Retirement & Financial Planning Report

Along with the annual FEHB open season—which will run from November 14 through December 12 this year–come questions regarding how the coverage and premium levels for the following year are determined.

Every spring, OPM staff generates what’s known as a call letter. One part of the call letter spells out any changes in benefits and levels of coverage to be included in each plan’s offerings for the following calendar year.


The stimuli for these changes come from many sources, for example, new technology, once-experimental treatments that are now judged to be mainstream, and inappropriate gaps in coverage detected through disputed claims or other sources. They may also arise in an effort to level the playing field among plans. In each case, the pluses and minuses of requiring each change are spelled out. Before these changes are sent to the plans, they are thoroughly reviewed at higher levels, up to and including the director of OPM.

The other part of the call letter requires each plan to provide detailed estimates of what they believe the costs will be if they comply with these changes, plus its assumptions about medical costs and how the combination will affect the premiums it will need to charge.

When the plans respond, their packages are split in two. The benefits comments go to the contracting officers and program analysts, the financial data to the financial analysts and actuaries. Where there are no disagreements on a recommended change, that item is put to the side. Disputes about value or feasibility are carefully reviewed and set aside for discussion with the plan or plans that raised them.

Meanwhile the financial analysts and actuaries compare actual plan experience with what they project future costs will be. Both the plans and OPM have access to the same sources of information. Most differences arise because of assumptions about the future. Every effort is made to iron out these differences with the plans.

At this point, it’s important to understand that every plan in the FEHB is experience rated. That means that their actual costs are known and used as a basis from which to project what their premiums would need to be in the future for them to cover their costs.

Once the analysis of each part of the call letter is completed, the two are brought together and the consequences of moving ahead on each change are reviewed in the context of the overall increase in premiums. In a year where medical costs are spiraling upward, OPM top management may conclude that going ahead with all the improvements would be too great a financial burden on enrollees. Still, there may be changes of such importance to enrollee health that the cost ought to be borne. If a change is reluctantly removed, it goes on the list to be brought up again next year.

All the plans are notified of the final benefits and levels of coverage, and are required to accept them if they wish to stay in the program. It’s at this point that final premium rates are negotiated. Those rates allow for a small profit plus, where necessary in a given year, a small cushion that’s put in an escrow account. This cushion does not belong to the plan. It’s there as a stabilizer to cover the costs of any plan that has an unexpected surge in claims that would exceed its income.