of the plans with higher-than-average premium growth cited increases in the cost and utilization of services as well as a high share of elderly enrollees and early retirees. GAO's analysis of financial and enrollment data found that these plans generally experienced faster-than-average growth in the cost and utilization of services and faster-than-average growth in their share of elderly enrollees and retirees in recent years. Officials from most of the plans with lower-than-average premium growth cited adjustments for previously overestimated projections of cost growth. Officials also cited benefit changes that resulted in less generous coverage for prescription drugs. GAO's analysis of financial data provided by these plans found that that their increase in per enrollee expenditures for prescription drugs was significantly lower than average in recent years. In commenting on a draft of this report, OPM said the draft confirms that growth in average FEHBP premiums has slowed and has been lower than that of other large employer purchasers for the last several years.
GAO-07-141, Federal Employees Health Benefits Program: Premium Growth Has Recently Slowed, and Varies among Participating Plans
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Report to the Ranking Minority Member, Subcommittee on Oversight of
Government Management, the Federal Workforce, and the District of
Columbia, Committee on Homeland Security and Governmental Affairs, U.S.
Senate:
United States Government Accountability Office:
GAO:
December 2006:
Federal Employees Health Benefits Program:
Premium Growth Has Recently Slowed, and Varies among Participating
Plans:
GAO-07-141:
GAO Highlights:
Highlights of GAO-07-141, a report to the Ranking Minority Member,
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia, Committee on Homeland Security
and Governmental Affairs, U.S. Senate
Why GAO Did This Study:
Average health insurance premiums for plans participating in the
Federal Employees Health Benefits Program (FEHBP) have risen each year
since 1997. These growing premiums result in higher costs to the
federal government and plan enrollees. The Office of Personnel
Management (OPM) oversees FEHBP, negotiating benefits and premiums and
administering reserve accounts that may be used to cover plans‘
unanticipated spending increases.
GAO was asked to evaluate the nature and extent of premium increases.
To do this, GAO examined (1) FEHBP premium trends compared with those
of other purchasers, (2) factors contributing to average premium growth
across all FEHBP plans, and (3) factors contributing to differing
trends among selected FEHBP plans. GAO reviewed data provided by OPM
relating to FEHBP premiums and factors contributing to premium growth.
For comparison purposes, GAO also examined premium data from the
California Public Employees‘ Retirement System (CalPERS) and surveys of
other public and private employers. GAO also interviewed officials from
OPM and eight FEHBP plans with premium growth that was higher than
average, and six FEHBP plans with premium growth that was lower than
average to discuss premium growth trends and the variation in growth
across plans.
What GAO Found:
Growth in FEHBP premiums recently slowed, from a peak of 12.9 percent
for 2002 to 1.8 percent for 2007. During this period FEHBP premium
growth was generally slower than for other purchasers. Premium growth
rates for the 10 largest FEHBP plans by enrollment ranged from 0
percent to 15.5 percent in 2007, while growth rates among smaller FEHBP
plans varied more widely. The growth in average enrollee premium
contributions”the share of total premiums paid by enrollees”was similar
to the growth in total FEHBP premiums from 1994 through 2006, and was
generally comparable with recent growth in enrollee premium
contributions for surveyed employers.
Projected increases in the cost and utilization of health care services
and in the cost of prescription drugs accounted for most of the average
premium growth increases for 2000 through 2007. Other factors,
including benefit changes resulting in less generous coverage and
enrollee migration to lower cost plans, were projected to slightly
offset premium increases. In 2006 and 2007, projected withdrawals from
reserves significantly helped offset the effect of other factors on
premium growth.
Officials from most of the plans with higher-than-average premium
growth cited increases in the cost and utilization of services as well
as a high share of elderly enrollees and early retirees. GAO‘s analysis
of financial and enrollment data found that these plans generally
experienced faster-than-average growth in the cost and utilization of
services and faster-than-average growth in their share of elderly
enrollees and retirees in recent years. Officials from most of the
plans with lower-than-average premium growth cited adjustments for
previously overestimated projections of cost growth. Officials also
cited benefit changes that resulted in less generous coverage for
prescription drugs. GAO‘s analysis of financial data provided by these
plans found that that their increase in per enrollee expenditures for
prescription drugs was significantly lower than average in recent
years.
In commenting on a draft of this report, OPM said the draft confirms
that growth in average FEHBP premiums has slowed and has been lower
than that of other large employer purchasers for the last several
years.
Figure: Growth in Average Premiums for FEHBP and Other Purchasers:
[See PDF for Image]
Source: OPM, CalPERS, and Kaiser Foundation/Health Research and
Educational Trust.
[End of Figure]
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-141].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact John Dicken at (202) 512-
7119 or dickenj@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Growth in Average FEHBP Premiums Has Recently Slowed and Was Lower Than
That of Other Purchasers:
Projected Growth in Several Factors Contributed to Average FEHBP
Premium Growth:
Changes in the Cost and Utilization of Services and Enrollee
Demographics Accounted for Differing Premium Growth among FEHBP Plans:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Office of Personnel Management:
Tables:
Table 1: Growth in Premiums for 10 Largest FEHBP Plans, 2005 through
2007:
Table 2: Actual Cost Drivers for Five Large FEHBP Plans, 2003 through
2005:
Table 3: Eight FEHBP Plans with Higher-Than-Average Premium Growth:
Enrollee Demographic Changes, 2001 through 2005:
Table 4: Six FEHBP Plans with Lower-Than-Average Premium Growth:
Enrollee Demographic Changes, 2001 through 2005:
Table 5: Plans with Higher-or Lower-Than-Average Premium Growth
Selected by GAO:
Figures:
Figure 1: Growth in Average Premiums for FEHBP and Other Purchasers,
1994 through 2007:
Figure 2: Growth in Average FEHBP Premium and Enrollee Premium
Contribution, 1994 through 2007:
Figure 3: Growth in Average Enrollee Premium Contributions for FEHBP
and Surveyed Employer Plans, 1994 through 2006:
Figure 4: Projected Changes in Various Factors Affecting FEHBP Premium
Growth, 2000 through 2007:
Abbreviations:
CalPERS: California Public Employees' Retirement System:
CDHP: consumer- directed health plan:
FEHBP: Federal Employees Health Benefits Program:
FFS: fee-for-service:
Kaiser/HRET: Kaiser Family Foundation/Health Research and Educational
Trust:
HMO: health maintenance organization:
OPM: Office of Personnel Management:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
December 22, 2006:
The Honorable Daniel K. Akaka:
Ranking Minority Member:
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
Dear Senator Akaka:
Federal employees' health insurance premiums have steadily increased
since the late 1990s, after a brief period of decreases.[Footnote 1]
About 8 million federal employees, retirees, and their dependents
receive health coverage through plans participating in the Federal
Employees Health Benefits Program (FEHBP), the largest employer-
sponsored health insurance program in the country. The Office of
Personnel Management (OPM) administers the program by contracting with
multiple health insurance carriers to offer health plans through the
program and negotiates benefits and premium rates with each carrier.
OPM also administers reserve accounts for each plan that may be used to
cover plans' unanticipated spending increases.[Footnote 2]
Because higher FEHBP premiums pose higher costs to the federal
government and plan enrollees, you asked us to evaluate the extent and
nature of these increases. You also asked us to examine the potential
effect on premium growth of the Medicare retiree drug subsidy had OPM
applied for the subsidy and used it to offset premium growth.[Footnote
3] To do this we examined:
1. recent FEHBP premium growth trends and compared them with those of
plans offered by other purchasers,
2. the factors that contributed to average premium growth trends across
all FEHBP plans as well as the effect the Medicare retiree drug subsidy
would have had on premium growth, and:
3. the factors that contributed to differing premium growth among
selected FEHBP plans.
To identify growth trends in FEHBP premiums and enrollee premium
contributions--the portion of the total premium paid by enrollees--we
obtained premium trend data from 1994 through 2007 from OPM. We
analyzed the data to identify trends in average premiums and average
enrollee premium contributions for all plans.[Footnote 4] To assess the
variation in premium trends across all FEHBP plans by such
characteristics as plan type,[Footnote 5] plan option,[Footnote 6]
geographic area served, and share of retirees, we obtained plan-level
premium and enrollment data from 2003 through 2006 from OPM.[Footnote
7] To compare FEHBP premium trends with those of other purchasers, we
obtained premium data from the California Public Employees' Retirement
System (CalPERS)--the second largest public purchaser of employee
health benefits--and surveys of employer-sponsored health plans from
Kaiser Family Foundation/Health Research and Educational Trust (Kaiser/
HRET).[Footnote 8],[Footnote 9]
To identify factors contributing to average FEHBP premium growth trends
across all FEHBP plans, we analyzed OPM summary reports assessing the
effect of projected changes in various factors, including the cost and
utilization of services, enrollee demographics, and use of reserves, on
premium growth trends from 2000 through 2007.[Footnote 10] We also
examined aggregate data on the actual growth in per-enrollee
expenditures by service category, including prescription drugs,
hospital outpatient care, hospital inpatient care, and physician and
other services, from 2003 through 2005 for 5 large FEHBP
plans.[Footnote 11] We explored with officials from OPM and 14 selected
FEHBP plans the potential effect on premium growth of the retiree drug
subsidy had OPM applied for the subsidy and used it to mitigate premium
growth.
To examine the reasons for differing premium growth trends among FEHBP
plans, we conducted interviews with officials from the 14 plans--
selected because of size (at least 5,000 enrollees) and length of
participation in FEHBP (at least 3 years)--with higher-or lower-than-
average premium growth in 2006 or for the 3-year period from 2004
through 2006. Eight of the 14 selected plans had higher-than-average
premium growth and 6 had lower-than-average premium growth. We analyzed
aggregate data on the actual growth in per-enrollee expenditures by
service category from 2003 through 2005 provided by officials from 6 of
the 8 plans with higher-than-average premium growth and 2 of the 6
plans with lower-than-average premium growth. We also analyzed
demographic enrollment data provided by OPM for all 14 plans for 2001
through 2005.
We did not independently verify the data from OPM, the selected FEHBP
plans, CalPERS, or the Kaiser/HRET surveys. We performed certain
quality checks, such as determining consistency where similar data were
provided by OPM and the plans. We collected and evaluated information
from OPM regarding collection, storage, and maintenance of the data. We
reviewed all data for reasonableness and consistency and determined
that these data were sufficiently reliable for our purposes. Appendix I
provides more detailed information on our methodology. We conducted our
work from January 2006 through December 2006 in accordance with
generally accepted government auditing standards.
Results in Brief:
Growth in average FEHBP premiums recently slowed and was lower than
growth for other purchasers, while premium growth varied across FEHBP
plans. Growth in average FEHBP premiums slowed from a peak of 12.9
percent for 2002 to 1.8 percent for 2007. The average annual growth in
FEHBP premiums has been slower than for other purchasers beginning in
2003--7.3 percent for FEHBP, compared with 14.2 percent for CalPERS and
10.5 percent for surveyed employers. Premium growth rates for the 10
largest FEHBP plans by enrollment, accounting for about three-quarters
of total enrollment, ranged from 0 percent to 15.5 percent for 2007.
The growth in average enrollee premium contributions--the portion of
the total premium paid by enrollees--was similar to the growth in total
FEHBP premiums from 1994 through 2007 and was generally comparable with
the recent growth in enrollee premium contributions for surveyed
employers.
Premium growth was affected by projected increases and decreases in the
costs associated with several factors. Projected increases in the cost
and utilization of health care services and in the cost of prescription
drugs accounted for most of the average premium growth across all plans
for 2000 through 2007. Absent projected changes in the costs associated
with other factors, projected increases in the cost and utilization of
services alone would have accounted for a 6 percent increase in
premiums for 2007, down from a peak of about 10 percent for 2002.
Similarly, projected increases in the cost of prescription drugs alone
would have accounted for about a 3 percent increase in premiums for
2007, down from a peak of about 5 percent in 2002. Projected decreases
in the costs associated with other factors, including benefit changes
that resulted in less generous coverage and enrollee migration to lower
cost plans, generally helped offset average premium increases from 2000
through 2007. From 2000 through 2005, projected additions to reserves
contributed less than 1 percent to premium growth. However, projected
withdrawals from reserves helped offset the effect of other factors on
premium growth by about 2 percent for 2006 and 5 percent for 2007.
Regarding the potential effect of the retiree drug subsidy, plan
officials differed on whether the subsidy would have affected growth in
FEHBP premiums in 2006 had OPM applied for the subsidy and used it to
mitigate premium growth. Most plan officials we interviewed stated that
the subsidy would have had a small effect on premium growth. Officials
from two large plans with higher-than-average shares of retirees stated
that the subsidy would have lowered their plans' premium growth--
officials from one plan claimed by at least 3.5 to 4 percentage points
for their plan. We estimated that the subsidy would have lowered the
growth in premiums across all FEHBP plans for 2006 by more than 2
percentage points on average, from 6.4 percent to about 4 percent. OPM
officials stated that OPM did not apply for the subsidy for FEHBP
because the intent of the subsidy was to encourage employers to
continue offering prescription drug coverage to Medicare-eligible
enrollees, and FEHBP plans were already doing so.
Officials we interviewed from most of the plans with higher-than-
average premium growth cited increases in the cost and utilization of
services as well as a high share of elderly enrollees and early
retirees. Our analysis of financial data provided by these plans and
enrollment data provided by OPM found that these plans experienced
faster-than-average growth in the cost and utilization of services and
faster-than-average growth in their share of elderly enrollees and
retirees in recent years. Officials we interviewed from most plans with
lower-than-average premium growth cited adjustments made for previously
overestimated projections of cost growth. Officials also cited benefit
changes that resulted in less generous coverage for prescription drugs.
Our analysis of financial data provided by these plans showed that the
increase in their per-enrollee expenditures for prescription drugs was
significantly lower than average in recent years. In addition, our
analysis of enrollment data found that these plans experienced greater
declines than average in their share of aging enrollees.
In commenting on a draft of this report, OPM said the draft confirms
that growth in average FEHBP premiums has slowed and has been lower
than that of other large employer purchasers for the last several
years. Regarding our discussion of benefit changes that resulted in
less generous coverage for prescription drugs, OPM said that some plans
have modified their prescription drug benefit to create incentives to
use generic medications, and that this does not result in a less
generous benefit. While we agree that plans can change benefits to
encourage generic drug utilization without resulting in less generous
coverage, officials from three of the six plans we interviewed with
lower-than-average premium growth said that they made benefit changes
that resulted in less generous coverage.
Background:
FEHBP is the largest employer-sponsored health insurance program in the
country, providing health insurance coverage for about 8 million
federal employees, retirees, and their dependents through contracts
with private insurance plans. All currently employed and retired
federal workers and their dependents are eligible to enroll in FEHBP
plans, and about 85 percent of eligible workers and retirees are
enrolled in the program. For 2007, FEHBP offered 284 plans, with 14 fee-
for-service (FFS) plans, 209 health maintenance organization (HMO)
plans, and 61 consumer-directed health plans (CDHP). About 75 percent
of total FEHBP enrollment was concentrated in FFS plans, about 25
percent in HMO plans, and less than 1 percent in CDHPs.
Total FEHBP health insurance premiums paid by the government and
enrollees were about $31 billion in fiscal year 2005. The government
pays a portion of each enrollee's total health insurance premium. As
set by statute, the government pays 72 percent of the average premium
across all FEHBP plans but no more than 75 percent of any particular
plan's premium.[Footnote 12] The premiums are intended to cover
enrollees' health care costs, plans' administrative expenses, reserve
accounts specified by law, and OPM's administrative costs. Unlike some
other large purchasers, FEHBP offers the same plan choices to currently
employed enrollees and retirees, including Medicare-eligible retirees
who opt to receive coverage through FEHBP plans rather than through the
Medicare program. The plans include benefits for medical services and
prescription drugs.
By statute, OPM can negotiate contracts with health plans without
regard to competitive bidding requirements.[Footnote 13] Plans meeting
the minimum requirements specified in the statute and regulations may
participate in the program, and plan contracts may be renewed
automatically each year. OPM may terminate contracts if the minimum
standards are not met.[Footnote 14]
OPM administers a reserve account within the U.S. Treasury for each
FEHBP plan, pursuant to federal regulations. Reserves are funded by a
surcharge of up to 3 percent of a plan's premium.[Footnote 15] Funds in
the reserves above certain minimum balances may be used, under OPM's
guidance, to defray future premium increases, enhance plan benefits,
reduce government and enrollee premium contributions, or cover
unexpected shortfalls from higher-than-anticipated claims.
As of January 1, 2006, Medicare began offering prescription drug
coverage (also known as Part D) to Medicare-eligible beneficiaries.
Employers offering prescription drug coverage to Medicare-eligible
retirees enrolled in their plans could, among other options, offer
their retirees drug coverage that was actuarially equivalent to
standard coverage under Part D and receive a tax-exempt government
subsidy to encourage them to retain and enhance their prescription drug
coverage.[Footnote 16] The subsidy provides payments equal to 28
percent of each qualified beneficiary's prescription drug costs that
fall within a certain threshold and is estimated to average about $670
per beneficiary per year. OPM opted not to apply for the retiree drug
subsidy.
Growth in Average FEHBP Premiums Has Recently Slowed and Was Lower Than
That of Other Purchasers:
The average annual growth in FEHBP premiums slowed from 2002 through
2007 and was generally lower than the growth for other purchasers since
2003. Premium growth rates of the 10 largest FEHBP plans by enrollment
varied to a lesser extent than did growth rates of smaller plans from
2005 through 2007. The growth in the average FEHBP enrollee premium
contribution generally tracked average premium growth and was generally
similar to recent growth in enrollee premium contributions for surveyed
employers.
Growth in Average FEHBP Premiums Slowed and Was Lower Than That of
Other Purchasers in Recent Years:
After a period of decreases in 1995 and 1996, FEHBP premiums began to
increase in 1997, to a peak increase of 12.9 percent in 2002. The
growth in average FEHBP premiums began slowing in 2003 and reached a
low of 1.8 percent for 2007. The average annual growth in FEHBP
premiums was faster than that of CalPERS and surveyed employers from
1997 through 2002--8.5 percent compared with 6.5 percent and 7.1
percent, respectively. However, beginning in 2003, the average annual
growth rate in FEHBP premiums was slower than that of CalPERS and
surveyed employers--7.3 percent compared with 14.2 percent and 10.5
percent, respectively.[Footnote 17] (See fig. 1.)
Figure 1: Growth in Average Premiums for FEHBP and Other Purchasers,
1994 through 2007:
[See PDF for image]
Source: OPM, CalPERS, and Kaiser/HRET.
Note: The 2007 average premium growth rate for employer plans in the
Kaiser/HRET surveys was not available at the time we completed our work
for this report.
[End of figure]
FEHBP Premium Growth Varied Less for Large Plans Than for Smaller Plans
from 2005 through 2007:
The premium growth rates for the 10 largest FEHBP plans by enrollment-
-accounting for about three-quarters of total FEHBP enrollment--ranged
from 0 percent to 15.5 percent in 2007. The average annual premium
growth for these plans fell within a similar range for 2005 through
2007. (See table 1.)
Table 1: Growth in Premiums for 10 Largest FEHBP Plans, 2005 through
2007:
Plan: Kaiser Foundation Health Plan of California;
Premium growth, 2007: 15.5%;
Average premium growth, 2005-2007: 10.2%.
Plan: Kaiser Foundation Health Plan Mid-Atlantic States;
Premium growth, 2007: 9.7%;
Average premium growth, 2005-2007: 10.3%.
Plan: M.D. Individual Practice Association;
Premium growth, 2007: 7.3%;
Average premium growth, 2005-2007: 8.7%.
Plan: Mail Handlers Benefit Plan - (standard option);
Premium growth, 2007: 3.0%;
Average premium growth, 2005-2007: 15.4%.
Plan: National Association of Letter Carriers;
Premium growth, 2007: 2.0%;
Average premium growth, 2005-2007: 6.1%.
Plan: American Postal Workers Union Health Plan - (high option);
Premium growth, 2007: 1.7%;
Average premium growth, 2005-2007: 3.4%.
Plan: Government Employees Hospital Association Benefit Plan - (high
option);
Premium growth, 2007: 1.3%;
Average premium growth, 2005-2007: 6.3%.
Plan: Blue Cross Blue Shield - (standard option);
Premium growth, 2007: 1.0%;
Average premium growth, 2005-2007: 5.4%.
Plan: Government Employees Hospital Association Benefit Plan -
(standard option);
Premium growth, 2007: 0.0%;
Average premium growth, 2005-2007: 3.3%.
Plan: Blue Cross Blue Shield - (basic option);
Premium growth, 2007: 0.0%;
Average premium growth, 2005-2007: 0.0%.
Plan: Average of 10 largest plans;
Premium growth, 2007: 1.7%;
Average premium growth, 2005-2007: 6.3%.
Plan: Average of all FEHBP plans;
Premium growth, 2007: 1.8%;
Average premium growth, 2005-2007: 5.2%.
Source: GAO analysis of FEHBP premium data from OPM.
[End of table]
Premium growth rates across the smaller FEHBP plans in 2007 varied more
widely, from a decrease of 43 percent to an increase of 27.1 percent.
The average premium growth in 2006 also varied by such characteristics
as plan type, plan option, geography, and share of retirees.
* Premium growth for FFS plans (6.0 percent) was lower than for HMO
plans (8.5 percent).
* Premium growth for low-option plans (2.6 percent) was lower than that
for high-option plans (7.3 percent).
* Premium growth was higher for regional HMO plans in the southern
United States (9.2 percent) than for regional HMO plans elsewhere (from
7.2 percent to 8.7 percent).[Footnote 18]
* Premium growth for plans with 20 percent or fewer retirees (4.5
percent) was lower than for plans with greater than 20 percent retirees
(7 percent).
Growth in Average FEHBP Enrollee Premium Contributions Tracked Average
Premium Growth and Was Comparable with That of Surveyed Employer Plans:
Growth in average FEHBP enrollee premium contributions generally
paralleled premium growth from 1994 through 2007. The average annual
growth in enrollee premium contributions during this period was 6.9
percent, while premium growth was 6.1 percent. After decreasing in
1995, average enrollee premium contributions began to increase, rising
to a peak of 12.8 percent in 1998. Paralleling premium growth trends,
the average annual growth in enrollee premium contributions has slowed
since 2002, except for an upward spike in 2006.[Footnote 19] (See fig.
2.)
Figure 2: Growth in Average FEHBP Premium and Enrollee Premium
Contribution, 1994 through 2007:
[See PDF for image]
Source: OPM.
[End of figure]
The growth in average FEHBP enrollee premium contributions was
generally similar to that of surveyed employer plans. (See fig. 3.)
From 1994 through 2006, the average annual growth in FEHBP enrollee
premium contributions ranged from a decrease of 1.2 percent to an
increase of 12.8 percent, compared with a decrease of 10.1 percent to
an increase of 20.9 percent for surveyed employer plans. From 2003
through 2006, the average annual increase in FEHBP enrollee premium
contributions--8.8 percent--was comparable with that of surveyed
employer plans.[Footnote 20]
Figure 3: Growth in Average Enrollee Premium Contributions for FEHBP
and Surveyed Employer Plans, 1994 through 2006:
[See PDF for image]
Source: OPM and Kaiser/HRET.
Note: Data on the growth in enrollee premium contributions for CalPERS
were not available.
[End of figure]
The growth in enrollee premium contributions for the 10 largest FEHBP
plans by enrollment ranged from negative 1.1 percent to 51.5 percent in
2007. The growth in enrollee premium contributions for smaller FEHBP
plans varied more widely, from negative 62.6 percent to 86.8 percent.
Projected Growth in Several Factors Contributed to Average FEHBP
Premium Growth:
Projected increases in the cost and utilization of services and in the
cost of prescription drugs accounted for most of the average premium
growth across FEHBP plans. However, projected withdrawals from reserves
offset much of this growth from 2006 through 2007. Officials we
interviewed from most of the FEHBP plans said that the retiree drug
subsidy would have had a small effect on premium growth had OPM applied
for the subsidy and used it to offset premiums. Our interviews with
officials from two large plans and our analysis of the potential effect
of the subsidy showed that it would have lowered the growth in premiums
and enrollee premium contributions for 2006. OPM officials stated that
the subsidy was not necessary because its intent was to encourage
employers to continue offering prescription drug coverage to Medicare-
eligible enrollees, and FEHBP plans were already doing so. The
potential effect of the subsidy on premium growth would also have been
uncertain because the statute did not require employers to use the
subsidy to mitigate premium growth.
Projected Increases in the Cost and Utilization of Health Care Services
Accounted for Most of the Premium Growth but Were Mitigated by Use of
Reserves in Recent Years:
Projected increases in the cost and utilization of health care services
and the cost of prescription drugs accounted for most of the average
FEHBP premium growth from 2000 through 2007. Absent projected changes
associated with other factors, projected increases in the cost and
utilization of services alone would have accounted for a 6 percent
increase in premiums for 2007, down from a peak of about 10 percent for
2002. Projected increases in the cost of prescription drugs alone would
have accounted for about a 3 percent increase in premiums for 2007,
down from a peak of about 5 percent for 2002. Enrollee demographics--
particularly the aging of the enrollee population--were projected to
have less of an effect on premium growth. Projected decreases in the
costs associated with other factors, including benefit changes that
resulted in less generous coverage and enrollee choice of plans--
typically the migration to lower cost plans--generally helped offset
average premium increases for 2000 through 2007.
Officials we interviewed from most of the plans stated that OPM
monitored their plans' reserve levels and worked closely with them to
build up or draw down reserve funds gradually to avoid wide
fluctuations in premium growth from year to year. Projected additions
to reserves nominally increased premium growth--by less than 1 percent-
-from 2000 through 2005. However, projected withdrawals from reserves
helped offset the effect of increases by about 2 percent for 2006 and 5
percent for 2007.[Footnote 21] (See fig. 4.) According to OPM,
increases in the actual cost and utilization of services in 2006 were
lower than projected for that year, and therefore the projected
withdrawals from reserves were not made in 2006. Because of the
resulting higher reserve balances, plans and OPM projected even larger
reserve withdrawals for 2007.
Figure 4: Projected Changes in Various Factors Affecting FEHBP Premium
Growth, 2000 through 2007:
[See PDF for image]
Source: OPM.
[End of figure]
Detailed data on total claims expenditures and expenditures by service
category actually incurred were available for five large FEHBP plans.
These data showed that total expenditures per enrollee increased an
average of 25 percent from 2003 to 2005. Most of this increase in total
expenditures per enrollee was explained by expenditures on prescription
drugs and on hospital outpatient services. (See table 2.)
Table 2: Actual Cost Drivers for Five Large FEHBP Plans, 2003 through
2005:
Service category: Prescription drugs;
Contribution to increase in total expenditures per enrollee: 34%.
Service category: Hospital outpatient;
Contribution to increase in total expenditures per enrollee: 26%.
Service category: Hospital inpatient;
Contribution to increase in total expenditures per enrollee: 14%.
Service category: Physician services;
Contribution to increase in total expenditures per enrollee: 14%.
Service category: All other;
Contribution to increase in total expenditures per enrollee: 13%.
Source: GAO analysis of data provided by FEHBP plans.
Notes: These five plans represent about 90 percent of total FFS
enrollees and about two-thirds of total FEHBP enrollees.
Numbers do not total 100 percent due to rounding.
[End of table]
Plan Officials Differed on Whether OPM's Decision Not to Accept the
Retiree Drug Subsidy Would Have Affected FEHBP Premium Growth:
Officials we interviewed from several plans stated that the retiree
drug subsidy would have had a small effect on premium growth because of
two factors. First, drug costs for Medicare beneficiaries enrolled in
these plans accounted for a small proportion of total expenses for all
enrollees, and the subsidy would have helped offset less than one-third
of these expenses. Second, because the same plans offered to currently
employed enrollees were offered to retirees, the effect of the subsidy
would have been diluted when spread across all enrollees. However,
officials we interviewed from two large plans with high shares of
elderly enrollees stated that the subsidy would have lowered premium
growth for their plans. Officials from one of these plans estimated
that 2006 premium growth could have been 3.5 to 4 percentage points
lower.
Our analysis of the potential effect of the retiree drug subsidy on all
plans in FEHBP showed that had OPM applied for the subsidy and used it
to offset premium growth, the subsidy would have lowered the 2006
premium growth by 2.6 percentage points from 6.4 percent to about 4
percent.[Footnote 22],[Footnote 23] The reduction in premium growth
would have been a onetime reduction for 2006.[Footnote 24] Absent the
drug subsidy, FEHBP premiums in the future would likely be more
sensitive to drug cost increases than would be premiums of other large
plans that received the retiree drug subsidy for Medicare
beneficiaries.
Officials from OPM explained that there was no need to apply for the
subsidy because its intent was to encourage employers to continue
offering prescription drug coverage to enrolled Medicare beneficiaries,
which all FEHBP plans were already doing. As such, the government would
be subsidizing itself to provide coverage for prescription drugs to
Medicare-eligible federal employees and retirees. The potential effect
of the subsidy on premium growth would also have been uncertain because
the statute did not require employers to use the subsidy to mitigate
premium growth.
Changes in the Cost and Utilization of Services and Enrollee
Demographics Accounted for Differing Premium Growth among FEHBP Plans:
Officials we interviewed from most of the plans with higher-than-
average premium growth stated that increases in the cost and
utilization of services as well as a high share of elderly enrollees
and early retirees were key drivers of premium growth. Our analysis of
these plans' financial and enrollee demographic data showed that these
plans experienced faster-than-average growth in the cost and
utilization of services and faster-than-average growth in their share
of elderly enrollees and retirees in recent years. Officials we
interviewed from most of the plans with lower-than-average premium
growth cited adjustments made for previously overestimated projections
of cost growth. Officials also cited benefit changes that resulted in
less generous coverage for prescription drugs. Our analysis of
financial data provided by two of these plans showed that the increase
in their per-enrollee expenditures for prescription drugs was
significantly lower than average in recent years. In addition, our
analysis of enrollment data found that these plans experienced greater
declines than average in their share of aging enrollees.
Plans with High Premium Growth Had Higher-Than-Average Increases in the
Cost and Utilization of Services and Faster Rising Shares of Elderly
Enrollees:
Officials we interviewed from most of the plans with higher-than-
average premium growth cited large increases in the actual cost and
utilization of services as one of the key cost drivers of premium
growth. Our analysis of financial data provided by six of these plans
showed that the average increase in total expenditures per enrollee
from 2003 through 2005 was about 40 percent, compared with the average
of 25 percent for the five large FEHBP plans.
Although enrollee demographics were projected to have a small effect on
premium growth in the average FEHBP plan for 2006, change in enrollee
demographics was cited as a key cost factor for most plans with higher-
than-average premium growth. Officials we interviewed from five of
these plans stated that an aging population and higher shares of early
retirees were factors driving premium growth for their plans. For
example, officials from two plans cited a high concentration of elderly
enrollees in their respective service areas of southern New Jersey and
Pennsylvania, while officials from another plan cited an aging
population in its service area of San Antonio, Texas.
Our comparison of the demographic characteristics of the eight plans
with higher-than-average premium growth with those of all FEHBP plans
from 2001 through 2005 supports the officials' statements that unique
demographic profiles contributed to higher premium increases. (See
table 3.)
Table 3: Eight FEHBP Plans with Higher-Than-Average Premium Growth:
Enrollee Demographic Changes, 2001 through 2005:
Demographic characteristics: Change in average age (years);
Plans with higher-than-average premium growth: 2.7;
All plans: 0.5.
Demographic characteristics: Percentage change in share of enrollees
aged 65+;
Plans with higher-than-average premium growth: 3.7;
All plans: -1.0.
Demographic characteristics: Percentage change in share of early
retirees;
Plans with higher-than-average premium growth: 1.8;
All plans: 1.0.
Source: GAO analysis of OPM enrollment data.
[End of table]
Plans with Lower-Than-Average Premium Growth Cited Adjustments for
Previously Overestimated Cost Growth and Benefit Changes and Had
Greater Declines in the Shares of Elderly Enrollees:
Officials we interviewed from most of the plans with lower-than-average
premium growth for their plans in 2006 cited adjustments for previously
overestimated projections of cost growth. Officials from two of these
plans stated that projections for a new low-option plan they had
recently introduced were pegged high because of concerns about
potential migration of high-cost enrollees from their high-option plan.
The actual cost increases of enrollees in the low-option plan in 2004
(the basis for 2006 rates) turned out to be lower than projected.
Officials from two other plans said that the projected cost growth of
14 percent to 20 percent in 2004 (the basis for 2006 rates) for those
plans was much higher than the actual cost growth in 2006 of about 5
percent to 8 percent.
Officials we interviewed from three plans with lower-than-average
growth cited lower-than-anticipated rates of increase in prescription
drug costs caused by benefit changes that resulted in less generous
coverage to explain low rates of premium growth for their plans. Our
analysis of financial data provided by two of these plans showed that
per-enrollee expenditures for prescription drugs increased by 3 percent
for one plan and 13 percent for the other from 2003 through 2005,
compared with 30 percent for the average of the five large FEHBP plans.
The six plans with lower-than-average premium growth also had greater
declines in their share of elderly enrollees compared with all plans
from 2001 through 2005. (See table 4.)
Table 4: Six FEHBP Plans with Lower-Than-Average Premium Growth:
Enrollee Demographic Changes, 2001 through 2005:
Demographic characteristics: Change in average age (years);
Plans with lower-than-average premium growth: -0.5;
All plans: 0.5.
Demographic characteristics: Percentage change in share of enrollees
aged 65+;
Plans with lower-than-average premium growth: -2.9;
All plans: -1.0.
Demographic characteristics: Percentage change in share of early
retirees;
Plans with lower-than-average premium growth: 0.9;
All plans: 1.0.
Source: GAO analysis of OPM enrollment data.
[End of table]
Agency Comments and Our Evaluation:
We received comments on a draft of this report from OPM (see app. II).
OPM said the draft report confirms that growth in average FEHBP
premiums has slowed and has been lower than that of other large
employer purchasers for the last several years. Regarding the projected
withdrawals of reserves for 2007, OPM said that the actual drawdown
could be lower if the actual increase in the cost and utilization of
services in 2007 is less than projected. We agree this could occur, and
as we noted in the draft report and as OPM said in its comments, the
projected withdrawals of reserves for 2006 were ultimately not made
because of lower than expected increases in the cost and utilization of
services in that year. Regarding the manner in which premiums are set,
OPM said that rate negotiations between OPM and the plans are guided by
projections of future costs that are based on a retrospective analysis
of actual costs, and that adjustments to the reserve accounts of most
plans are made when actual costs differ from the projections. OPM said
that, as a result, these reserve adjustments help stabilize premium
growth over time and ensure that premiums ultimately reflect actual
cost increases. We agree with this characterization of the effect of
reserve adjustments. Regarding our discussion of benefit changes that
resulted in less generous coverage for prescription drugs, OPM said
that some plans modified their prescription drug benefit to create
incentives to use generic medications, and that this does not result in
a less generous benefit. While we agree that plans can change benefits
to encourage generic drug utilization without resulting in less
generous coverage, officials from three of the six plans we interviewed
with lower-than-average premium growth said that they made benefit
changes that resulted in less generous coverage. OPM provided other
comments describing aspects of FEHBP and provided technical comments
that we incorporated as appropriate.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from its date. At that time, we will send copies of this report to
the Director of OPM and other interested parties. We will also make
copies available to others upon request. In addition, this report will
be available at no charge on the GAO Web site at [Hyperlink,
http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-7119 or dickenj@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Randy Dirosa, Assistant Director; Iola
D'Souza; Menq-Tsong P. Juang; and Timothy Walker made key contributions
to this report.
Sincerely yours,
Signed by:
John E. Dicken:
Director, Health Care:
[End of section]
Appendix I: Scope and Methodology:
To identify growth trends in the average Federal Employees Health
Benefits Program (FEHBP) premiums and enrollee premium contributions,
we analyzed trend data for 1994 through 2007 from the Office of
Personnel Management (OPM). To identify the variation in premium trends
across plans by plan characteristics, we analyzed detailed plan-level
premium data and enrollment data for 2003 through 2006 from
OPM.[Footnote 25] We examined the variation in premiums based on plan
type--fee-for-service (FFS), health maintenance organization (HMO), and
consumer-directed health plan (CDHP)--plan option (high option, low
option); geography (West, Midwest, South, Northeast); and share of
retirees.[Footnote 26]
To compare FEHBP premium trends with those of other purchasers, we
obtained premium trend data for 1994 through 2007 from the California
Public Employees' Retirement System (CalPERS)--the second largest
public purchaser of employee health benefits after FEHBP--and from
surveys of employer-sponsored health benefits conducted by KPMG Peat
Marwick from 1993 through 1998 and by Kaiser Family Foundation/Health
Research and Educational Trust (Kaiser/HRET) from 1999 through
2006.[Footnote 27]
To identify factors contributing to average FEHBP premium growth trends
for all plans, we obtained and analyzed OPM summary reports on the
projected effects of various factors on premium growth for all FEHBP
plans from 2000 through 2007.[Footnote 28] We analyzed more detailed
data obtained individually from five large FFS plans on actual growth
in per-enrollee expenditures by service category, including
prescription drugs, hospital outpatient care, hospital inpatient care,
and physician and other services, from 2003 through 2005.[Footnote 29]
To examine the reasons for differing premium growth trends among FEHBP
plans, we conducted interviews with officials from 14 plans with higher-
or lower-than-average premium growth in either 2006 or the 3- year
period from 2004 through 2006, and analyzed financial data provided by
some of these plans. We limited our study sample to plans participating
in FEHBP for at least 3 years and with at least 5,000 enrollees in
2005.[Footnote 30],[Footnote 31] Among these plans, we identified those
with premium growth for 2006 or the average annual growth for the 3-
year period from 2004 through 2006 of above or below one standard
deviation of the mean. Of the 23 plans meeting these criteria, we
selected 14 plans.[Footnote 32] (See table 5.)
Table 5: Plans with Higher-or Lower-Than-Average Premium Growth
Selected by GAO:
Plans with higher-than-average growth.
Plan: Aetna Open Access (Southern New Jersey and Southeastern
Pennsylvania);
Premium growth, 2006: 21.8%;
Average annual premium growth, 2004-2006: 15.1%.
Plan: Blue Cross HMO (California);
Premium growth, 2006: 20.3%;
Average annual premium growth, 2004-2006: 12.0%.
Plan: CDPHP Universal Benefits, Inc. (New York);
Premium growth, 2006: 17.2%;
Average annual premium growth, 2004-2006: 12.1%.
Plan: HealthAmerica Pennsylvania (Central, high option);
Premium growth, 2006: 13.0%;
Average annual premium growth, 2004-2006: 17.4%.
Plan: Humana Health Plan of Texas (San Antonio, high option);
Premium growth, 2006: 13.0%;
Average annual premium growth, 2004-2006: 20.5%.
Plan: Kaiser Foundation Health Plan of Colorado (high option);
Premium growth, 2006: 16.8%;
Average annual premium growth, 2004-2006: 10.2%.
Plan: Mail Handlers Benefit Plan (high option);
Premium growth, 2006: 5.0%;
Average annual premium growth, 2004-2006: 20.0%.
Plan: Mail Handlers Benefit Plan (standard option);
Premium growth, 2006: 6.7%;
Average annual premium growth, 2004-2006: 19.4%.
Plans with lower-than-average growth.
Plan: American Postal Workers Union Health Plan (CDHP);
Premium growth, 2006: -1.9%;
Average annual premium growth, 2004-2006: 3.6%.
Plan: American Postal Workers Union Health Plan (high option);
Premium growth, 2006: 0.3%;
Average annual premium growth, 2004-2006: 5.9%.
Plan: Blue Cross Blue Shield Service Benefit Plan (basic option);
Premium growth, 2006: 0.0%;
Average annual premium growth, 2004-2006: 2.9%.
Plan: Government Employees Hospital Association, Inc., Benefit Plan
(standard option);
Premium growth, 2006: 0.0%;
Average annual premium growth, 2004-2006: 6.7%.
Plan: Health Alliance Plan;
Premium growth, 2006: 2.6%;
Average annual premium growth, 2004-2006: 5.4%.
Plan: Kaiser Foundation Health Plan, Inc., Hawaii Region (high option);
Premium growth, 2006: 2.1%;
Average annual premium growth, 2004-2006: 6.9%.
Plan: Average of all FEHBP plans;
Premium growth, 2006: 6.4%;
Average annual premium growth, 2004-2006: 7.7%.
Source: GAO analysis of OPM data.
[End of table]
We analyzed aggregate data on the actual growth in per-enrollee
expenditures by service category from 2003 through 2005 provided by
officials from some of these plans and demographic enrollment data from
2001 through 2005 from OPM.
We also explored with officials from OPM and the selected plans the
potential effect of the retiree drug subsidy on premium growth had OPM
applied for the subsidy and used it to offset premiums. To estimate the
effect the subsidy would have had on average premium growth, we first
calculated the total annual amount of the subsidy that would have been
available for all Medicare-eligible beneficiaries in FEHBP using 2006
enrollment data and an estimate by the Centers for Medicare & Medicaid
Services of the average annual subsidy per Medicare beneficiary in 2006
(about $670). We then divided this amount by total annual premiums for
all FEHBP enrollees in 2005.
We did not independently verify the data from OPM, the selected FEHBP
plans, CalPERS, or the Kaiser/HRET surveys. We performed certain
quality checks, such as determining consistency where similar data were
provided by OPM and the plans. We collected and evaluated information
from OPM regarding collection, storage, and maintenance of the data. We
reviewed all data for reasonableness and consistency and determined
that these data were sufficiently reliable for our purposes. We
conducted our work from January 2006 through December 2006 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Office of Personnel Management:
United States Office Of Personnel Management:
Washington, DC 20415:
The Director:
December 1, 2006:
Mr. John Dicken:
Director, Health Care:
United States Government Accountability Office:
Washington, DC 20548:
Dear Mr. Dicken:
Thank you for the opportunity to comment on the draft report: Federal
Employees Health Benefits Program: Premium Growth Has Recently Slowed
and Varies Among Participating Plans (GAO-07-141).
One of the Office of Personnel Management's goals is to promote
affordable Federal Employees Health Benefits Program (FEHBP) options
from which enrollees may select a health plan to meet their individual
needs. The draft report confirms that growth in average FEHBP premiums
has slowed and has been lower than that of other large employer
purchasers for the last several years.
We have the following comments on the draft report:
* The report states that projected increases in the cost and
utilization of health care services and prescription drugs accounted
for most of the average premium growth increases for 2000 to 2007, and
that for 2006 and 2007 projected withdrawals from reserves
significantly helped offset the effect of other factors on premium
growth. The projected reserve drawdown for 2007 (about five percent) is
very dependent upon the assumed trend for 2006 and 2007. If the actual
increase in cost and utilization is less than estimated, the drawdown
will be less than five percent. For example, the projected two percent
increase in cost and utilization estimated for 2006 was not realized
and, in fact, reserves have increased during 2006.
* FEHBP premium negotiations are based on projections which, in turn,
are generally based on retrospective analysis of actual costs. Going
forward, if actual costs do not meet projections, adjustments are made
to the reserve amounts held for the experience rated plans. Over a
seven year period, premium stability is maintained through reserve
adjustments, Thus, to a large degree, actual costs, not simply cost
projections, are reflected in FEHBP premium levels.
* The report states that benefit changes, which resulted in "less
generous" coverage for prescription drugs, helped to offset premium
growth. Some plans have modified their prescription drug benefit
structures to create incentives to use generic medications or the
lowest-cost therapeutically appropriate medication. This type of
benefit structure provides the same medical benefit, and not a less
generous benefit, at a lower cost.
* The FEHBP multi-choice environment relies on competitive market
forces to hold down average premium increases. Enrollees are able to
make informed decisions and move to lower cost plans often with no
reduction in benefits.
* The FEHBP is unique in that both active employees and annuitants are
covered in the same risk pool. While cost and utilization generally
increase with age, the cost for annuitants with Medicare coverage is
offset because FEHBP coverage is secondary to Medicare. As a result,
annuitant contracts where Medicare is primary cost less than the
average. Plans that report higher cost due to an older membership mix
are generally referring to pre-Medicare annuitants.
Enclosed are additional technical comments and clarifications which I
would appreciate being considered in the final report.
Thank you for providing the opportunity for comment.
Sincerely,
Signed by:
Linda M. Springer:
Director:
Enclosure:
[End of Section]
FOOTNOTES
[1] GAO previously reported on federal employees' health insurance
premium trends through 2003. See GAO, Federal Employees' Health Plans:
Premium Growth and OPM's Role in Negotiating Benefits, GAO-03-236
(Washington, D.C.: Dec. 31, 2002).
[2] Pursuant to 5 U.S.C. § 8909.
[3] As of January 1, 2006, employers offering prescription drug
coverage to Medicare-eligible retirees enrolled in their plans could
apply for a tax-exempt government subsidy. See Medicare Prescription
Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173,
117 Stat. 2066, 2125 (2003). OPM has chosen not to apply for the
subsidy.
[4] Throughout the report, the terms average premium and average
enrollee premium contribution refer to the average premium and average
enrollee contribution weighted by each plan's enrollment.
[5] Several types of plans are offered to FEHBP enrollees, including
fee-for-service (FFS), health maintenance organization (HMO), and
consumer-directed health plans (CDHP). FFS plans are generally
available to all enrollees nationwide. The plans offer a choice of
preferred providers within the plans' networks at a lower cost to
enrollees; providers outside the networks cost more. HMO plans are
available to enrollees in particular geographic areas and generally
have cost-containment mechanisms that require authorization from an
enrollee's primary care physician before the enrollee can access
services by specialist health providers. CDHPs are high-deductible
plans that feature a savings account used to pay for health care and
may be offered nationally or within particular geographic areas.
[6] Some FEHBP plans offer two levels of benefits, also known as high
or low options. High-option plans offer more comprehensive coverage and
richer benefits and have higher monthly premiums than do low-option
plans.
[7] As 2007 premium data became available, we incorporated these data
into our analyses as appropriate.
[8] Kaiser/HRET has conducted surveys of employer-sponsored health
benefits since 1999. These surveys capture data from employers ranging
in size from 3 to 300,000 or more workers. KPMG Peat Marwick conducted
the surveys before 1999.
[9] We analyzed premium growth trends for CalPERS from 1994 through
2007. We analyzed premium growth trends for Kaiser/HRET surveyed
employers from 1994 through 2006, because the Kaiser/HRET survey data
available when we prepared this report did not include growth rates for
2007.
[10] Premium rates for each year are prospectively set by individual
FEHBP plans based on their projections of growth for various factors.
OPM calculates the average premium growth across all FEHBP plans and
estimates the composite projected growth in each of these factors
across all FEHBP plans based on the plans' projections. Actual growth
for each factor may differ from these projections.
[11] These five plans accounted for about 90 percent of FFS enrollment
and about two-thirds of total FEHBP enrollment. OPM was not able to
provide these data for all FEHBP plans for 2005.
[12] The Balanced Budget Act of 1997 established the government's
current share of the premiums beginning in 1999. Pub. L. No. 105-33,
§7002, 111 Stat. 251, 662 (amending 5 U.S.C. §8906). OPM determines
separate averages for individual plans and for family plans. Although
the average enrollee premium contribution is 28 percent of the average
premium for all plans, enrollee premium contributions can be higher
than 28 percent for plans with premiums significantly higher than the
average FEHBP plan. For example, the 2006 monthly premium for a
particular FEHBP plan was $642, compared with the average premium of
$415. Because the government's share is $299 (72 percent of $415), the
enrollee premium contribution for this particular plan was $343 ($642
minus $299), or about 53 percent of the plan's premium.
[13] 5 U.S.C. §8902.
[14] OPM can terminate a plan's contract at the end of the contract
term if fewer than 300 federal employees and retirees were enrolled
during the two preceding contract terms. In addition, if a plan fails
to meet minimum standards, OPM can withdraw its approval after giving
the plan notice and providing an opportunity for a hearing.
[15] 5 U.S.C.§8909. Reserves may also be credited with any unused
portions of funds set aside for OPM's administrative expenses and
income from investment of the reserves. In the case of FFS plans,
reserves may also be credited with portions of excess premiums that may
remain after claims and the plan's administrative costs and other
financial obligations have been met. These excess premiums may not be
transferred into reserve accounts for most HMO plans.
[16] In general, according to the Centers for Medicare & Medicaid
Services, actuarial equivalence measures whether the expected amount of
paid claims under the employer's prescription drug coverage is at least
equal to the expected amount of paid claims under the standard
prescription drug coverage under Medicare Part D. The conference
committee report for the legislation authorizing this subsidy indicated
a belief by the committee that the subsidy would help employers retain
and enhance their prescription drug coverage in the face of increasing
pressure to drop or scale back such coverage. H.R. Conf. Rep. No. 108-
391, at 484 (2003).
[17] In 2006, average monthly FEHBP premiums were $415 for individual
plans and $942 for family plans. Average monthly premiums for private
employer plans were $354 for individual plans and $957 for family
plans.
[18] National FFS plans charge the same premium in all geographic
areas.
[19] The simultaneous slowing in average premium growth and
acceleration in average enrollee premium contributions in 2006 are
related in part to the statutory level of federal contribution to
premiums. Because the federal government share of plan premiums is 72
percent of the average premium across all FEHBP plans, enrollees in
plans with higher-than-average premiums or rates of growth will pay a
higher share of the premium than other enrollees. Thus, because the
premium for the largest FEHBP plan increased at a higher rate than the
average of all FEHBP plans--8.5 percent compared with 6.4 percent,
respectively--enrollees in this plan saw their premium contributions
rise faster in 2006.
[20] In 2006, average monthly FEHBP enrollee premium contributions were
$123 for individual plans and $278 for family plans. Average monthly
enrollee premium contributions for surveyed employer plans were $52 for
individual plans and $248 for family plans.
[21] OPM said that reserves had a larger effect in mitigating average
premium growth for 2007 for FFS plans compared with HMO plans because
FFS plans had larger accumulated reserves upon which they could draw.
[22] We used the nationwide average subsidy estimated by the Centers
for Medicare & Medicaid Services to be about $670 per Medicare-eligible
retiree. The actual subsidy for Medicare-eligible retirees in FEHBP may
have varied from this average.
[23] Officials from CalPERS stated that the subsidy, which they had
applied for but not yet decided how to use, amounted to 13 percent to
17 percent of the total premium for Medicare-eligible enrollees in
2006. They stated that the subsidy would have a greater effect on
premiums for CalPERS enrollees because, unlike FEHBP, CalPERS offers
separate plans for employed enrollees and retirees (including Medicare
beneficiaries), and the subsidy would thus be applied exclusively to
premiums for retirees.
[24] Continued use of the subsidy in subsequent years would affect
actual FEHBP premiums but not their rate of increase.
[25] Plan-level premium data for 2007 were not available at the time we
conducted our analysis of premium growth by plan characteristics.
[26] Geographical analyses of the plans were based on the U.S. Census
Bureau's regional designation for the states in which the plans
operated.
[27] These surveys capture data from employers ranging in size from 3
workers to 300,000 or more workers. The survey for 2007 had not been
conducted at the time we prepared our report.
[28] Premium rates for each year are prospectively set by individual
FEHBP plans based on their projections of growth trends for various
factors, such as the cost and utilization of services, changes in
benefits, and enrollee demographics. OPM calculates the average premium
growth across all FEHBP plans and estimates the composite projected
growth in each factor across all FEHBP plans based on individual plan
projections. Actual growth for each factor may differ from the
projections.
[29] Because OPM was not able to provide these data for all FEHBP plans
for 2005, we used data provided by the five large plans. These plans
were representative of the average FEHBP plan because they accounted
for about 90 percent of FFS enrollment and about two-thirds of total
FEHBP enrollment.
[30] Enrollment data for 2006 were unavailable when we selected the
plans.
[31] We excluded plans with significantly higher-or lower-than-average
premium growth. These plans tended to be smaller plans with fewer than
500 enrollees.
[32] The 14 plans included 5 nationwide FFS plans, 1 nationwide CDHP,
and 8 HMO plans from eight states.
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