Analysis of Open Access to Government Employee Program

The effect on consumer financial risk of expanded access to FEHBP plans depends heavily on program structure, including the cost of premiums and the existence and size of subsidies:

• In theory, FEHBP enrollment will increase consumer financial risk variably depending on the costs of the premiums, the generosity of the benefits in terms of out-of-pocket costs, the availability of subsidies, and the presence of a mandate to purchase insurance. Read more below

In theory, FEHBP enrollment will increase consumer financial risk variably depending on the costs of the premiums, the generosity of the benefits in terms of out-of-pocket costs, the availability of subsidies, and the presence of a mandate to purchase insurance.

There are no studies that directly link consumer financial risk and opening access to FEHBP plans to a broader pool of enrollees. With simple open enrollment in FEHBP without a subsidy or mandate, all the costs of enrollment would fall on individuals, although the high price of these plans would likely be prohibitive and limit uptake. If premiums are age adjusted, then older individuals will face higher costs than younger enrollees. In addition, if some individuals lose employer sponsored coverage through crowd out (i.e., if employers decide to drop coverage because of the availability of an alternative subsidized mechanism for employees to purchase health insurance), those individuals could face higher costs. The costs for individuals could be mitigated by subsidies.

Since uninsured individuals are generally sicker than those with insurance, a separate risk pool would need to be established for nonfederal employees so that the premiums of federal employees would not be adversely affected. In addition, there are some thoughts that the problems of risk segmentation and adverse selection within FEHBP plans could be minimized by age adjusting the premiums of enrollees to better reflect the actuarial value of the plan (Moffit, 2001).

The table shows the individual rates for several of the national (nonpostal) fee-for-service plans within the FEHBP for 2008. The premiums listed include both the beneficiary and government contributions.

National Nonpostal Individual FEHBP Rates

FEHBP plans vary significantly in terms of benefits and out-of-pocket costs, and the premiums do not always reflect the generosity of benefits. Health insurance companies that participate in FEHBP establish premiums in two ways. They may use experience rating, whereby individual plans project costs of serving FEHBP enrollees and of incorporating past experience, benefit changes, and a profit allowance of 0.5-1 percent; or they may use community rating, whereby a plan reports rates charged to two employer groups whose membership most parallels FEHBP enrollment and then picks the lower of these two, adjusting for the demographic characteristics or the different benefit package for the FEHBP enrollees. Each national plan offers a set premium, regardless of the enrollee's geographic location. None of the plans adjusts for health risks or demographics, but local plans do adjust for geographic variation in health care costs.

Within a particular geographic location, however, higher premiums do not always buy a more comprehensive benefit package, in part because, over time, some plans attract enrollees with a greater number of health care needs and then the experience rating of this group tends to drive up the price of the plan. In particular, the number of enrolled retirees who are not yet of Medicare age (these are generally sicker beneficiaries) tend to significantly affect health plan cost (Enthoven, 1989). Thus, in some areas, a health maintenance organization (HMO) plan, which is generally more restrictive, may be more expensive than a preferred provider organization plan (Merlis, 2003).

Evidence suggests that there is no relationship between increased access to FEHBP and reliability:

• Evidence suggests that reliability is not significantly affected by insurance status. Read more below

Evidence suggests that reliability is not significantly affected by insurance status.

The reliability of care reflects the level at which a health care system delivers evidence based (that is, safe and effective) medical care to the population. Although those who are insured use more services than those who are uninsured, the care they receive is not necessarily more reliable. Therefore, even if this policy option expands coverage to some individuals who are currently uninsured, we would not expect the reliability of the system to change. We assume that under a new FEHBP, there are not any additional regulations for quality of care than those already imposed on participating plans.

Studies looking at the reliability of care do not find consistent differences between  insured and uninsured people. RAND Corporation studies using the QA Tools found few differences in the reliability of care for those with insurance compared with those without it. There were no large differences even when looking at specific types of care (acute, chronic, or preventive) or functions of care (screening, diagnosis, treatment, or follow-up) (McGlynn at al., 2003; Asch et al., 2006). Several other studies also found no differences in reliability between insured and uninsured people. Leape et al. (1999) found no overall differences in underuse of coronary revascularization between uninsured and insured people. Young et al. (2001) found that "insurance and income had no effect on receipt of appropriate care for depressive and anxiety disorders." Harman, Edlund, and Fortney (2004) found disparities in initiation of depression treatment between uninsured and insured people, but no differences in quality of care once treatment was initiated.

Expanding access to FEHBP will improve health to the degree to which health insurance in general improves health:

•  There are no studies that directly link improvements in the health of enrollees or the health of the population as a whole with expanded access to FEHBP. Read more below
• Evidence suggests that on the whole, health status improves with the provision of health insurance. Read more below
• The magnitude of the effect will vary depending on baseline health status. Read more below
• Barriers to access that are not related to insurance may lessen the effects on health of new insurance coverage. Read more below

There are no studies that directly link improvements in the health of enrollees or the health of the population as a whole with expanded access to FEHBP.

Clearly, one of the limitations of studying the relationship between health insurance and health is the difficulty in designing studies in which the magnitude of the effect of insurance can be properly evaluated. True experimental designs in which some individuals are randomized to receive literally "no insurance" would present significant ethical issues. Previous insurance expansions do give insight into particular subgroups, such as pregnant women and children, but results from these studies may not be valid for the whole population. While there have been many observational studies that show that the uninsured are in worse health than the insured, these studies do not allow us to estimate how much a policy option to expand insurance coverage might improve health. Other challenges include the inconsistencies between studies in how health status is measured, the variability in controlling for other factors that affect health, and the lack of detail in differentiating among different types of insurance benefit packages.

The relationship between health insurance and health can also be challenging to study in that it can be difficult to demonstrate causality in the relationship. In many cases, health status affects health insurance status. For example, sick individuals may be unable to purchase individual policies or obtain employer sponsored coverage; on the other hand, when these individuals become sick enough, they may qualify for a government sponsored program. Thus, when researchers attempt to study differences in health based on health insurance status, it can be difficult to discern whether lack of insurance is really causing worse health.

Evidence suggests that on the whole, health status improves with the provision of health insurance.

Inasmuch as this policy option results in changes in insurance coverage, it has the potential to affect health. Increases in health insurance coverage should improve access to medical care and result in improved health.

Hadley (2003) reviewed the literature from the previous 25 years on this subject and found general consensus among studies that providing the uninsured with health insurance would result in improved health status. The "best guess" size of the effect is that mortality would decrease anywhere from 4 to 25 percent for previously uninsured people. While he cites substantial methodological difficulties within these studies, he acknowledges the substantial consistency in the findings of improved health with insurance in many populations and among many types of disease.

The magnitude of the effect will vary depending on baseline health status.

For example, the health of previously uninsured young, healthy people is not expected to change as much as the health of people with a chronic illness.

Additionally, health insurance coverage may improve the health of the near-elderly who are denied coverage in the current system. For example, those in the 50-64 age group may be more likely to obtain coverage for serious health conditions. Further, there may be differences across subgroups in the degree to which health insurance results in changes in realized access to care. In the case of a high deductible health plan, an individual who is unable to afford the deductible may still not be able to receive medical care. Lack of access to medical care because of geographic barriers may also not necessarily change just because insurance status changes, and systemwide racial or ethnic barriers to care may not be significantly affected.

Barriers to access that are not related to insurance may lessen the effects on health of new insurance coverage.

Medical care represents only one of the many determinants of health (others being behavior, socioeconomic status, education, and genetics, for example). Thus, improved access to medical care via insurance changes may have only a modest effect on health. In addition, there are other important determinants of access besides health insurance coverage.

If expanded access to FEHBP increases insurance coverage and there is a resultant increase in demand for health services, existing capacity may be strained:

• No studies evaluate the effect of an FEHBP expansion on capacity directly; however, empirical evidence suggests that insurance coverage leads to increased utilization, which could in turn place extra demands on current capacity. Read more below
• Over time, the supply of health care resources could change to meet demand created by new patterns of utilization. Read more below
• The extent to which care provided to previously uninsured people will shift utilization from acute care to primary and preventive care is unknown.Read more below

No studies evaluate the effect of an FEHBP expansion on capacity directly; however, empirical evidence suggests that insurance coverage leads to increased utilization, which could in turn place extra demands on current capacity.

In order for open enrollment in FEHBP to affect capacity (i.e., the availability of health care resources, such as hospital beds or medical equipment), there would have to be significant subsidies available to allow the uninsured to enroll. In addition, we assume that as the uninsured obtain health insurance, they would increase their utilization of health services and might change the location of their current place of care.

If open enrollment in FEHBP expands coverage to the currently uninsured, we would expect their health care utilization to increase. In the short term, existing capacity could be strained as a result of the increased demand for services. When possible, providers could increase their productivity to meet the increased demand for services. For example, physicians could potentially provide more hours per week of patient care, make greater use of nurses or physician assistants, or create new delivery units (such as "minute clinics"). Hospitals could increase the number of staffed beds.

A number of studies demonstrate that health services utilization increases when people gain health insurance. A longitudinal study over two years of 20,848 adults between age 18 and 64 found an increase in health care expenditures between years one and two for individuals who went from being uninsured to being insured (Ward and Franks, 2007). In addition, previously uninsured individuals who have a chronic disease—such as hypertension, diabetes, heart disease, or stroke—and who enroll in Medicare at the age of 65 show higher utilization of doctor visits than previously insured adults with these conditions. There was no significant difference in utilization among patients without these conditions (McWilliams et al., 2007). In a review of the literature, Buchmueller et al. (2005) find that health insurance increases outpatient utilization by one visit per year for children, and one to two visits per year for adults. For both children and adults, insurance increases utilization of preventive care as well as inpatient care, though for children there may be some decrease in hospitalizations for ambulatory-sensitive conditions (i.e., admissions that might have been avoided with effective preventive care) (Buchmueller et al., 2005).

Capacity is a local issue, and the effects will vary depending on the current adequacy of capacity in an area and the increased demand that results from the policy change. Since rural areas face more problems related to capacity than urban areas, there may be geographic variation in the effects on capacity. In addition, because there are often other barriers than health insurance to access to health care, the provision of health insurance may not stress capacity for all populations equally.

Over time, the supply of health care resources could change to meet demand created by new patterns of utilization.

Over the longer term, the supply of health care resources could increase to meet the increased demand related to insurance coverage expansion. However, because regulation and barriers to entry affect the supply of many health care resources, significant increases in the supply of some resources would be expected to occur slowly and may not materialize at all without targeted intervention.

The extent to which care provided to previously uninsured people will shift utilization from acute care to primary and preventive care is unknown.

However, there is some literature on how insurance coverage can affect emergency department (ED) use. One study on ED use showed that insurance status does not seem to be directly related to ED use, with high ED use associated with higher numbers of insured (rather than uninsured) patients; instead, it seemed that outpatient capacity constraints increased ED use for non-emergent problems (Cunningham, 2006).

With this policy option, since the magnitude of coverage increases is not known, it is difficult to predict the option's effects on capacity. In addition, because capacity can fluctuate, it is difficult to assess how much capacity could expand with a greater demand for services.