Overview of Open Access to Government Employee Program

Allow Open Access to Government Employee Program

What is it?*

The Federal Employees Health Benefits Program (FEHBP) is the largest employer sponsored health insurance program in the country, with approximately eight million enrollees located around the country. The program is often touted as a model for "managed competition" in the health insurance marketplace. FEHBP is the health insurance program offered to federal employees (including members of Congress), their families, and retirees. (Federal retirees over the age of 65 generally have Medicare as their primary coverage, with FEHBP as a secondary insurance.)

The U.S. Office of Personnel Management (OPM) manages FEHBP. OPM is in charge of approving and monitoring health plans, negotiating benefits, and determining premium rates. Individual federal agencies process enrollments and collect premiums. Federal agencies send collected premiums to OPM, where they are deposited in a trust fund. The trust fund then pays premiums to the participating health plans and transfers administrative fees to OPM. In addition, a reserve of money is held in the trust fund that can be used to blunt changes in premiums from year to year or to cover losses for a particular health plan.

FEHBP beneficiaries may choose from a variety of types of health plans including fee-for-service plans, preferred provider organizations (PPOs), health maintenance organizations (HMOs), or high deductible health plans (HDHPs). Depending on the plan selected, enrollees may have different cost sharing for out-of-network providers. There is no designated minimum benefit package for FEHBP plans. The federal government does mandate certain coverage (such as for catastrophic expenses and mental health parity), but in general FEHBP plans can provide highly variable products that differ in types of services covered, copayments, and out-of-pocket limits within broad categories (such as hospital, surgical, ambulatory, and obstetric care).

The federal government subsidizes the premiums of FEHBP enrollees; it pays the lesser of 75 percent of the premiums of the selected plan or 72 percent of the overall average premium of health plans. With this system of subsidization, even if an enrollee picks a very low cost plan, he or she must pay at least 25 percent of the costs. If a high cost plan is selected, the enrollee may pay more than 28 percent of the costs; this is because the enrollee will be subsidized for only 72 percent of the cost of the average plan. This system is intended to encourage individuals to pick less expensive plans.

Health insurance companies that participate in FEHBP establish premiums in two ways. They may use experience rating, in which individual plans project costs of serving FEHBP enrollees that incorporate past experience, benefit changes, and a profit allowance. Or they may use community rating, whereby a plan reports the rates charged to two employer groups whose membership most parallels local FEHBP enrollment, and then the plan picks the lower of these two, adjusting for the demographic characteristics or the different benefit package for the FEHBP enrollees. Once either a community or experience rated premium is established, a 1 percent administrative fee and a 3 percent contingency reserve fee are added to the premium.

How would it work?

This option would allow people who are not federal employees, their dependents, or retirees to participate in FEHBP. Policy proposals may address one or more specific design issues:

1. A separate risk pool for determining premiums for nonfederal enrollees. There are concerns about the potential impact of expanding access to FEHBP on the premiums paid by current FEHBP beneficiaries. These concerns frequently lead to proposals to establish a separate risk pool for new participants.
2. Limited open enrollment periods. Federal employees are allowed to enroll at the onset of their employment and change plans only at the time of the next open enrollment period (annually). New participants would likely be subject to the same restrictions. There may need to be additional rules for those individuals who intermittently receive other types of insurance benefits throughout the course of the year, either from an employer or public sources, and who may elect to drop FEHBP coverage during the course of the year.
3. Establish a new system for enrollment. While enrollment of federal employees in FEHBP is administered by the human resources departments of federal agencies in conjunction with OPM, enrollment for other individuals will require a separate process. One idea that has been suggested is the use of an online application form, which could bear similarities to enrollment procedures used for Medicare Part D and for the Commonwealth Connector purchasing pool in Massachusetts. New processes would likely require investments in information technology and administrative personnel.
4. No exclusion of preexisting conditions: There would be no waiting period for the onset of coverage, and preexisting conditions would be covered.
5. Premiums include administrative fees and reserve fees: Similar to current FEHBP premiums, the premiums of new enrollees would include fees to fund the administrative functions of OPM and to stabilize the premiums.
6. OPM would negotiate rates with health plans, and the same standards that apply to FEHBP plans would also apply to the pool of new participants.

It should be noted that two other policy options would likely affect the impact of open enrollment in FEHBP. First, some proposals include a subsidy to purchase health insurance. This subsidy might take the form of a voucher, tax credit, or income related subsidy. Clearly, the size of the subsidy relative to the cost of FEHBP premiums will affect enrollment in FEHBP. Second, some proposals include an individual mandate to purchase insurance. In theory, such a mandate would compel both healthy and sick uninsured individuals to purchase insurance, thus creating a more diverse purchasing pool within the FEHBP market. The effectiveness of an individual mandate may, however, depend on its enforcement and the penalty for noncompliance relative to the cost of the health insurance premiums.

Has it been tried before?

FEHBP has been a part of health policy discussions concerning the uninsured for more than 15 years. In 1994, President Bill Clinton, in his State of the Union Address, suggested giving everyone health benefits comparable to those of federal employees. In the 2004 election, Senator John Kerry also proposed expansion of FEHBP via the establishment of a new group insurance pool, called the Congressional Health Plan, which would have been open to all employers and individuals who needed health insurance coverage (Collins, Davis, and Lambrew, 2004). In the 2008 presidential election, a number of candidates incorporated FEHBP or a similar program into their health care reform proposals. The plans varied according to how enrollment into the plan would be subsidized, types of alternative choices for health insurance (such as Medicare), and whether there would be some sort of mandate to purchase insurance. There also have been bills introduced in Congress (such as Medicare for All) that would authorize open enrollment in either Medicare or FEHBP.

* NOTE: State employee health benefit programs exist in most states, however, the RAND COMPARE overview describes the Federal Employees Health Benefits Program (FEHBP) only - and the analysis is particular to the Federal Employees Health Benefits Program (FEHBP).

State employee health benefits programs vary widely across the states in terms of their benefits and premiums and therefore conclusions drawn about the impact of expanding enrollment in the FEHBP may not apply to expansions of state employee health benefits programs.