Federal Employees Health Benefits Program

Federal Employees Health Benefits Program

94-615 EPW
Updated October 8, 1997
CRS Report for Congress
Received through the CRS Web
Federal Employees Health Benefits Program
Paul J. Graney
Technical Information Specialist
Education and Public Welfare Division
The Federal Employees’ Health Benefits Program (FEHBP) is a health insurance
program for federal employees, annuitants, and their dependents. In 1997, about 9 million
people participate in 374 FEHBP plans nationwide. On average, the federal government
pays 71% of the cost of FEHBP premiums; participants pay the remaining 29%. The
formula determining the government’s share of health insurance premiums and the
enrollees’ share was to expire at the end of 1998, which, many believe, would have
resulted in an average increase of about 23% in enrollee premiums and a concomitant
reduction in the government share. However, the Balanced Budget Act of 1997 (P.L. 105-
33) established a new formula that permanently sets the government’s share of premiums
at 72% of the average total premium cost of all plans in the FEHBP, weighted by the
number of participants in each plan. The government share cannot exceed 75% of the
premium of any particular plan.
Background. FEHBP, authorized by the Federal Employees Health Benefits Act
of 1959 (P.L. 86-382), began operations on July 1, 1960. The total cost of the program
is estimated to be $16.3 billion in FY1997, of which $12.1 billion is the government’s
share and $4.2 billion is paid by enrollees. The basic structure of FEHBP has undergone
relatively few changes since the program began operation. Since 1991, the U.S. Office
of Personnel Management (OPM) has required participant plans to implement cost
containment procedures and policies such as hospital precertification, case management,
and development of preferred provider networks. These efforts helped FEHBP join the
recent trend toward slower growth in health insurance premiums. From 1989 to 1997,
FEHBP premiums increased at an average annual rate of 3.7%. The premiums for 1998
will increase by an average of 8.5%. Among the reasons for the larger increase are the
general trend toward higher health care costs and a reduction in the use of reserve funds
in the health benefits trust fund. New benefits for 1998 include longer hospital stays for
childbirth and for mastectomy patients and the elimination of maximum dollar limits on
covered mental health care.
Eligibility and Participation. Participation in FEHBP is voluntary, and enrollees
may change from one plan to another during annual “open season” periods. Active and
retired Members of Congress may participate under the same rules as other federal
employees. At the time of retirement, enrollees must make a one-time election to
continue to participate in FEHBP as retirees, provided they have been enrolled for at least
5 years continuously up to the retirement date and are eligible for an immediate annuity.
Participating retirees pay the same premiums as active employees. In 1996, about 9
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million individuals were covered: 2.3 million active employees, 1.8 million annuitants,
and 5 million dependents. Approximately 86% of all eligible federal employees and
annuitants are enrolled in their own names, and another 4% are covered as dependents.
Plans and Options. FEHBP offers a choice among many plans with varying levels
of benefits and premiums. Several FEHBP plans offer more than one benefit package:
a high option and a “standard” option. Once again new plans have joined the program for
1998, and there will be a total of more than 350 plans available. As a practical matter,
enrollees’ choices are limited to between 10 and 30 options, depending on where they
live. Two basic types of plans are offered under FEHBP:
! Fee-for-Service Plans, which pay the participant or health care provider for
covered services, include the Service Benefit Plan administered by the National
Blue Cross and Blue Shield Association and several employee organization plans.
These are sponsored by employee organizations or unions and most of them are
open to employees or annuitants who are, or who become, members of the
sponsoring organization.
! Health Maintenance Organizations (HMOs), which provide or arrange for
health care by designated plan physicians, hospitals, and other providers in
particular geographic locations. For 1998, there are more than 300 participating
HMOs.
Some plans offer a Point of Service (POS) product, which is a hybrid of the two
above forms. Enrollees choose between “out of network” and “in network” providers for
each visit to a health care provider. Participants pay lower copayments and deductibles
by using the “in network” providers. The FEHBP plans cover a range of benefits,
including hospital, surgical, physician, mental health, prescription drug, and emergency
care benefits. However, there are variations in the amount they pay for each benefit (as
reflected in coinsurance provisions and deductibles), the availability of other benefits
(such as dental care), and the extent to which they limit enrollees’ out-of-pocket costs for
medical bills in case of “catastrophic” illness or injury.
Financing. The federal government and enrollees jointly pay for the cost, or
premiums, of the FEHBP plans, according to a statutory formula. Through 1998, the
government’s share of plan premiums is a fixed dollar amount equal to 60% of the
average of the high option premiums (known as the “maximum contribution”) for what
have been commonly known as the “Big Six” plans. The government pays the lesser of
this maximum contribution or 75% of the specific plan’s premium. In 1998, the
government will pay up to $1,715 annually for each self-only enrollment and $3,699 for
each family enrollment.
When Aetna, one of the “Big Six” plans, withdrew from the FEHBP at the end of
1989, a temporary method for computing the government’s premium share was put into
effect by use of a “proxy” premium. In every year since 1990, substitute premiums for
Aetna have been constructed by increasing Aetna’s 1989 premiums by the average
premium increase for the remaining five plans. The new formula based on the weighted
average of the premiums for all plans will take effect in January 1999.