Federal Employees Health Benefits Program: Early Experience with 
a Consumer-Directed Health Plan (21-NOV-05, GAO-06-143).	 
                                                                 
Since 2003, the Federal Employees Health Benefits Program (FEHBP)
has offered "consumer-directed" health plans (CDHP) to federal	 
employees. A CDHP is a high-deductible health plan coupled with a
savings account enrollees use to pay for health care. Unused	 
balances may accumulate for future use, providing enrollees the  
incentive to purchase health care prudently. However, some have  
expressed concern that CDHPs may attract younger and healthier	 
enrollees, leaving older, less healthy enrollees to drive up	 
costs in traditional plans. They also question whether enrollees 
are satisfied with the plans, and have sufficient access to	 
health care providers and discounts on health care services. GAO 
was asked to study the first FEHBP CDHP, offered by the American 
Postal Workers Union (APWU). GAO compared the number,		 
characteristics, and satisfaction of APWU enrollees to those of  
FEHBP enrollees in other recently introduced (new) non-CDHP	 
plans, and national preferred provider organization (PPO) plans. 
GAO also compared the APWU CDHP provider networks and discounts  
to those of other FEHBP plans.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-143 					        
    ACCNO:   A41837						        
  TITLE:     Federal Employees Health Benefits Program: Early	      
Experience with a Consumer-Directed Health Plan 		 
     DATE:   11/21/2005 
  SUBJECT:   Comparative analysis				 
	     Federal employees					 
	     Fringe benefits					 
	     Health care programs				 
	     Health insurance					 
	     Health statistics					 
	     Performance measures				 
	     Program evaluation 				 
	     Federal Employees Health Benefits			 
	     Program						 
                                                                 

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GAO-06-143

Report to the Ranking Minority Member, Committee on Finance, U.S. Senate

United States Government Accountability Office

GAO

November 2005

FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM

Early Experience with a Consumer-Directed Health Plan

FEHBP Consumer-directed Health Plan 

GAO-06-143

Contents

Letter 1

Results in Brief 4
Background 6
APWU CDHP Enrollees Were Generally Younger, Healthier, Better Educated,
and More Likely to Select an Individual Plan Than Other FEHBP Enrollees 10
APWU CDHP Enrollee Satisfaction Was Mixed Compared to Other FEHBP Plan
Enrollees 14
APWU CDHP Enrollee Access to Provider Networks and Discounts Was Generally
Comparable to Other FEHBP Plans 19
Agency Comments and Comments from APWU 20
Appendix I Comments from the Office of Personnel Management 22

Tables

Table 1: Average FEHBP Enrollee Age 13
Table 2: Self-Reported Health Status and Education of FEHBP Enrollees 13
Table 3: Characteristics of APWU CDHP Provider Networks 19

Figures

Figure 1: Age of APWU CDHP and Other FEHBP Enrollees 12
Figure 2: FEHBP Enrollee Satisfaction with Overall Plan Performance 15
Figure 3: FEHBP Enrollee Satisfaction with Five Specific Performance
Measures 16
Figure 4: FEHBP Enrollee Satisfaction with Components of Customer Service
Quality 17

Abbreviations

APWU American Postal Workers Union CDHP consumer-directed health plan
FEHBP Federal Employees Health Benefits Program HMO health maintenance
organization HRA health reimbursement arrangement HSA health savings
account NCQA National Committee for Quality Assurance OPM Office of
Personnel Management PPO preferred provider organization

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separately.

United States Government Accountability Office

Washington, DC 20548

November 21, 2005

The Honorable Max Baucus Ranking Minority Member Committee on Finance
United States Senate

Dear Senator Baucus:

The federal government provides health insurance coverage for over 8
million federal employees, retirees, and their family members through
health plans participating in the Federal Employees Health Benefits
Program (FEHBP), the largest employer-based health insurance program in
the country. Similar to many large employers, the FEHBP has recently begun
offering "consumer-directed" health plans (CDHPs). A CDHP is a
high-deductible health plan coupled with a savings or reimbursement
account that enrollees use to pay for a portion of their health care
expenses.1 The high deductibles typically result in lower premiums than
for a traditional plan with similar benefits, because the enrollee bears a
greater share of the initial costs of care. CDHPs may also provide
enrollees decision-support tools to help them become more actively
involved in making health care purchase decisions-such as information
about the cost of health care services and the quality of health care
providers, and online access to the savings account to enable them to
track their expenses and progress toward meeting their deductibles.

Views are mixed about the potential benefits and risks associated with
CDHPs. Proponents believe the plans can help restrain health care
spending. Enrollees have an incentive to seek lower-cost health care
services, and only obtain services when necessary because unspent account
funds can accrue from year to year within defined limits. They also
suggest that the lower premiums make the health plans more affordable.
Others, however, express concern that CDHPs may disproportionately attract
younger, healthier, or wealthier enrollees who are less likely to use
health care or who can better afford to pay the higher deductibles. If
this occurred to a large extent, premiums for traditional plans could rise
due to a disproportionate share of older and less-healthy enrollees with
higher health care expenses remaining in the traditional plans. Because
CDHPs are a relatively new concept in health plan design, there is also
interest in determining whether enrollees are satisfied with the quality
of services provided and whether the plans provide enrollees with the same
access to health care providers and negotiated discounts on provider
charges as do traditional plans.

1Most health plans require enrollees to pay a portion of their health care
costs up to a certain threshold, known as the deductible. Once the
deductible has been met, the plan pays most of the costs. CDHP deductibles
are about $1,900 on average for an individual plan, compared to about $320
on average for a traditional plan. Henry J. Kaiser Family Foundation and
Health Research and Education Trust, Employer Health Benefits: 2005
Summary of Findings (Menlo Park, Calif.: 2005),
http://www.kff.org/insurance/7315/ (October 2005).

In light of the recent introduction of CDHPs as a health coverage option,
you asked us to evaluate the early experience of the first CDHP offered
under the FEHBP by the American Postal Workers Union (APWU) in 2003. We
examined: (1) the number and characteristics of enrollees in the APWU CDHP
compared to other FEHBP plans, (2) enrollee satisfaction with the APWU
CDHP compared to other FEHBP plans, and (3) provider networks and
discounts under the APWU CDHP compared to other FEHBP plans.

To identify characteristics of APWU CDHP enrollees, we analyzed data
provided by APWU CDHP and the Office of Personnel Management (OPM), the
federal agency responsible for administering the FEHBP.2 To determine age,
gender, and family status, we analyzed enrollment data for the plan years
2003 through 2005. To determine health status and education, we analyzed
enrollee survey data that were available for plan years 2003 and 2004.3 To
determine how the identified characteristics of enrollees in the APWU CDHP
compared to enrollees in other FEHBP plans, we compared the
characteristics to those of two groups of enrollees. First, we compared
the characteristics to those of enrollees in all national PPO plans
combined.4 These 19 plans include approximately 75 percent of all federal
employees covered through the FEHBP. Second, because characteristics of
APWU CDHP enrollees may differ from the typical FEHBP enrollee primarily
because the plan was recently introduced, we compared the APWU CDHP
enrollee characteristics to those of two FEHBP plans that had similarly
been introduced within the past 5 years.5 To control for the effects of a
disproportionately small share of retirees and the elderly in the APWU
CDHP plan, we excluded from the analysis retirees and those aged 65 or
older, or both, when comparing other enrollee demographic characteristics
between the plans.

2In administering the FEHBP, OPM selects, contracts with, and regulates
health insurance carriers and negotiates benefits and premium rates. OPM
also receives and deposits health insurance premium withholdings and
contributions from federal employees, and pays premiums to carriers.

3FEHBP plans are required to conduct annual enrollee surveys to assess
consumer satisfaction with the plans (new plans and those with fewer than
500 enrollees are exempt from this requirement). The surveys also collect
information about enrollee demographics, such as age, gender, health
status, and education. The National Committee for Quality Assurance (NCQA)
uses the survey data in its accreditation of health plans, and requires
health plans to follow established guidelines for collecting and
submitting the data. These guidelines, including the specification of a
randomly drawn sample, and minimum sample size, help ensure that
respondents are representative of the overall plan enrollment.

To assess enrollee satisfaction, we reviewed enrollee survey data obtained
from APWU and OPM for the APWU CDHP and the other FEHBP plans for the plan
years 2003 and 2004. These surveys use a standardized instrument to
measure enrollee satisfaction along several plan quality measures, such as
access to health care, claims processing, customer service, and overall
plan performance. We also examined the volume and nature of appeals
regarding claim disputes filed with OPM by APWU CDHP enrollees and other
plan enrollees for plan years 2003 and 2004.6

To determine how the APWU CDHP provider networks compare to those used by
other FEHBP plans, we examined aspects of the APWU CDHP networks used in
each state and the District of Columbia (hereafter referred to as a
state), and compared them to the networks used by other national FEHBP
plans. We identified the states in which the networks were the same, and
for the remaining states, identified other characteristics of the networks
used, such as their size and accreditation status.7 We also compared the
average hospital and physician discounts in each state between the APWU
CDHP and another large, national PPO plan.8 We had several discussions
with APWU CDHP, its plan administrator, Definity Health Plan, and OPM to
clarify our understanding of the data and materials.

4FEHBP offers national plans to all enrollees who may work anywhere in the
country, while local plans are offered only in certain local markets.
National plans are generally preferred provider organization plans (PPO)
that allow enrollees to choose their own health care providers, and
reimburse either the provider or the enrollee for the cost of covered
services. Enrollees generally pay a lower share of the cost if they obtain
care from the plan's network of preferred providers. Local plans are
typically health maintenance organization (HMO) plans that provide or
arrange for comprehensive health care services on a prepaid basis, and
require that all care be coordinated through a primary care physician. The
APWU CDHP is a national PPO plan, offered to all FEHBP enrollees.

5The two plans were a national PPO plan and a regional HMO plan.

6OPM independently reviews disputes filed by enrollees against FEHBP plans
regarding denied claims that cannot be resolved by the plan to the
enrollees' satisfaction.

We did not independently verify the data provided by APWU CDHP and OPM;
however, we performed certain quality checks, such as determining
consistency where similar data were provided by both sources. We also
evaluated information from APWU CDHP and OPM concerning how the data are
collected, stored, and maintained, and determined that the data were
adequate for this report. We conducted our work according to generally
accepted government auditing procedures from November 2004 to November
2005.

                                Results in Brief

The APWU CDHP is a small but fast-growing FEHBP health plan whose
enrollees were on average younger than national PPO plan enrollees, and
healthier, better educated, and more likely to select individual rather
than family plans than enrollees in other new plans and the national PPO
plans. Enrollment in the APWU CDHP more than doubled, from 4,500 at its
introduction in 2003, to over 9,500 in 2005. Including dependents, total
covered lives increased from an estimated 10,000 to 21,000 during the same
period. Over half of these enrollees migrated from existing national PPO
plans, and about a quarter from existing HMO plans participating in the
FEHBP. The average age of APWU CDHP enrollees was the same as enrollees in
other new plans-47 years-but younger than national PPO plan enrollees by
about 15 years. This age difference was largely due to a smaller share of
retirees and elderly people enrolled in the APWU CDHP and other new
plans-less than 20 percent-compared to the national PPO plans-over 50
percent. Excluding retirees and the elderly, the average age of enrollees
was more similar across the APWU CDHP, the other new plans, and the
national PPO plans-45, 43, and 47, respectively-although other notable
differences in enrollee characteristics existed. A larger share of
nonelderly enrollees reported being in "excellent" or "very good" health
status in the APWU CDHP compared to enrollees in the other new plans and
the national PPO plans-73 percent versus 64 and 58 percent, respectively.
Similarly, a larger share of nonelderly enrollees in the APWU CDHP
reported having a 4-year or higher college degree compared to enrollees in
other new plans and the national PPO plans-49 percent versus 42 and 36
percent, respectively. Finally, excluding retirees and the elderly, fewer
APWU CDHP enrollees selected family plans as compared to enrollees in
other new plans and the national PPO plans-55 percent, versus 66 and 65
percent, respectively.

7Accreditation is the approval of a health plan by a nationally
recognized, independent organization, such as the NCQA. The organization
reviews the health plan provider networks, policies, and procedures to
determine that they meet minimum quality standards.

8Provider discount information, which is proprietary, was not available
from OPM. We obtained such discount information directly from one large
FEHBP PPO for comparison purposes. This plan is offered in all states,
covers over 100,000 members, and has been operating for decades.

Enrollee satisfaction with the APWU CDHP was mixed compared to enrollee
satisfaction with other FEHBP plans. For the measure of overall plan
performance, APWU CDHP enrollees were more satisfied than other new plan
enrollees, but less satisfied than national PPO plan enrollees. For four
of five specific plan performance measures-access to health care,
timeliness of health care, provider communication, and claims
processing-APWU CDHP enrollees were generally as satisfied as other
enrollees. With regard to the fifth measure-customer service-APWU CDHP
enrollees were more satisfied than other new plan enrollees, but less
satisfied than national PPO plan enrollees. Relating to customer service,
a smaller proportion of APWU CDHP enrollees reported being satisfied with
their ability to find or understand written or online plan information,
with the help provided by customer service, and with the amount of
paperwork required by the plan, compared to national PPO plan enrollees.
Further evidence of enrollee difficulty finding or understanding plan
information was revealed by the appeals filed with OPM against the APWU
CDHP in 2003 and 2004. Over half of the appeals related to enrollees'
understanding of the plan features, such as their ability to track their
account expenditures or their progress toward meeting their deductibles,
in contrast to appeals filed against other FEHBP plans, which tended to be
distributed among a wider variety of issues. OPM officials said a higher
rate of enrollee dissatisfaction and confusion are traits typically
observed among new plans, reflecting transitional issues as enrollees
learn the features of new plans.

APWU CDHP enrollees generally had access to comparable provider networks
and discounts as enrollees in large national PPO plans participating in
the FEHBP. In 21 states, the APWU CDHP used the same provider networks as
used by other national PPO plans. In 13 of the remaining states, the APWU
CDHP used networks that were listed among the 25 most commonly used PPO
networks nationwide. In 8 states, the APWU CDHP used large networks that
had been in existence for over 10 years. In the remaining 9 states, the
APWU CDHP used networks that were either nationally accredited, or were
comparable in size to networks used by other FEHBP plans based on counts
of hospitals or physicians included in the network. Across all states, the
average hospital inpatient and physician discounts differed by no more
than 2 percentage points between the APWU CDHP and one other national PPO
plan.

In commenting on a draft of this report, both OPM and APWU generally
concurred with its findings. Regarding the potential for CDHPs to
disproportionately attract healthier enrollees, OPM said it would continue
to monitor enrollment trends in the FEHBP and take appropriate action to
eliminate or minimize any adverse effects. OPM and APWU also provided
technical comments, which we incorporated as appropriate.

                                   Background

Federal employees have a choice of multiple health plans offered by
private health insurance carriers participating in the FEHBP. Mirroring
private sector trends, several participating carriers have begun to offer
CDHPs. In 2003, the APWU plan became the first CDHP offered to federal
employees.

FEHBP

OPM administers the FEHBP by contracting with private health insurance
carriers to provide health benefits to over 8 million federal employees,
retirees, and their dependents. Federal employees enrolled in the FEHBP
can select from a number of private insurance plans. In 2005, 19 national
plans and more than 200 local plans were offered through the FEHBP.9 Plans
vary in terms of benefit design and premiums. In 2004, nearly 75 percent
of those covered under the FEHBP were enrolled in national PPOs; the
remainder were in regional or local HMOs.

The CDHP Concept

CDHPs are a relatively new health care plan design. While many variants
exist on CDHP models, such plans generally include three basic precepts:

9Six of the 19 national plans were available only to certain groups of
federal employees, such as Federal Bureau of Investigation employees.

           o  An insurance plan with a high deductible. Deductibles are about
           $1,900 on average for an individual plan and about $3,900 for a
           family plan, compared to about $320 and $680, respectively, on
           average for a traditional PPO plan.10

           o  A savings account to pay for services under the deductible. The
           savings account may encompass different models, the two most
           prominent being health reimbursement arrangements (HRAs) and
           health savings accounts (HSAs).11 Important distinctions exist
           between HRAs and HSAs. HRAs are funded solely by the employer, are
           generally not portable once the employee leaves, and may
           accumulate up to a specified maximum.12 In contrast, HSAs may
           include contributions from both the employer and the employee, are
           portable, and may accumulate without limit.

           Unused savings account balances from prior years may roll over and
           accumulate, along with the annual contributions from year to year.
           If the savings account is exhausted, the enrollee pays out of
           pocket for services until the deductible is met, after which
           point, the plan pays for services much like a traditional health
           plan. To avoid the likelihood of enrollees curtailing preventive
           care services-such as cancer screening tests or immunizations-to
           preserve their account balances, most of the cost of these
           services is typically paid for by the plan, regardless of whether
           or not the enrollee has met the deductible.

           o  Decision-support tools. CDHPs may provide enrollees information
           to help them become actively engaged in making health care
           purchase decisions, such as the typical fees charged for specific
           health procedures at participating hospitals, and quality measures
           for participating health care providers. In addition, plans may
           provide enrollees online access to their savings account to help
           them manage their spending.

           Proponents of CDHPs assert that the savings account and higher
           deductibles encourage consumers to become more price conscious,
           and use only necessary health care services to maintain and
           accumulate balances in their savings accounts. The availability of
           information on provider fees and quality is also expected to
           enable consumers to select providers on the basis of price and
           quality. In addition, the higher deductibles typically result in
           lower premiums than for a PPO plan with similar benefits, because
           the enrollee bears a greater share of the initial costs of care.

           Opponents, however, question the underlying premise of CDHPs-that
           health care spending is discretionary and will be constrained to
           any significant extent by the financial incentives offered through
           a health savings or reimbursement account. They cite, for example,
           research that indicates that 10 percent of the population accounts
           for the majority-about 70 percent-of health care spending.13 For
           such high-cost users, a savings or reimbursement account would
           likely be quickly exhausted and provide little incentive for
           enrollees to change health care utilization and purchasing
           behavior. Some analysts have also reported that decision-support
           tools such as comparative cost and quality information about
           providers-important to enable effective consumer participation in
           health care purchase decisions-are lacking or not widely used.14

           Given the relatively recent introduction of CDHPs, conclusive
           assessments of their effectiveness at restraining health care
           utilization and spending have not been made. Analysts believe that
           enrollment in CDHPs should reach sufficient levels for a sustained
           period of time before definitive conclusions about the cost and
           utilization of services can be drawn.

           Employers are increasingly offering CDHPs to their employees.
           According to a 2005 annual survey, the share of employers offering
           such plans coupled with either an HRA or HSA was 4 percent,
           compared to the 1 percent reported in a separate 2004 annual
           survey.15 Many health insurance carriers now offer CDHPs,
           including Aetna, Anthem/Wellpoint, Blue Cross and Blue Shield
           plans, CIGNA, Humana, and United HealthCare.

           The FEHBP has recently begun to offer CDHPs to federal employees.
           The American Postal Worker's Union (APWU CDHP) was the first to
           offer a CDHP in 2003, followed by Aetna and Humana in 2004. In
           January 2005, several carriers began offering health plans
           designed to be coupled with the newly authorized HSAs, increasing
           the number of CDHPs in the FEHBP to 3 national and 13 local plans.
           OPM expects that additional CDHPs will be offered in 2006.
           Nevertheless, as of January 2005, these plans collectively insured
           fewer than 38,000 covered lives, a small share of the more than 8
           million employees, retirees, and dependents covered under the
           FEHBP.

           Administered by Definity Health Plan, the APWU CDHP is a
           high-deductible PPO plan coupled with an HRA. The deductibles are
           currently $1,800 for an individual plan and $3,600 for a family
           plan. For an individual plan, the first $1,200 of the deductible
           is paid for from the HRA-which is funded every year by the
           enrollee's employing federal agency. The remaining $600 of the
           deductible is considered the member's responsibility. Unused
           balances may accumulate and roll over from year to year up to a
           maximum of $5,000 for an individual plan and $10,000 for a family
           plan. The member responsibility is paid by the employee, either
           out of pocket or from accumulated balances in the HRA from prior
           years.16 Once the deductible has been met and the HRA is
           exhausted, the plan generally pays 85 percent of the cost of
           covered services.17

           The HRA may be used to pay for two types of services: basic
           expenses, such as doctor visits and hospital charges, and "extra"
           expenses, such as certain preventive care services that are not
           covered by the plan.18 The HRA coverage of extra expenses does not
           count toward the deductible. For example, if an enrollee exhausts
           the HRA by spending $1,200 on basic physician office visit
           expenses, and then spends another $600 out of pocket for extra
           preventive care services, the enrollee would need to spend another
           $600 out of pocket on basic expenses before the $1,800 deductible
           is met and the plan begins paying 85 percent of expenses.

           The APWU CDHP is a small but fast-growing health plan whose
           enrollees on average were younger than enrollees in national PPO
           plans. In addition, the APWU CDHP enrollees were healthier, better
           educated, and more likely to enroll in an individual plan than
           enrollees in other new plans and the national PPO plans.

           Enrollment in the APWU CDHP grew from 4,500 in 2003, its first
           year of operation, to approximately 7,600 in 2004, an increase of
           almost 70 percent. In 2005, enrollment grew an additional 25
           percent, to approximately 9,500. Including dependents, total
           covered lives were estimated to be approximately 10,000, 16,800,
           and 21,000 in each of the 3 years, respectively. Most APWU CDHP
           enrollees in 2003 and 2004 migrated from FEHBP national PPO
           plans-57 percent-and HMO plans- 26 percent, while 17 percent were
           not previously covered by an FEHBP plan.19

           Fewer retirees and elderly people selected the APWU CDHP compared
           to the national PPO plans, a phenomenon also found among the other
           new plans. Among the APWU CDHP and other new plans, 11 and 19
           percent of enrollees, respectively, were retirees or aged 65 or
           over, compared to 53 percent for the national PPO enrollees.20 The
           distribution of enrollees by age groups was similar for the APWU
           CDHP and other new plans, while national PPO plans had a smaller
           share of enrollees in all age groups under 55 and a significantly
           higher share of enrollees in the over-65 age group. Figure 1
           illustrates the share of enrollees in the APWU CDHP, the other new
           plans, and the national PPO plans within each age group.21

           Figure 1: Age of APWU CDHP and Other FEHBP Enrollees

           Note: The APWU CDHP distributions are based on a 3-year average of
           enrollment for 2003 through 2005. The new plan and PPO
           distributions are based on a 2-year average of enrollment for 2003
           and 2004 because data for 2005 were not yet available. Data on the
           age of dependents were not available from OPM.

           The average age of APWU CDHP enrollees was comparable to that of
           enrollees in other new plans, but lower than enrollees in the
           national PPO plans by about 15 years-47 each in both the APWU CDHP
           and the other new plans compared to 62 for the PPO plans.
           Excluding the elderly and retirees, the average ages of enrollees
           in the APWU CDHP, the other new plans, and the national PPO plans
           were more similar-45, 43, and 47, respectively. (See table 1.)

           Table 1: Average FEHBP Enrollee Age

           Source: GAO analysis of FEHBP enrollment data.

           Note: The APWU CDHP enrollee ages are based on a 3-year average of
           enrollment between 2003 and 2005. The other new plan and PPO
           enrollee ages are based on a 2-year average of enrollment between
           2003 and 2004 because data for 2005 were not yet available.

           Excluding enrollees over age 65, the proportion of APWU CDHP
           enrollees who reported on annual satisfaction surveys being in
           "excellent" or "very good" health status was higher than among the
           other new plan and PPO plan enrollees.22 APWU CDHP enrollees also
           appeared to be better educated than enrollees in other new plans
           and the PPO plans. The proportion of APWU CDHP enrollees under the
           age of 65 who reported having a 4-year or higher college degree
           was higher than among the other new plan and the PPO plan
           enrollees. (See table 2.)

           Table 2: Self-Reported Health Status and Education of FEHBP
           Enrollees

           Source: GAO analysis of 2003-2004 FEHBP consumer satisfaction
           survey data.

           Excluding retirees and the elderly, a lower share of APWU CDHP
           enrollees selected family plans compared to other enrollees. About
           55 percent of APWU CDHP enrollees selected family plans, compared
           to 66 percent and 65 percent of enrollees in other new plans and
           PPO plans, respectively.

           APWU CDHP enrollee satisfaction with overall plan performance was
           higher than that of other new plan enrollees, but lower than that
           of national PPO plan enrollees. APWU CDHP enrollee satisfaction
           was generally comparable to that of other new plan and national
           PPO plan enrollees on four of five specific plan performance
           measures-access to health care, timeliness of health care,
           provider communications, and claims processing. APWU CDHP enrollee
           satisfaction was higher than other new plan enrollees but lower
           than national PPO plan enrollees for the remaining specific
           measure relating to customer service. In addition, some APWU CDHP
           enrollees may have more difficulty tracking their health care
           spending under the APWU CDHP compared to other FEHBP enrollees.

           On the overall plan performance measure included in annual
           consumer satisfaction surveys, APWU CDHP enrollees were more
           satisfied than other new plan enrollees, but less satisfied than
           national PPO plan enrollees-67 percent versus 53 and 76 percent,
           respectively. This performance measure is not comprised of
           component scores, nor is it directly related to the scores for the
           other performance measures. Rather, according to OPM, overall plan
           performance is a measure of enrollees' broad assessment of the
           plan. (See fig. 2.)

           Figure 2: FEHBP Enrollee Satisfaction with Overall Plan
           Performance

           For four of five specific plan performance measures-access to
           health care, timeliness of health care, provider communications,
           and claims processing-APWU CDHP enrollee satisfaction was
           generally comparable to that of other enrollees.23 APWU CDHP
           enrollee satisfaction with customer service, though higher than
           that of other new plan enrollees, was lower than that of the PPO
           plan enrollees by 7 percentage points- 67 percent versus 59 and 74
           percent respectively. (See fig. 3.)

           Figure 3: FEHBP Enrollee Satisfaction with Five Specific
           Performance Measures

           Moreover, for three of the components that constitute the customer
           service performance measure, APWU CDHP enrollees were less
           satisfied than national PPO plan enrollees. The components are
           satisfaction with finding or understanding information,
           satisfaction with getting help when calling customer service, and
           satisfaction with the health plan paperwork. (See fig. 4.)

           Figure 4: FEHBP Enrollee Satisfaction with Components of Customer
           Service Quality

           Note: APWU CDHP scores were higher than the other new plan and
           national PPO plan scores for a fourth component of customer
           service, no problems reported with plan paperwork.

           Our analysis of appeals regarding claim disputes filed with OPM
           for the APWU CDHP and PPO plans in 2003 and 2004 indicate a higher
           rate of confusion about certain APWU CDHP features, such as
           enrollees' ability to track their account expenditures and their
           progress toward meeting their deductibles. The average annual rate
           of appeals per 1000 enrollees filed with OPM against the APWU CDHP
           was almost twice as high as the rate for national PPO plans-1.98
           and 1.11 respectively.24 Some health policy researchers have noted
           that this may be expected as CDHP enrollees gain familiarity with
           a relatively new plan concept. However, whereas appeals for the
           PPO plans were distributed among a wider variety of issues, a
           disproportionate share of the APWU CDHP appeals-over half-related
           to tracking account expenditures or deductible balances.

           Possibly contributing to enrollee inability to track their
           progress toward meeting their deductible, the APWU CDHP brochure
           contains potentially confusing language about whether expenses for
           dental and vision services count toward the deductible. APWU CDHP
           officials told us that in 2005, the HRA may be used to pay for
           dental and vision services, and that these services would also
           count toward the member's deductible. However, while one page of
           the plan brochure explicitly states that these expenses count
           toward the deductible, another page appears to indicate that such
           expenses do not count toward the deductible.25

           The lower enrollee satisfaction related to overall plan
           performance and customer service, and enrollee confusion in
           tracking their account spending, may relate to the recent
           introduction of the APWU CDHP. OPM officials said that a higher
           rate of dissatisfaction and confusion about plan features are
           traits typically observed among new plans, as enrollees gain
           familiarity with their benefits and features. According to one
           health policy analyst, CDHP enrollees are more likely to report
           problems understanding the plan because CDHPs are a relatively new
           concept, and plan paperwork and management of the HRA account are
           new experiences for enrollees.26

           Provider networks appeared to provide APWU CDHP enrollees with
           similar access to health care providers compared to networks of
           other FEHBP plans. In 21 states, the APWU CDHP used the same
           provider networks as other large, national PPO plans participating
           in the FEHBP-each with over 70,000 enrollees. These 21 states
           account for approximately 40 percent of the total APWU CDHP
           enrollment. In 13 of the remaining states, accounting for
           approximately 22 percent of total plan enrollment, the APWU CDHP
           used networks that were listed among the 25 most commonly used PPO
           networks nationwide. In 8 states, accounting for another 22
           percent of total plan enrollment, the APWU CDHP used generally
           large networks that had been in existence for over 10 years. For
           example, the APWU CDHP network included over 70 percent of the
           hospitals in one state, and over 90 percent of the hospitals in
           another state. In the remaining 9 states, accounting for
           approximately 16 percent of total plan enrollment, the APWU CDHP
           used networks that were either nationally accredited, or were
           comparable in size to networks used by other FEHBP plans based on
           counts of hospitals or physicians included in the network. (See
           table 3).

           Table 3: Characteristics of APWU CDHP Provider Networks

           Source: GAO analysis of FEHBP plan network information obtained
           from plan brochures and Web sites.

           Provider networks appeared to provide APWU CDHP enrollees with
           negotiated provider discounts that were comparable to those of
           another large national FEHBP plan. Across all states, the average
           hospital inpatient and physician discounts for the APWU CDHP and
           another national PPO plan differed by no more than 2 percentage
           points. The actual level of the hospital and physician discounts
           in the APWU CDHP and the national PPO plan were comparable to
           industry standard discounts negotiated by large PPO plans,
           according to an industry expert we interviewed.27

           We received comments on a draft of this report from OPM (see app.
           I) and APWU. Both generally concurred with our findings. OPM said
           that consumer-directed health plans have the potential to lower
           health insurance costs by allowing health plan members greater
           choice over their health care spending. Regarding the potential
           for CDHPs to disproportionately attract healthier enrollees, OPM
           said that while enrollment in the APWU CDHP is growing, the plan
           accounted for a small fraction of total FEHBP enrollment and that
           OPM did not anticipate any harm accruing to other FEHBP enrollees
           as a result of its enrollment trends. Nevertheless, OPM said it
           would continue to monitor enrollment trends and take appropriate
           action to eliminate or minimize any adverse effects. OPM also
           provided technical comments, which we incorporated in the report
           as appropriate.

           APWU acknowledged that the language concerning dental and vision
           coverage in its plan brochure could have contained greater
           clarity, and said that in consultation with OPM it has revised the
           language for the 2006 plan brochure. APWU also stated that in
           spite of the potentially confusing language, the plan credited
           enrollees' dental and vision services incurred in 2005 toward the
           enrollees' deductible. We made reference to their comment in our
           report. APWU also requested that we disclose the source of the
           appeals data we cited in the report because it did not believe its
           rate of appeals was significantly higher than other national PPO
           plans. We notified APWU officials that we obtained the appeals
           data from OPM.

           As arranged with your office, unless you publicly announce the
           contents of this report earlier, we plan no further distribution
           of it until 30 days after its issue date. At that time, we will
           send copies of this report to OPM and other interested parties. We
           will also make copies available to others upon request. In
           addition, the report will be available at no charge on the GAO Web
           site at http://www.gao.gov.

           If you or your staff has any questions about this report, please
           contact me at (202) 512-7119 or at [email protected]. Contact points
           for our Office of Congressional Relations and Public Affairs may
           be found on the last page of this report. Randy DiRosa, Assistant
           Director, and Iola D'Souza also made key contributions to this
           report.

           Sincerely yours,

           John E. Dicken Director, Health Care

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10Henry J. Kaiser Family Foundation and Health Research and Education
Trust, Employer Health Benefits: 2005 Summary of Findings.

11Both HRAs and HSAs were offered as tax-advantaged ways for employees to
pay for unreimbursed medical expenses. The Treasury Department affirmed in
2002 that employer contributions to employee HRAs are to be excluded from
gross income for tax purposes. (I.R.S. Rev. Rul. 02-41; I.R.S. Notice
02-45 (June 26, 2002)). Itemized tax deductions for individual
contributions to HSAs were authorized beginning in tax year 2004 by the
Medicare Prescription Drug, Improvement and Modernization Act of 2003,
Pub. L. No. 108-173, S:1201, 117 Stat. 2066, 2469.

12The average annual employer contribution to an HRA in 2005 was about
$800 for an individual plan and $1,550 for a family plan, while the
average annual employer contribution to an HSA in 2005 was about $550 for
an individual plan and $1,200 for a family plan. Henry J. Kaiser Family
Foundation and Health Research and Education Trust, Employer Health
Benefits: 2005 Summary of Findings.

13K. Davis, "Consumer-Directed Health Care: Will It Improve Health System
Performance?", Health Services Research vol. 39, no. 4, part II (August
2004): 1219-1233.

14M. Rosenthal and A. Milstein, "Awakening Consumer Stewardship of Health
Benefits: Prevalence and Differentiation of New Health Plan Models,"
Health Services Research, vol. 39, no. 4, part II (August 2004):
1055-1070; J. Christianson et al, "Consumer Experiences in a
Consumer-Driven Health Plan," Health Services Research, vol. 39, no. 4,
part II (August 2004): 1123-1139; and J.B. Fowles et al, "Early Experience
with Employee Choice of Consumer-Directed Health Plans and Satisfaction
with Enrollment," Health Services Research, vol. 39, no. 4, part II
(August 2004): 1141-1158.

CDHPs Are a Small but Growing Segment of the Employer-Sponsored Health Insurance
Market

The APWU CDHP

15The 2005 survey includes employers ranging in size from three to
hundreds of thousands of employees. Henry J. Kaiser Family Foundation and
Health Research and Educational Trust, Employer Health Benefits: 2005
Summary of Findings. The 2004 survey includes a wide range of small to
large employers. Mercer Human Resource Consulting, The National Survey of
Employer-Sponsored Health Plans 2004. Both surveys reported that large
employers with 5,000 or more employees were more likely than smaller firms
to offer high-deductible plans.

16For example, if the enrollee had an HRA balance from a prior year of
$300, the HRA balance in the current year would be $1,500 ($1200 + $300).
After paying the first $1,200 of the deductible from the HRA, the enrollee
is still liable for the $600 member responsibility, $300 of which would be
paid from the remaining HRA balance, and the remaining $300 would be paid
out of pocket.

APWU CDHP Enrollees Were Generally Younger, Healthier, Better Educated, and More
         Likely to Select an Individual Plan Than Other FEHBP Enrollees

APWU CDHP Enrollment Is Small but Growing

17The remaining 15 percent is paid by the enrollee out of pocket. The
enrollee pays a higher share (generally 40 percent plus any difference
between the provider's charges and the plan's negotiated fees) for
services from nonnetwork providers. Once the enrollee's out-of-pocket
expenses reach $4,500 for either an individual or family plan, the plan
pays 100 percent of the enrollee's eligible health care expenses.

18Routine preventive care services, such as immunizations and cancer
screening tests, are paid 100 percent by the APWU CDHP.

APWU CDHP Enrollees Included Few Retirees and Elderly and Were Younger than
Other FEHBP Enrollees

19Enrollees with no prior FEHBP coverage were either new federal
employees, previously uninsured, or previously covered under a spouse's
health plan.

20Most retirees (77 percent) are aged 65 and over.

21Enrollment data do not include dependents.

                                          APWU CDHP Other new plans PPO plans 
All enrollees                                 47              47        62 
Excluding retirees and elderly                45              43        47 
enrollees                                                        

APWU CDHP Enrollees Were Healthier, Better Educated, and More Likely to Enroll
in Individual Plans

                                          APWU CDHP Other new plans PPO plans 
Percent of respondents under age 65                                        
reporting "excellent" or "very good"                             
health status                                 73              64        58
Percent of respondents under age 65                                        
with 4-year or higher college degree          49              42        36

22The survey data did not identify retirees; therefore, we were unable to
exclude them from the analysis.

APWU CDHP Enrollee Satisfaction Was Mixed Compared to Other FEHBP Plan Enrollees

APWU CDHP Enrollee Satisfaction with Overall Plan Performance Was Mixed Compared
to Other Plans

APWU CDHP Enrollees Were Generally as Satisfied as Other Plan Enrollees on Four
of Five Specific Performance Measures

23Each performance measure is based on the scores of at least two
component measures. For example, the claims processing measure score is
based on the scores for the components of satisfaction with the timely
payment of claims and accurate payment of claims.

Some APWU CDHP Enrollees Face Difficulty Tracking Their Spending

24Appeals data for the other new plans were not readily available.

Instances of Lower Satisfaction and Difficulty Tracking Health Care Spending May
Relate to the APWU CDHP's Recent Introduction

25The APWU CDHP brochure identifies dental and vision services as "extra"
expenses. Page 55 of the brochure states: "If you decide to use your . . .
PCA . . . [HRA] for extra . . . expenses for other than covered dental
and/or vision services (emphasis added) you may increase your member
responsibility [deductible]." However, page 53 of the brochure states that
"extra . . . expenses do not count toward reducing your member
responsibility [deductible]" and does not specify that dental and vision
expenses are an exception. In commenting on a draft of this report, OPM
and APWU officials said that the 2006 brochure has been revised to explain
this coverage with greater clarity. They also stated that in spite of this
potential lack of clarity in 2005, the health plan credited enrollees'
dental and vision expenses incurred during that year towards the
enrollees' deductible.

26J. Christianson et al, "Consumer Experiences in a Consumer-Driven Health
Plan".

APWU CDHP Enrollee Access to Provider Networks and Discounts Was Generally
                        Comparable to Other FEHBP Plans

                                                       Percent of total 
Characteristics of APWU CDHP networks        States       enrollment 
The same networks used by other national                             
FEHBP plans                                      21               40
Among top 25 most commonly used PPO networks                         
nationwide                                       13               22
Large networks in existence for over 10                              
years                                             8               22
Networks nationally accredited or comparable                         
in size to networks used by other large             
FEHBP plans                                       9               16

                     Agency Comments and Comments from APWU

27A recent independent survey of insurers offering CDHPs with collectively
over 800,000 enrollees found that 95 percent of CDHP enrollees had access
to national or local/regional networks used by existing, established plans
along with the same negotiated rate structures. Reden & Anders, Ltd.,
Consumer Directed Insurance Products: Survey Results (Minneapolis, Minn.:
April 2005), http://www.aha.org/aha/press_room-info/content/5 (April
2005).

APersonne  Appendix I: Comments from the Office of Personnel Management

(290425)

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Highlights of GAO-06-143, a report to the Ranking Minority Member,
Committee on Finance, U.S. Senate

November 2005

FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM

Early Experience with a Consumer-Directed Health Plan

Since 2003, the Federal Employees Health Benefits Program (FEHBP) has
offered "consumer-directed" health plans (CDHP) to federal employees. A
CDHP is a high-deductible health plan coupled with a savings account
enrollees use to pay for health care. Unused balances may accumulate for
future use, providing enrollees the incentive to purchase health care
prudently. However, some have expressed concern that CDHPs may attract
younger and healthier enrollees, leaving older, less healthy enrollees to
drive up costs in traditional plans. They also question whether enrollees
are satisfied with the plans, and have sufficient access to health care
providers and discounts on health care services.

GAO was asked to study the first FEHBP CDHP, offered by the American
Postal Workers Union (APWU). GAO compared the number, characteristics, and
satisfaction of APWU enrollees to those of FEHBP enrollees in other
recently introduced (new) non-CDHP plans, and national preferred provider
organization (PPO) plans. GAO also compared the APWU CDHP provider
networks and discounts to those of other FEHBP plans.

The APWU CDHP is a small but growing FEHBP health plan whose enrollees
were younger than PPO plan enrollees, and healthier and better educated
than other new plan and PPO enrollees. The average age of APWU CDHP and
other new plan enrollees was the same (47 years), but younger than that of
PPO plan enrollees (62 years), largely because fewer retirees and elderly
people selected the new plans. Excluding retirees and the elderly, the
average age of enrollees was more similar across the plans. A larger share
of nonelderly enrollees in the APWU CDHP reported being in "excellent" or
"very good" health status compared to the other new plan and PPO plan
enrollees-73 percent versus 64 and 58 percent, respectively. Similarly, a
larger share of nonelderly enrollees in the APWU CDHP reported having a
4-year or higher college degree compared to enrollees in the other new
plans and PPO plans-49 percent versus 42 and 36 percent, respectively.

Enrollee satisfaction with the APWU CDHP was mixed compared to enrollee
satisfaction with the other FEHBP plans. For overall plan performance,
APWU enrollees were more satisfied than other new plan enrollees, but less
satisfied than PPO plan enrollees. For four of five specific quality
measures-access to health care, timeliness of health care, provider
communication, and claims processing-APWU enrollees were as satisfied as
other enrollees. On the fifth measure, customer service, APWU enrollees
were more satisfied than other new plan enrollees, but less satisfied than
PPO plan enrollees. In particular, a lower share of APWU enrollees were
satisfied with their ability to find or understand written or online plan
information, the help provided by customer service, and the amount of
paperwork required by the plan.

The APWU CDHP provider networks and discounts were comparable to other
FEHBP PPO plans. In 21 states, the APWU CDHP used the same networks used
by other national PPO plans. In the remaining states, the APWU CDHP
networks were among the most commonly used networks nationwide, or were
large, nationally accredited, or comparable in size to networks used by
other FEHBP plans. Across all states the average hospital inpatient and
physician discounts obtained by the APWU CDHP were within 2 percentage
points of the discounts obtained by another large national FEHBP PPO plan.

GAO received comments on a draft of this report from the Office of
Personnel Management (OPM) and APWU. Both generally concurred with our
findings. Regarding the potential for CDHPs to disproportionately attract
healthier enrollees, OPM said it would continue to monitor the enrollment
trends and take appropriate action to eliminate or minimize any adverse
effects.
*** End of document. ***