The government pays a  portion of each enrollee’s total health insurance premium. Growth in Average FEHBP Premiums Has Recently Slowed and Was Lower Than That of Other Purchasers

The average annual growth in FEHBP premiums slowed from 2002  through 2007 and was generally lower than the growth for other  purchasers since 2003. The growth in the average FEHBP  enrollee premium contribution generally tracked average premium growth  and was generally similar to recent growth in enrollee premium  contributions for surveyed employers. 1.). FEHBP Premium Growth Varied Less for Large Plans Than for Smaller Plans from 2005 through 2007

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 in 2007. The average annual  growth in enrollee premium contributions during this period was   6.9 percent, while premium growth was 6.1 percent. 3.) Projected Increases in the Cost and Utilization of Health Care Services Accounted for Most of the Premium Growth but Were Mitigated by Use of Reserves in Recent Years

Projected increases in the cost and utilization of health care services and  the cost of prescription drugs accounted for most of the average FEHBP  premium growth from 2000 through 2007. Projected decreases in the costs associated  with 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 increases for 2000  through 2007. However, projected withdrawals from reserves helped offset  the effect of increases by about 2 percent for 2006 and 5 percent 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 plans with higher-than-average  premium growth stated that increases in the cost and utilization of  services as well as a high share of elderly enrollees and early retirees were  key drivers of premium growth. Our analysis of these plans’ financial and  enrollee demographic data showed that these plans experienced faster- than-average growth in the cost and utilization of services and faster-than- average growth in their share of elderly enrollees and retirees in recent  years. Officials also cited benefit  changes that resulted in less generous coverage for prescription drugs. Our analysis of financial data provided by two of these plans showed that  the increase in their per-enrollee expenditures for prescription drugs was  significantly lower than average in recent years. Our comparison of the demographic characteristics of the eight plans with  higher-than-average premium growth with those of all FEHBP plans from  2001 through 2005 supports the officials’ statements that unique  demographic profiles contributed to higher premium increases. Plans with Lower-Than- Average Premium Growth Cited Adjustments for Previously Overestimated Cost Growth and Benefit Changes and Had Greater Declines in the Shares of Elderly Enrollees

Officials we interviewed from most of the plans with lower-than-average  premium growth for their plans in 2006 cited adjustments for previously  overestimated projections of cost growth. Agency Comments and Our Evaluation

We received comments on a draft of this report from OPM (see app. OPM said the draft report confirms that growth in average FEHBP  premiums has slowed and has been lower than that of other large  employer purchasers for the last several years. Appendix I: Scope and Methodology

To identify growth trends in the average Federal Employees Health  Benefits Program (FEHBP) premiums and enrollee premium  contributions, we analyzed trend data for 1994 through 2007 from the  Office of Personnel Management (OPM).
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 evaluate the nature and extent of premium increases. To do this, GAO examined (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 also 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 to discuss premium growth trends and the variation in growth across plans.

What GAO Found

Growth in FEHBP premiums recently slowed, from a peak of 12.9 percent for 2002 to 1.8 percent for 2007. During this period FEHBP premium growth was generally slower than for other purchasers. Premium growth rates for the 10 largest FEHBP plans by enrollment ranged from 0 percent to 15.5 percent in 2007, while growth rates among smaller FEHBP plans varied more widely. The growth in average enrollee premium contributions--the share of total premiums paid by enrollees--was similar to the growth in total FEHBP premiums from 1994 through 2006, and was generally comparable with recent growth in enrollee premium contributions for surveyed employers. Projected increases in the cost and utilization of health care services and in the cost of prescription drugs accounted for most of the average premium growth increases for 2000 through 2007. Other factors, including benefit changes resulting in less generous coverage and enrollee migration to lower cost plans, were projected to slightly offset premium increases. In 2006 and 2007, projected withdrawals from reserves significantly helped offset the effect of other factors on premium growth. Officials 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. GAO's analysis of financial and enrollment data found that these plans generally experienced faster-than-average growth in the cost and utilization of services and faster-than-average growth in their share of elderly enrollees and retirees in recent years. Officials from most of the plans with lower-than-average premium growth cited adjustments for previously overestimated projections of cost growth. Officials also cited benefit changes that resulted in less generous coverage for prescription drugs. GAO's analysis of financial data provided by these plans found that that their increase in per enrollee expenditures for prescription drugs was significantly lower than average in recent years. In commenting on a draft of this report, OPM said the draft confirms that growth in average FEHBP premiums has slowed and has been lower than that of other large employer purchasers for the last several years.