This represented about 70 percent of participants  in these employers’ plans. FEHBP’s premium increases in recent years would have been higher but  for increased cost-sharing requirements for employees and retirees as well  as shifts in enrollment to plans with lower premiums. Increases in Expenditures for Prescription Drugs and Hospital Outpatient Care Drove Most of Recent Rise in Premiums for FEHBP’s Largest Plans

FEHBP premium increases are related to prior years’ increased claims  expenditures, which for the three largest FEHBP plans from 1998 to 2000  were in large part driven by increasing expenditures for prescription drugs  and hospital outpatient care. Increasing plan payments per drug  dispensed accounted for most of the increase in expenditures for drugs,  while increasing utilization accounted for the increase in hospital  outpatient care expenditures. OPM’s Reliance on Competition among Plans and Annual Negotiations to Contain Premium Increases Differs in Some Ways from Other Large Purchasers

Consistent with the design of FEHBP, which encourages enrollee choice,  OPM relies on competition among plans and its annual negotiations with  participating plans to moderate FEHBP plans’ premium increases. To  maximize enrollees’ choices among plans, OPM contracts with all plans  meeting minimum standards and allows plans to propose varying benefit  designs. OPM encourages plans to consider implementing cost  containment strategies each year as they draft their FEHBP benefit and  premium proposals. OPM  asked plans to propose innovative ideas to help contain these increases. On September 17, 2002, OPM announced that FEHBP premiums would  increase by an average of about 11.1 percent for 2003, about 2 percentage  points less than in 2002. Three Other Large Purchasers Offer Standardized Benefits, Facilitating Comparisons for Purchasers and Enrollees, and May Not Contract with All Plans

The three large purchasers we reviewed rely on a standardized benefits  package when conducting negotiations, particularly in negotiations with  HMOs. Like FEHBP, some other large purchasers vary the premiums some  employees pay to encourage enrollment in certain plans. OPM generally concurred with our study findings,  highlighting its negotiating strategy as contributing to average FEHBP  premiums for 2003 being below national trends. Appendix I: Methodology

To compare premium trends for the Federal Employees Health Benefits  Program (FEHBP) and other large purchasers over the last decade, we  obtained data from the Office of Personnel Management (OPM), the  California Public Employees’ Retirement System (CalPERS), and surveys  of private employer-sponsored health benefits conducted by the Kaiser  Family Foundation and the Health Research and Educational Trust  (Kaiser/HRET).
Why GAO Did This Study

Federal employees' health insurance premiums have increased at double-digit rates for 3 consecutive years. GAO was asked to examine how the Federal Employees Health Benefits Program's (FEHBP) premium trends compared to those of other large purchasers of employer-sponsored health insurance, factors contributing to FEHBP's premium growth, and steps the Office of Personnel Management (OPM) takes to help contain premium increases compared to those of other large purchasers. GAO compared FEHBP to the California Public Employees' Retirement System (CalPERS), General Motors, and a large private-employer purchasing coalition in California as well as data from employee benefit surveys.

What GAO Found

FEHBP's premium trends from 1991 to 2002 were generally in line with other large purchasers--increasing on average about 6 percent annually. OPM announced that average FEHBP premiums would increase about 11 percent in 2003, 2 percentage points less than in 2002 and less than some other large purchasers are expecting. FEHBP enrollees would likely have paid even higher premiums in recent years if not for modest benefits reductions and enrollees who shifted to less expensive plans. Increasing premiums are related to the plans' higher claims expenditures. For FEHBP's three largest plans, about 70 percent of increased claims expenditures from 1998 to 2000 was due to prescription drugs and hospital outpatient care. Most of the increase in drug expenditures was due to higher plan payments per drug, while the increase in hospital outpatient care expenditures was due to higher utilization. OPM relies on enrollee choice, competition among plans, and annual negotiations with participating plans to moderate premium increases. Whereas some large purchasers require plans to offer standardized benefit packages and reject bids from plans not offering satisfactory premiums, OPM contracts with all plans willing to meet minimum standards and allows plans to vary benefits, maximizing enrollees' choices. Each year, OPM suggests cost containment strategies for plans to consider and relies on participating plans to propose benefits and premiums that will be competitive with other participating plans. OPM generally concurred with our findings.