Federal Employees Health Benefits Program: Premium Growth Has	 
Recently Slowed, and Varies among Participating Plans (22-DEC-06,
GAO-07-141).							 
                                                                 
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. 					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-141 					        
    ACCNO:   A64424						        
  TITLE:     Federal Employees Health Benefits Program: Premium Growth
Has Recently Slowed, and Varies among Participating Plans	 
     DATE:   12/22/2006 
  SUBJECT:   Comparative analysis				 
	     Cost analysis					 
	     Employee medical benefits				 
	     Federal employees					 
	     Health care programs				 
	     Health insurance					 
	     Health insurance cost control			 
	     Insurance premiums 				 
	     Program evaluation 				 
	     Retirees						 
	     Surveys						 
	     Cost growth					 
	     Federal Employees Health Benefits			 
	     Program						 
                                                                 

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GAO-07-141

   

     * [1]Results in Brief
     * [2]Background
     * [3]Growth in Average FEHBP Premiums Has Recently Slowed and Was

          * [4]Growth in Average FEHBP Premiums Slowed and Was Lower Than T
          * [5]FEHBP Premium Growth Varied Less for Large Plans Than for Sm
          * [6]Growth in Average FEHBP Enrollee Premium Contributions Track

     * [7]Projected Growth in Several Factors Contributed to Average F

          * [8]Projected Increases in the Cost and Utilization of Health Ca
          * [9]Plan Officials Differed on Whether OPM's Decision Not to Acc

     * [10]Changes in the Cost and Utilization of Services and Enrollee

          * [11]Plans with High Premium Growth Had Higher-Than-Average Incre
          * [12]Plans with Lower-Than-Average Premium Growth Cited Adjustmen

     * [13]Agency Comments and Our Evaluation
     * [14]GAO's Mission
     * [15]Obtaining Copies of GAO Reports and Testimony

          * [16]Order by Mail or Phone

     * [17]To Report Fraud, Waste, and Abuse in Federal Programs
     * [18]Congressional Relations
     * [19]Public Affairs

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

Contents

Letter 1

Results in Brief 4
Background 6
Growth in Average FEHBP Premiums Has Recently Slowed and Was Lower Than
That of Other Purchasers 8
Projected Growth in Several Factors Contributed to Average FEHBP Premium
Growth 13
Changes in the Cost and Utilization of Services and Enrollee Demographics
Accounted for Differing Premium Growth among FEHBP Plans 17
Agency Comments and Our Evaluation 20
Appendix I Scope and Methodology 22
Appendix II Comments from the Office of Personnel Management 26

Tables

Table 1: Growth in Premiums for 10 Largest FEHBP Plans, 2005 through 2007
10
Table 2: Actual Cost Drivers for Five Large FEHBP Plans, 2003 through 2005
16
Table 3: Eight FEHBP Plans with Higher-Than-Average Premium Growth:
Enrollee Demographic Changes, 2001 through 2005 18
Table 4: Six FEHBP Plans with Lower-Than-Average Premium Growth: Enrollee
Demographic Changes, 2001 through 2005 19
Table 5: Plans with Higher- or Lower-Than-Average Premium Growth Selected
by GAO 24

Figures

Figure 1: Growth in Average Premiums for FEHBP and Other Purchasers, 1994
through 2007 9
Figure 2: Growth in Average FEHBP Premium and Enrollee Premium
Contribution, 1994 through 2007 12
Figure 3: Growth in Average Enrollee Premium Contributions for FEHBP and
Surveyed Employer Plans, 1994 through 2006 13
Figure 4: Projected Changes in Various Factors Affecting FEHBP Premium
Growth, 2000 through 2007 15

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

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separately.

United States Government Accountability Office

Washington, DC 20548

December 22, 2006 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

Dear Senator Akaka: Dear Senator Akaka:

Federal employees' health insurance premiums have steadily increased since
the late 1990s, after a brief period of decreases.^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.^212Federal employees' health insurance premiums have steadily
increased since the late 1990s, after a brief period of decreases. 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.

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.^33 To do this we
examined 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. 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.
			  
^1GAO 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, [20]GAO-03-236 (Washington,
D.C.: Dec. 31, 2002).

^2Pursuant to 5 U.S.C. S 8909.

^3As 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.

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.^4 To assess the variation in premium
trends across all FEHBP plans by such characteristics as plan type,^5 plan
option,^6 geographic area served, and share of retirees, we obtained
plan-level premium and enrollment data from 2003 through 2006 from OPM.^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).^8,9

^4Throughout 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.

^5Several 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.

^6Some 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.

^7As 2007 premium data became available, we incorporated these data into
our analyses as appropriate.

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.^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.^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.

^8Kaiser/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.

^9We 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.

^10Premium 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.

^11These 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.

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.^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.

^12The Balanced Budget Act of 1997 established the government's current
share of the premiums beginning in 1999. Pub. L. No. 105-33, S7002, 111
Stat. 251, 662 (amending 5 U.S.C. S8906). 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.

By statute, OPM can negotiate contracts with health plans without regard
to competitive bidding requirements.^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.^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.^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.^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.

^135 U.S.C. S8902.

^14OPM 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.

^155 U.S.C.S8909. 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.

^16In 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).

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.^17 (See fig. 1.).

^17In 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.

Figure 1: Growth in Average Premiums for FEHBP and Other Purchasers, 1994
through 2007

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.

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

                                           Average Kaiser                     
                                 Premium   premium Foundation                 
                                 growth,   growth, Health Plan of             
Plan                             2007 2005-2007 California     15.5% 10.2% 
Kaiser Foundation Health Plan                   
Mid-Atlantic States              9.7%     10.3% 
M.D. Individual Practice                        
Association                      7.3%      8.7% 
Mail Handlers Benefit Plan -                    
(standard option)                3.0%     15.4% 
National Association of                         
Letter Carriers                  2.0%      6.1% 
American Postal Workers Union                   
Health Plan - (high option)      1.7%      3.4% 
Government Employees Hospital                   
Association Benefit Plan -                      
(high option)                    1.3%      6.3% 
Blue Cross Blue Shield -                        
(standard option)                1.0%      5.4% 
Government Employees Hospital                   
Association Benefit Plan -                      
(standard option)                0.0%      3.3% 
Blue Cross Blue Shield -                        
(basic option)                   0.0%      0.0% 
Average of 10 largest plans      1.7%      6.3% 
Average of all FEHBP plans       1.8%      5.2% 

Source: GAO analysis of FEHBP premium data from OPM.

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.

           o Premium growth for FFS plans (6.0 percent) was lower than for
           HMO plans (8.5 percent).

           o Premium growth for low-option plans (2.6 percent) was lower than
           that for high-option plans (7.3 percent).

           o 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).^18

           o 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.^19 (See fig. 2.)

           Figure 2: Growth in Average FEHBP Premium and Enrollee Premium
           Contribution, 1994 through 2007

           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.^20

           Figure 3: Growth in Average Enrollee Premium Contributions for
           FEHBP and Surveyed Employer Plans, 1994 through 2006

           Note: Data on the growth in enrollee premium contributions for
           CalPERS were not available.

           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.^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

           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
			  
                           Contribution to increase in total expenditures per 
Service category                                                  enrollee 
Prescription drugs                                                     34% 
Hospital outpatient                                                    26% 
Hospital inpatient                                                     14% 
Physician services                                                     14% 
All other                                                              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.
			  
			  Plan Officials Differed on Whether OPMï¿½s 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.^22,23 The reduction in premium growth would have been a
           onetime reduction for 2006.^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
			
                                     Plans with higher-than-average           
Demographic characteristics                       premium growth All plans 
Change in average age (years)                                2.7       0.5 
Percentage change in share of                                              
enrollees aged 65+                                           3.7      -1.0 
Percentage change in share of                                              
early retirees                                               1.8       1.0 			  

           Source: GAO analysis of OPM enrollment data.
			  
			  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
			  
                                      Plans with lower-than-average           
Demographic characteristics                       premium growth All plans 
Change in average age (years)                               -0.5       0.5 
Percentage change in share of                                              
enrollees aged 65+                                          -2.9      -1.0 
Percentage change in share of                                              
early retirees                                               0.9       1.0 

           Source: GAO analysis of OPM enrollment data.
			  
			  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 http://www.gao.gov .

           If you or your staff have any questions about this report, please
           contact me at (202) 512-7119 or [email protected] . 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,

           John E. Dicken
			  Director, Health Care
			  
^18National FFS plans charge the same premium in all geographic areas.

^19The 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.

^20In 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.

^21OPM 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.

^22We 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.

^23Officials 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.

^24Continued use of the subsidy in subsequent years would affect actual
FEHBP premiums but not their rate of increase.
(290514)

			  
			  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.^1 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.^2

           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.^3

           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.^4 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.^5

           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.^6,7 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.^8 (See table 5.)

^1Plan-level premium data for 2007 were not available at the time we
conducted our analysis of premium growth by plan characteristics.

^2Geographical analyses of the plans were based on the U.S. Census
Bureau's regional designation for the states in which the plans operated.

^3These 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.

^4Premium 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.

^5Because 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.

^6Enrollment data for 2006 were unavailable when we selected the plans.

^7We excluded plans with significantly higher- or lower-than-average
premium growth. These plans tended to be smaller plans with fewer than 500
enrollees.

^8The 14 plans included 5 nationwide FFS plans, 1 nationwide CDHP, and 8
HMO plans from eight states.

Table 5: Plans with Higher- or Lower-Than-Average Premium Growth Selected
by GAO

                                                               Average annual 
                                              Premium growth, premium growth, 
Plan                                                  2006       2004-2006 
Plans with higher-than-average growth                                      
Aetna Open Access (Southern New Jersey and                                 
Southeastern Pennsylvania)                           21.8%           15.1% 
Blue Cross HMO (California)                          20.3%           12.0% 
CDPHP Universal Benefits, Inc. (New York)            17.2%           12.1% 
HealthAmerica Pennsylvania (Central, high                                  
option)                                              13.0%           17.4% 
Humana Health Plan of Texas (San Antonio,                                  
high option)                                         13.0%           20.5% 
Kaiser Foundation Health Plan of Colorado                                  
(high option)                                        16.8%           10.2% 
Mail Handlers Benefit Plan (high option)              5.0%           20.0% 
Mail Handlers Benefit Plan (standard                                       
option)                                               6.7%           19.4% 
Plans with lower-than-average growth                                       
American Postal Workers Union Health Plan                                  
(CDHP)                                               -1.9%            3.6% 
American Postal Workers Union Health Plan                                  
(high option)                                         0.3%            5.9% 
Blue Cross Blue Shield Service Benefit                                     
Plan (basic option)                                   0.0%            2.9% 
Government Employees Hospital Association,                                 
Inc., Benefit Plan (standard option)                  0.0%            6.7% 
Health Alliance Plan                                  2.6%            5.4% 
Kaiser Foundation Health Plan, Inc.,                                       
Hawaii Region (high option)                           2.1%            6.9% 
Average of all FEHBP plans                            6.4%            7.7% 

Source: GAO analysis of OPM data.

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.

Appendix II: Comments from the Office of Personnel Management 

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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
[email protected].

Highlights of [30]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

December 2006

FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM

Premium Growth Has Recently Slowed, and Varies among Participating Plans

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.

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.

Growth in Average Premiums for FEHBP and Other Purchasers

References

Visible links
  20. http://www.gao.gov/cgi-bin/getrpt?GAO-03-236
  30. http://www.gao.gov/cgi-bin/getrpt?GAO-07-141
*** End of document. ***