Issue Briefs

Following is an explanation in a recent budget document of the Obama administration’s proposed changes in the FEHB program.

ADVERTISEMENT

Funds made available to carriers but not used to pay claims in the current period are carried forward as special reserves for use in subsequent periods. OPM maintains a contingency reserve, funded by employee and government contributions that may be used to defray future cost increases or provide increased benefits. OPM makes payments to carriers from this reserve whenever carrier-held reserves fall below levels prescribed by OPM regulations or when carriers can demonstrate good cause such as unexpected claims experience or variations from expected community rates. In determining a biweekly subscription rate to cover program costs, one percent is added for administrative expenses and three percent is added for a contingency reserve held by OPM for each carrier. OPM is authorized to transfer unused administrative reserve funds to the contingency reserve.

The health insurance marketplace has changed significantly since the FEHBP was enacted in 1959 and the current governing statute leaves little flexibility for the program to evolve with the changing market. The FY2014 Budget proposes changes to the FEHBP program beginning with 2015 carrier contracts to:

* Give employees the option to enroll in a self plus one coverage option rather than being limited to just self or family options;

* Extend coverage to domestic partners of Federal employees and new retirees;

* Authorize OPM to contract separately for pharmacy benefit management services;

* Permit OPM to make adjustments to premiums based on an enrollee’s tobacco use and/or participation in a wellness program; and

* Authorize OPM to contract with modern types of health plans rather than being limited to the current four statutorily-defined plans reflective of the 1950s insurance market.

Adoption of these changes will modernize the FEHBP to better reflect the existing market, and result in efficiencies and savings that the government and enrollees will share for years to come.

Legislative changes are required to expand FEHB election coverage options to include a "self plus one" enrollment tier and expand the definition of "member of family" to include domestic partners of Federal employees. Current FEHB law, as passed by the original legislation in 1959, only allows for a "self only" or a "self and family" enrollment. The proposal will align the FEHB Program with the commercial market and serve to spread costs across different enrollment types.

The offering of a self-plus one enrollment option by itself will not change the overall cost of the program, but will shift costs among program participants. Current enrollees with Self and Family coverage who only have one dependent will benefit from lower premiums. Those with more than one dependent will incur higher premiums. A large percentage of annuitants who currently have Self and Family coverage would likely benefit from a Self-Plus One premium tier, resulting in score-able savings to the government because the government share of annuitant premiums will decrease. Extension of coverage to domestic partners adds new participants to the program, and thus results in some increase in costs.

OPM seeks greater authority to bring enhanced competition into the FEHB Program in relation to prescription drug coverage by permitting OPM to contract separately for pharmaceutical benefits.

Prescription drug costs, in particular, have risen sharply; in 1995 they comprised 19 percent of Program costs, whereas in 2012 they are were almost 30 percent. OPM believes that the FEHB program can benefit from economies of scale associated with a pharmacy benefit contract that covers a substantial portion of program enrollments.

OPM seeks to provide the Director with the authority to approve a limited differential adjustment to the rates charged for enrollees that do not use tobacco or comply with certain health status indicators and/or participate in wellness programs designed to promote health or prevent disease as determined by the Director. This proposal would align the FEHB Program with current trends in the commercial market. It will also serve to promote and encourage health improvements such as tobacco cessation, weight management, and an overall healthy lifestyle, among the Federal workforce. The proposal would allow for incrementally phasing in differential premiums over a period of time. The savings generated by this proposal come from behavioral changes in the enrolled population incentivized by the premium differential.

Finally, OPM seeks to expand the definition of plan types offered in the FEHBP to allow us to contract with additional types of plans, such as Regional and Exclusive Preferred Provider Organizations. The health plan designations currently in the law place artificial limitations on OPM’s contracting for health benefits for Federal employees. The health insurance marketplace has changed significantly over the years and the four traditional health plan categories described in the original FEHB law reflect largely outdated distinctions. The change will enable OPM to take advantage of the contemporary health plan types currently available to private sector employers. This change is expected to increase competition among carriers in the FEHBP. In many instances, these additional plan types are more efficient than some existing FEHB carriers. The program projects score-able savings from this expansion. The Budget also proposes that the Patent and Trademark Office (PTO) continue to fund the accruing costs associated with post-retirement health benefits for its employees.