Federal Employees Health Benefits Program

The Federal Employees Health Benefits (FEHB) Program is a system of "managed competition" through which employee health benefits are provided to civilian government employees and annuitants of the United States government. The government contributes 72% of the weighted average premium of all plans, not to exceed 75% of the premium for any one plan (calculated separately for individual and family coverage).^[1]

The FEHB program allows some insurance companies, employee associations, and labor unions to market health insurance plans to governmental employees. The program is administered by the United States Office of Personnel Management (OPM).

History

The program was created in 1960. Employer sponsorship of health insurance in the United States became prevalent during World War II, as one of the few ways by which employers could escape wage and price control limitations on employee wages. The government originally proposed a system that would revolve around a dominant government-directed plan, but unions and employee associations, which had sponsored their own plans, protested. Reflecting the political pressure thus created, the Congress modified the Executive Branch proposal and all existing plans were "grandfathered" into the program.^[2] Thus, through what was essentially a historical accident and a political compromise, a system of competition among health plans driven by consumer choices was created.

Plans

Choices among health plans are available to employees during an "open enrollment" period, or "open season," after which the employee will be covered fully in any plan he or she chooses without limitations regarding pre-existing conditions. After the annual enrollment, changes can be made only upon a "qualifying life event" such as marriage, divorce, adoption or birth of a child, or change in employment status of a spouse, until the next annual open season, during which employees can enroll, disenroll, or change from one plan to another. The exact dates of the open season change from year to year, but are usually from the Monday of the second full week in November through Monday, the second full week of December. Enrollment begins at or near the beginning of the calendar year, and lasts until a different plan choice is made in a subsequent open season or through a qualifying life event. In practice, there is a great deal of inertia in enrollment, and only about 5 percent of employees change plans in most open seasons.

Premiums vary from plan to plan and are paid in part by the employer (the U. S. government agency that the employee works for or, for annuitants, OPM) and the remainder by the employee. The employer pays an amount up to 72 percent of the average plan premium for self-only or family coverage (not to exceed 75 percent of the premium for the selected plan), and the employee pays the rest. This dollar amount is recalculated each year as health care costs and plans' premiums increase. Certain employees (such as postal workers) have a higher portion of their premiums paid as the result of collective bargaining agreements. The precise percentage of the average paid by the employer is relatively unimportant to the design of this program and has changed over time to become more generous. What is important is that it is a "capped premium" design, in which the entire marginal cost of joining a plan with a premium near, at, or above the all-plan average is borne by the enrollee. In other words, enrollees pay the entire cost of their costly choices, but reap rewards if they make frugal choices. This creates constant pressure on the plans, since to attract enrollees they must hold down costs, while balancing this incentive against benefit offerings and customer service, to reach a position that will maximize their enrollment revenues and profits. This feature of the program is arguably its greatest strength and the primary reason that one expert summarized it has having "outperformed Medicare every which way—in containment of costs both to consumers and to the government, in benefit and product innovation and modernization, and in consumer satisfaction," decade after decade.^[3]

In 2010 about 250 plans participate in the program.^[4] About 20 plans are nationwide or almost nationwide, such as the ones offered by some employee unions such as the National Association of Letter Carriers, by some employee associations, and by national insurance companies such as Aetna and the Blue Cross and Blue Shield Association on behalf of its member companies. There are about 230 locally available plans, almost all HMOs. The FEHB program is open to most federal employees. For example, as of 2014 members of the United States Congress and their staff are excluded from the FEHB and required to purchase health insurance through the health care exchange due to the Affordable Care Act. However, the federal government provides a premium contribution for the purchase of this health insurance. The FEHBP's cost is about $40 billion in 2010, including both premiums and out-of-pocket costs. It enrolls about four million employees and annuitants and, with their dependents, eight million persons in total. While its enrollment is about one-fifth that of the nation's largest health insurance program, Medicare, it spends less than one-tenth as much because most enrollees are below age 65 and cost far less on average than the elderly and disabled who constitute Medicare's enrollees.

The FEHB program relies on consumer choices among competing private plans to determine costs, premiums, benefits, and service. This model is in sharp contrast to that used by original Medicare. In Medicare, premiums, benefits, and payment rates are all centrally determined by law or regulation (there is no bargaining and no reliance on volume discounts in original Medicare; these parameters are set by fiat). Some have criticized the FEHB model because neither the monopsony power nor purchasing power of the federal government is utilized to control costs. This controversy is similar to that which surrounded legislation for the Medicare Prescription Drug Coverage passed during the George W. Bush administration. Over time, however, the FEHB program has outperformed original Medicare not only in cost control, but also in benefit improvement, enrollee service, fraud prevention, and avoidance of "pork barrel" spending and earmarks.^[5] (Medicare Part D has also controlled costs far better than originally forecast through a competitive, consumer-driven system of plan choices similar to and modeled after the FEHB program.)

One of the most prominent features of the FEHB program is the choices it allows. There are three broad types of plans: fee-for-service and preferred provider organization (PPO), usually offered in combination; HMOs; and high-deductible health plans and other consumer-driven plans. In the Washington, D.C., metropolitan area, plans open to all federal employees and annuitants include 10 fee-for-service and PPO plans, seven HMOs, and eight high-deductible and consumer-driven plans.^[6] A similar number of choices is offered in almost all large metropolitan areas, and in many smaller cities and rural areas. The program is sometimes criticized for offering this broad array of choices, but there are many ways enrollees can obtain advice and assistance, including advice from office colleagues and friends, newspaper and magazine articles in both the general press and publications that specialize in federal employees or retirees, OPM publications and Web site, and several online tools that compare plans' costs, benefits, and services. As a noticeably consumer-friendly service, OPM requires that all plans publish brochures that describe benefits in plain English and in a standardized format that facilitates plan comparison and that can easily be downloaded in PDF format.^[7] Almost all plans provide Web sites that provide detailed information not only on their benefits, but also on their provider panels and their drug formularies. There is no published evidence that either in the FEHB program or in the other two federal programs that offer a wide range of plan choices, the Medicare Advantage and Medicare Prescription Drug programs, consumer confusion is a serious problem, or that health insurance choices are any more complicated to deal with than other consumer choices among complex products or services, such as choices as to automobile purchase or service, choice among physicians, or choice among life insurance and other insurance products. One study found that on the whole Medicare beneficiaries, who are both elderly and far less educated than the population at large, nonetheless were able to substantially reduce their drug costs by choosing, albeit imperfectly, Medicare prescription drug plans that reduced their drug costs from what would have been considerably higher costs.^[8] A recent evaluation of the FEHB program found that Open Season movement reduces premiums on average by about 1 percent compared to prior enrollment patterns, despite the tendency of enrollees to remain in current plans without considering alternative choices.^[9]

In the FEHB program the federal government sets minimal standards that, if met by an insurance company, allows it to participate in the program. The result is numerous competing insurance plans that are available to federal employees. Local plans have ready access to participation in the program, but the underlying statute prohibits entry of new national plans. Because OPM requires plans to price offerings closely to the health care costs of enrollees, and to offer comprehensive benefits, there is broad similarity in plan offerings. However, total premiums can vary substantially, and in 2010 the lowest cost plan option has a self-only premium cost of about $2,800 and the highest cost plan option for self-only enrollment is about $7,200.^[10] As an example of benefit variation, a cap of about $5,000 a year on potential out-of-pocket costs for self-only enrollment is found in a number of plans, but in some plans the cap may reach $15,000 or more (HMOs typically have no cap, but control potential cost exposure by using copayments).

The underlying legislation for the FEHB program is minimal and remarkably stable, particularly in comparison to Medicare. The FEHB statute is only a few dozen pages long, and only a few paragraphs are devoted to the structure and functioning of the program. Regulations are minimal; only another few dozen pages. In contrast, the Medicare statute found in title 18 of the Social Security Act is about 400 pages long and the accompanying regulations consume thousands of pages in the U.S. Code of Federal Regulations.

The FEHB program has often been proposed as a model for national health insurance and sometimes as a program that could directly enroll the uninsured. These proposals began within its first decade^[11] and have continued ever since.^[12] Notable economist Alain Enthoven explicitly built a proposal for a system of "managed competition" as a national health reform decades ago, and has continued promoting the idea ever since.^[13] A version of this proposal was recently adopted by the Netherlands. In the 2004 presidential campaign, Senator John Kerry proposed opening enrollment in this plan to all Americans. In enacting the Medicare Modernization Act in 2003, the Congress explicitly modeled the reformed Medicare Advantage program and the new Medicare Part D Prescription Drug program after the FEHB program.^[14] One of the prominent proposals for health reform in the United States, the proposed bipartisan Wyden-Bennett Act is largely modeled after the FEHB program, as have recent "Republican Alternative" proposals by Representative Paul Ryan.

See also

• Health insurance in the United States

Notes

References

External links

• Insurance Programs offered by the Office of Personnel Management, including health, dental, vision, life, flexible spending accounts, and long term care
  • Official website of the FEHB program