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. 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. 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. 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. 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. However, projected  withdrawals from reserves offset average premium growth by about   2 percentage points for 2006 and 5 percentage points for 2007. 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. 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.
Why GAO Did This Study

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.

What GAO Found

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.