Federal Employees Health Benefits Program: Premiums Continue to  
Rise, but Rate of Growth Has Recently Slowed (18-MAY-07,	 
GAO-07-873T).							 
                                                                 
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 discuss its December 22, 2006 report, entitled Federal	 
Employees Health Benefits Program: Premium Growth Has Recently	 
Slowed, and Varies Among Participating Plans (GAO-07-141). In	 
this report, GAO reviewed (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 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.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-873T					        
    ACCNO:   A69766						        
  TITLE:     Federal Employees Health Benefits Program: Premiums      
Continue to Rise, but Rate of Growth Has Recently Slowed	 
     DATE:   05/18/2007 
  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-07-873T

   

     * [1]Background
     * [2]Growth in Average FEHBP Premiums Has Recently Slowed and Was
     * [3]Projected Growth in Several Factors Contributed to Average F
     * [4]Changes in the Cost and Utilization of Services and Enrollee
     * [5]Contacts and Acknowledgements

          * [6]Order by Mail or Phone

Testimony

Before the 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

For Release on Delivery
Expected at 10:30 a.m. EDT
Friday, May 18, 2007

FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM

Premiums Continue to Rise, but Rate of Growth Has Recently Slowed
Statement of John E. Dicken
Director, Health Care

GAO-07-873T

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the findings from our December
2006 report entitled Federal Employees Health Benefits Program: Premium
Growth Has Recently Slowed, and Varies among Participating Plans.^1 For
this report, we were asked to examine the nature and extent of premium
increases in the Federal Employees Health Benefits Program (FEHBP) and 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.^2
Federal employees' health insurance premiums have increased each year
since the late 1990s, and these increases pose higher costs for the
federal government and plan enrollees.^3 About 8 million federal
employees, retirees, and their dependents receive health coverage through
plans participating in the 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.^4

My remarks today will focus on (1) recent FEHBP premium growth trends
compared to 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. These remarks are based on information
contained in our December 2006 report.

In conducting our work, we analyzed historic and recent premium trend data
from 1994 through 2007 from OPM for all FEHBP plans and compared them with
premium data from the California Public Employees' Retirement System
(CalPERS)--the second largest public purchaser of employee health
benefits--and surveys of multiple employer-sponsored health plans from
Kaiser Family Foundation/Health Research and Educational Trust
(Kaiser/HRET).^5 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.^6 We also
examined aggregate data on the actual growth in per-enrollee expenditures
from 2003 through 2005 for 5 large FEHBP plans.^7 We explored with
officials from OPM and 14 selected FEHBP plans the potential effect on
premium growth of the retiree drug subsidy if OPM had applied for the
subsidy and used it to mitigate premium growth. The 14 plans were selected
because of size (at least 5,000 enrollees) and length of participation in
the FEHBP (at least 3 years). To examine the reasons for differing premium
growth trends among FEHBP plans, we conducted interviews with officials
from these 14 plans. Eight of the plans had higher-than-average premium
growth, and six of the plans had lower-than-average premium growth for
either (a) 2006 or (b) the 3-year period from 2004 through 2006. A
detailed explanation of our scope and methodology is contained in appendix
I of the December 2006 report. We conducted our work for that report from
January 2006 through December 2006 in accordance with generally accepted
government auditing standards.

^1 [7]GAO-07-141 (Washington, D.C.: Dec. 22, 2006).

^2As 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.

^3GAO 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, [8]GAO-03-236 (Washington,
D.C.: Dec. 31, 2002).

^4Pursuant to 5 U.S.C. S 8909.

In summary, we found that growth in average FEHBP premiums recently slowed
from a peak of 12.9 percent for 2002 to 1.8 percent for 2007. This was
lower than growth for other purchasers from 2003 through 2007. Premium
growth rates for the 10 largest FEHBP plans by enrollment, accounting for
about three-quarters of total enrollment, ranged from 0 to 15.5 percent
for 2007, but varied more widely across the smaller FEHBP plans.

^5Kaiser/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. We analyzed premium growth trends for CalPERS from 1994
through 2007. We analyzed premium growth trends for Kaiser/HRET surveyed
employers from 1994 through 2006, because the Kaiser/HRET survey data
available when we prepared our December 2006 report did not include growth
rates for 2007.

^6Premium 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.

^7OPM was not able to provide these data for all FEHBP plans for 2005.
These 5 plans accounted for about 90 percent of fee-for-service enrollment
and about 67 percent of total FEHBP enrollment.

Projected increases in the cost and utilization of health care services
and in the cost of prescription drugs accounted for most of the average
annual premium growth across all FEHBP plans for 2000 through 2007. Absent
projected decreases in the costs of other factors, these increases would
have raised 2007 average premiums by about 9 percent, rather than the 1.8
percent actual increase for that year. During this same period, projected
decreases in the costs associated with certain other factors, including
benefit changes that resulted in less generous coverage and enrollee
migration to lower-cost plans, generally helped offset premium growth to a
small extent. In 2006 and 2007, projected withdrawals from reserves
particularly helped offset average premium growth by about 2 percentage
points for 2006 and about 5 percentage points for 2007. Regarding the
potential effect of the retiree drug subsidy, most plan officials we
interviewed stated that the subsidy would have had a small effect on
premium growth for 2006 had OPM applied for the subsidy and used it to
mitigate premium growth. Officials from two large plans with
higher-than-average shares of retirees, however, stated that the subsidy
would have lowered their plans' premium growth--officials from one plan
said by at least 3.5 to 4 percentage points for their plan. We estimated
that the subsidy would have lowered premium growth across all FEHBP plans
for 2006 by more than 2 percentage points on average, from the 6.4 percent
average growth rate for 2006 to about 4 percent. OPM officials said that
OPM did not apply for the subsidy 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.

To explain the factors associated with premium growth, 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. Officials we interviewed
from most plans with lower-than-average premium growth cited adjustments
made for previously overestimated projections of cost growth, and some
officials cited benefit changes that resulted in less generous coverage
for prescription drugs. The plans with lower-than-average premium growth
also experienced a decline of 0.5 years in the average age of their
enrollees compared with an increase of 0.5 years in the average age of all
FEHBP enrollees.

Background

The 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
employees 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. 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.^8 The
premiums are intended to cover enrollees' health care costs, plans'
administrative expenses, reserve accounts specified by law, and OPM's
administrative costs. Unlike some other large purchasers, FEHBP offers the
same plan choices to currently employed enrollees and retirees, including
Medicare-eligible retirees who opt to receive coverage through FEHBP plans
rather than through the Medicare program. The plans include benefits for
medical services and prescription drugs.

By statute, OPM can negotiate contracts with health plans without regard
to competitive bidding requirements.^9 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.^10

^8The Balanced Budget Act of 1997 established the government's current
share of the premiums beginning in the 1999 contract year. 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.

^95 U.S.C. S8902.

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.^11 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.

On January 1, 2006, Medicare began offering prescription drug coverage
(also known as Part D) to Medicare-eligible beneficiaries.^12 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.^13 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.

^10OPM 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.

^115 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.

^12For more information on Medicare Part D, see GAO, Retiree Health
Benefits: Options for Employment-Based Prescription Drug Benefits under
the Medicare Modernization Act, [9]GAO-05-205 (Washington, D.C.: Feb. 14,
2005).

^13In general, according to the Centers for Medicare & Medicaid Services,
actuarial equivalence measures whether the expected amount of paid claims
under the employers' 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 has slowed since
2002--declining each year from 2003 through 2007--and was generally lower
than the growth for other purchasers since 2003. After a period of
decreases in 1995 and 1996, FEHBP premiums began to increase for 1997, to
a peak increase of 12.9 percent for 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. (See fig. 1).

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 testimony.

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 for 2007. Premium growth
rates across the smaller FEHBP plans varied more widely.

Regarding enrollee premiums--the share of total premiums paid by
enrollees--the growth in average enrollee premiums generally paralleled
total premium growth from 1994 through 2007. In 2006, average monthly
FEHBP premiums were $415 for individual plans and $942 for family plans in
total. The enrollee premium contributions were $123 for individual plans
and $278 for family plans.

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 annual
premium growth across FEHBP plans for the period from 2000 through 2007,
although projected withdrawals from reserves offset much of this growth
for 2006 and 2007. Absent projected changes associated with other factors,
projected increases in the cost and utilization of services and the cost
of prescription drugs would have accounted for a 9 percent increase in
average premiums for 2007. Projected increases in the cost of and
utilization of services alone would have accounted for about a 6 percent
increase 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
certain 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 growth for 2000
through 2007 to a small extent.

Projected withdrawals from reserves offset average premium growth for 2006
and 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 contributed to average premium growth--by less than 1 percentage
point--for 2000 through 2005. However, projected withdrawals from reserves
offset average premium growth by about 2 percentage points for 2006 and 5
percentage points for 2007.^14 (See fig. 2.)

^14OPM officials 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. According to OPM officials, 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 2: Projected Changes in Various Factors Affecting FEHBP Premium
Growth, 2000 through 2007

We also reviewed detailed data available for five large FEHBP plans on
claims actually incurred from 2003 through 2005. These data showed that
most of the increase in total expenditures per enrollee was explained by
expenditures on prescription drugs (34 percent) and on hospital outpatient
services (26 percent).

Officials we interviewed from several FEHBP plans stated 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. 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.^15
The reduction in premium growth would have been a onetime reduction for
2006.^16 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.

OPM officials explained that there was no need to apply for the subsidy
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. 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.

^15We 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. Officials from CalPERS stated that the
subsidy, which they had received but had not decided how to use as of
August 2006, amounted to 13 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.

^16Continued use of the subsidy in subsequent years would affect actual
FEHBP premiums but not their rate of increase.

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 FEHBP plans with
higher-than-average premium growth in 2006 cited increases in the actual
cost and utilization of services and high shares of elderly enrollees and
early retirees as key 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 five large FEHBP
plans that represented about two-thirds of total FEHBP enrollment. From
2001 through 2005, the average age of enrollees across all eight plans
with higher-than-average premium growth increased by 2.7 years--compared
with an average increase of 0.5 years across all FEHBP plans.

Officials we interviewed from most of the FEHBP plans with
lower-than-average premium growth in 2006 cited adjustments for previously
overestimated projections of cost growth and benefit changes that resulted
in less generous coverage for prescription drugs as factors that limited
premium growth. Our analysis of financial data provided by two 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. Also, from 2001 through 2005, the average age of enrollees across
all six of these plans decreased by 0.5 years--compared with an average
increase of 0.5 years across all FEHBP plans.

Mr. Chairman, this concludes my prepared remarks. I would be happy to
answer any questions that you or other Members of the subcommittee may
have.

Contacts and Acknowledgements

For future contacts regarding this testimony, please contact John E.
Dicken 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 testimony. Randy Dirosa, Assistant Director; Iola
D'Souza; and Timothy Walker made key contributions to this testimony.

(290639)

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Highlights of [18]GAO-07-873T , a testimony before the Subcommittee on
Oversight of Government Management, the Federal Workforce, and the
District of Columbia, Committee on Homeland Security and Governmental
Affairs, U.S. Senate

May 18, 2007

FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM

Premiums Continue to Rise, but Rate of Growth Has Recently Slowed

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 discuss its December 22, 2006 report, entitled Federal
Employees Health Benefits Program: Premium Growth Has Recently Slowed, and
Varies Among Participating Plans (GAO-07-141). In this report, GAO
reviewed (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
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.

Growth in FEHBP premiums recently slowed, from a peak of 12.9 percent for
2002 to 1.8 percent for 2007. Starting in 2003, FEHBP premium growth was
generally slower than for other purchasers. 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.

Projected increases in the cost and utilization of health care services
and in the cost of prescription drugs accounted for most of the average
annual FEHBP premium growth for 2000 through 2007. Absent other factors,
these increases would have raised 2007 average premiums by 9 percent.
Other projected factors, including benefit changes resulting in less
generous coverage and enrollee migration to lower-cost plans, slightly
offset average premium growth. In 2006 and 2007, projected withdrawals
from reserves helped offset average premium growth--by 2 percentage points
for 2006 and 5 percentage points for 2007.

To explain the factors associated with premium growth, officials GAO
interviewed from most of the FEHBP 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. Officials GAO
interviewed from most plans with lower-than-average premium growth cited
adjustments made for previously overestimated projections of cost growth,
and some officials cited benefit changes that resulted in less generous
coverage for prescription drugs. The plans with lower-than-average premium
growth also experienced a decline of 0.5 years in the average age of their
enrollees compared with an increase of 0.5 years in the average age of all
FEHBP enrollees.

Growth in Average Premiums for FEHBP and Other Purchasers

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 testimony.

References

Visible links
7. http://www.gao.gov/cgi-bin/getrpt?GAO-07-141
8. http://www.gao.gov/cgi-bin/getrpt?GAO-03-236
9. http://www.gao.gov/cgi-bin/getrpt?GAO-05-205
  18. http://www.gao.gov/cgi-bin/getrpt?GAO-07-873T
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