Federal Employees

Key Questions

What is the FEHBP?

The Federal Employees Health Benefits Program (FEHBP) is administered through the Office of Personnel Management.

Who is Eligible for FEHBP?

FEHBP is open to all active and retired federal employees and their dependents. FEHBP plans are prohibited from using medical
underwriting, age rating, or waiting periods for preexisting conditions.
No one eligible to join can be excluded (Cain: 26).

What Benefits Are Covered Under FEHBP?

There is no standard set of benefits. 5 USC 8904(a) simply requires that plans “include benefits both for costs associated with care in a general hospital and for other health services of a catastrophic nature” (Merlis: Note 3). FEHBP provides workers and their dependents a choice from among Consumer-Driven and High Deductible plans that offer catastrophic risk protection with higher deductibles, health savings/reimbursable accounts and lower premiums, or Fee-for-Service (FFS) plans, and their Preferred Provider Organizations (PPO), or Health Maintenance Organizations (HMO) if they live (or sometimes if they work) within the area serviced by the plan. As a federally legislated program, FEHBP overrides state laws and regulations regarding insurance regulation (Cain: 26).  One analyst has concluded that “FEHBP benefits have been superior to Medicare benefits for decades” (Francis: Reason #6).

Federal workers also are eligible for Federal Employees Dental and Vision Insurance Program (FEDVIP); Federal Flexible Spending Account Program (FSAFEDS), which includes a health care account or limited expense health care account; and the Federal Long Term Care Insurance Program. Retiree benefits through FEHBP/FEDVIP are available to those having five years of service before retiring to continue coverage into retirement.

How Does FEHBP Work?

There are almost 300 health insurance plans available to Federal employees and retirees, including a dozen national plans, over 250 health maintenance organization (HMO) options, and dozens of High Deductible plan options. Many companies offer more than one plan: it is estimated that about 100 different companies provide various health plans to FEHBP members (Merlis: 2). Thus, workers have an ample selection of plan choices regardless of where they live. Put another way, even in rural areas, each FEHBP member has a choice of 12 competing national fee-for-service options from seven different carriers with varying benefit designs (Owcharenko), although realistically, some plans may have very thin networks in certain areas, requiring large driving times to get to primary care (Merlis: Table 7).  In larger metropolitan areas, where most FEHBP members live, “about 20 plan choices are often available” (Francis: 30).

The federal government contributes a fixed dollar amount equal to the lesser of: 72% of the average total premium of all plans weighted by the number of enrollees in each, or 75% of the premium for the specific plan chosen. Thus, if the average monthly premium were $200 and the employee picked a plan costing that amount, the employee share of the premium would be $56; however, if the employee selected a $180 plan, the employee share would be $45. Thus, for plans that are more expensive than average, the employee would have to pay the full amount of any added premium cost; for plans less expensive than the average, the employee would keep a share of savings that would decline the farther the plan’s premium is below the overall average. This provides strong incentives to avoid expensive plans but diminishes the incentive to select a plan whose costs are far below average.

What Information Do FEHBP Members Have to Select a Plan?

In addition to standardized brochures provided by OPM, on-line plan information (such as accreditation by quality-rating groups), on-line plan selection tools (a plan comparison tool, and PlanSmartChoice tool to estimate costs and tax savings) many employees/retirees use CHECKBOOK’s Guide to Health Plans, which provides detailed plan ratings that take into account their likely out-of-pocket costs for different levels of medical expenditure, quality and satisfaction ratings and other detailed plan information.

What Has the Impact of FEHBP Been?

  • FEHBP has the flexibility to respond to benefit innovations. Most benefits are stable over time, but in areas of rapid evolution (e.g., pharmacy benefits), FEHBP can adust. Likewise, “only about 5 percent change plans each year, this annual switching generates relentless and continuing pressure on all plans to adapt and improve services while controlling costs” (Francis: Reason #4). Thus, there is a lot of stability in enrollment that provides incentives for plans to invest in preventive care to avoid higher expenses in the future.
  • Performance Relative to Medicare. There have been repeated efforts to compare FEBHP to Medicare.
    • Harry Cain, former vice president of the Blue Cross/Blue Shield Association with decades of experience with both FEHBP and Medicare, wrote in 1999: “the FEHBP has outperformed Medicare every which way–in containment of costs both to consumers and the government, in benefit and product innovation and modernization, and in consumer satisfaction” (Cain: 30).
    • Cain further stated: “if the OPM staff were as knowledgeable about and committed to their managed competition program as the HCFA staff are to their regulated price program, the performance gap between the two programs would be even greater than it is”  (Cain: 34).
    • An extensive comparison done in 2003 found that relative to Medicare, FEHBP has a) superior benefits; b) greater access/choice of physicians; c) greater choice of plans in rural counties; d) greater innovativeness; e) higher levels of satisfaction; f) more reliable guaranteed benefits; g) superior track record in promoting consumer understanding; h) been nearly free of risk selection (including cherry-picking of healthy enrollees) even though it lacks any formal mechanism for adjusting for such selection; and i) superior cost control (Francis).
  • Premium Growth. Most comparisons show FEHBP does at least as well or better than both private plans and Medicare in terms of growth in per enrollee spending:
    • FEHBP vs. Private HI. From 1969-2002, annual growth in FEHBP spending per enrollee was 0.5% lower than for those with private health insurance plans. FEHBP premiums generally grew less slowly than premiums in private plans with the exception of a few isolated time periods (Levit: Exhibit 5).
    • FEHBP vs. Medicare: Unadjusted Costs. A comparison of per-enrollee costs from 1975-2003 showed that while FEHBP costs grew less slowly than Medicare’s for most of the period, by 2003 the two programs were identical in terms of cumulative cost growth.  But since FEHBP benefits expanded much more than Medicare’s, adjusting for this would show it had the better cost control record. To minimize the impact of outliers in isolated years, growth over consecutive 10-year moving averages was examined. This showed that cumulatively, FEHBP consistently held per-enrollee cost growth below that of Medicare from 1985-1994, but by the end of the period, cumulative growth in Medicare was 1% lower (Francis: Table 2).  Again, these comparisons do not account for FEHBP benefit improvements during this period.
  • Administrative Costs. FEHBP administrative costs, including OPM, agency, and plan costs, are estimated to be in the range of 7 to 15% of claims, depending on the type of plan, whereas Medicare administrative costs for its fee-for-service program are only about 2% of claims. However, administrative costs for Medicare+Choice plans are probably comparable to those for similar FEHBP plans (Merlis: 16).
  • Risk Selection. Two studies of FEHBP in the mid-1980s found evidence of substantial risk selection problems (Newhouse: 134). But a more recent study using 1996 data found little evidence of biased selection (those who chose the most costly plans were only a little over one year older, on average, than those individuals who selected the least expensive plans) (Florence: 211). This study has been criticized for lacking data on health risk (using age and sex as a proxy) as these factors are not very good predictors of utilization or cost (Merlis: 14).
  • Member Satisfaction. As of 2003, FEHBP members in fee-for-service plans reportedly had a 79 percent satisfaction rate among participants while those in HMOs had a 63 percent satisfaction rate–the latter figure being nearly identical to the industry average (Owarchenko).
  • Consumer Awareness. The FEHBP population’s “long experience with the FEHBP choices and easily available information on comparison shopping have turned this population into unusually savvy health plan shoppers. These shoppers can project, with amazing accuracy, their annual health care costs” (Cain: Note 11).

How Many Are Covered by FEHBP?

Total FEHBP enrollment in these plans totaled just over 7.8 million in 2008 (GAO: 2).

References

  • Antos, Joseph and Alfredo Goyburu. Comparing Medicare and Private Health Insurance Spending. Heritage Foundation Web Memo, April 8, 2003. [Full Text (html)]
  • Cain, Harry P. Moving Medicare to the FEHBP Model, Or How to Make an Elephant Fly. Health Affairs, July/August 1999; 18(4): 25-39. [Full Text (pdf)]
  • Florence, Curtis S., and Kenneth E. Thorpe. How Does the Employer Contribution for the Federal Employees Health Benefits Program Influence Plan Selection? Health Affairs, (March-April
    2003); 22(2): 211-218. [Abstract (html)]
  • Francis, Walton. The FEHBP as a Model for Medicare Reform: Separating Fact from Fiction. Heritage Foundation Backgrounder #1674, August 7, 2003. [Full Text (html)]

  • GAO. FEHBP Coverage of Specialty Prescription Drugs. GAO-9 09-517R. April 30, 2009. [Full Text (pdf)]
  • Levit, Katharine, Cynthia Smith, Cathy Cowan, Art Sensenig, Aaron Catlin, and the Health Accounts Team. Health Spending Rebound Continues In 2002. Health Affairs, January/February 2004; 23(1): 147-159.[Full Text (pdf)]
  • Merlis, Mark. The Federal Employees Health Benefits Program: Program Design, Recent Performance, and Implications for Medicare Reform. Henry J. Kaiser Family Foundation, May 2003. [Full Text (pdf)]
  • Newhouse, Joseph P. Patients at Risk: Health Reform and Risk Adjustment. Health Affairs Spring 1994; 13(1). [Full Text (pdf)]
  • OPM. Federal Employees Health Benefits Handbook.
  • Owcharenko, Nina. Giving Rural Seniors a Choice of Health Plans: The FEHBP Model for Medicare Reform. Heritage Foundation WebMemo #258, April 17, 2003. [Full Text (html)]

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