United States Government Accountability Office

Report to the Ranking Member, 

Committee on Oversight and Government 

Reform, House of Representatives 

FEDERAL 

EMPLOYEES 

HEALTH BENEFITS 

PROGRAM

Enrollment Remains 

Concentrated Despite 

More Plan Offerings, 

and Effects of Adding 

Plan Types Are 

Uncertain 

October 2017

GAO-18-52
United States Government Accountability Office

Highlights of GAO-18-52, a report to the 

Ranking Member, Committee on Oversight 

and Government Reform, House of 

Representatives

October 2017

FEDERAL EMPLOYEES HEALTH BENEFITS 

PROGRAM 

Enrollment Remains Concentrated Despite More Plan 

Offerings, and Effects of Adding Plan Types Are 

Uncertain 

What GAO Found

Federal Employees Health Benefits Program (FEHBP) enrollees can choose 

from a number of health plan offerings depending on where they live. From 2007 

to 2015, the median number of plan offerings available in a county increased 

from 19 to 24. Of the 24 plan offerings in 2015, 19 were available nationwide and 

5 were health maintenance organization plans offered in specific geographic 

areas. Yet despite more available plan offerings in recent years, enrollment has 

become more concentrated within the largest health insurance carrier in a 

county. Specifically, the median share of enrollment held by the largest carrier in 

a county increased from 58 percent in 2000 to 72 percent in 2015. Further, one 

carrier—the Blue Cross Blue Shield Association—was the largest carrier in 93 

percent of counties in 2000 and 98 percent of counties in 2015. 

Enrollment Share Held by the Largest FEHBP Carrier in Each County, 2015

The stakeholders GAO interviewed and the cost estimates GAO reviewed about 

the potential effects of expanding the Office of Personnel Management’s (OPM) 

authority to contract with more plan types than currently offered in FEHBP did 

not offer clear consensus about the effects. Most stakeholders supported

expanding OPM’s authority; those opposed were primarily concerned about

OPM adding regional preferred provider organization plans, saying this could 

cause program instability and higher premiums. Estimates by OPM and others 

differed significantly on whether the expansion would increase or decrease

costs. This is because they used differing assumptions about premiums, 

enrollment, and other factors, and it is unclear whether the assumptions used in 

these estimates will be realized. View GAO-18-52. For more information, 

contact John Dicken at (202) 512-7144 or 

dickenj@gao.gov. 

Why GAO Did This Study

FEHBP provides health care coverage 

to about 8 million federal employees, 

retirees, and their dependents through 

carriers that contract with OPM. The 

Federal Employees Health Benefits Act 

of 1959 limited the types of plans OPM 

could offer. OPM has reported that the 

program needs more competition 

between plans and more diverse 

health plan choices and has proposed 

that its contracting authority be 

expanded to allow a greater variety of 

types of health plans to participate in 

FEHBP than are currently allowed. 

GAO was asked to examine FEHBP 

plan participation and the potential

impact of OPM adding new plan types

to the program. This report describes,

among other things: (1) how the 

number of plans and market shares of

carriers participating in FEHBP 

changed in recent years, and (2) what

is known about the potential effects of

allowing OPM to contract with a 

greater variety of types of health plans 

than are currently offered. GAO 

requested OPM plan availability and 

enrollment data by county for 2000 

through 2015, but county-level

availability data were only available for

2007 and 2009 through 2015.

Therefore, plan availability and market

share analysis timeframes differ. GAO 

also interviewed OPM officials, 11 

FEHBP stakeholders, such as carriers 

and federal employee and retiree

organizations, and reviewed relevant

documentation and research, such as

cost estimates of the potential effects 

of expanding OPM’s authority. 

GAO provided a draft of this product to 

OPM for comment. The agency did not 

provide any comments.
Page i GAO-18-52 Federal Employees Health Benefits Program

Letter 1

Background 7

The Number of Available FEHBP Plan Offerings Increased Since 

2007 and Enrollment Was Increasingly Concentrated 12

Stakeholder Opinions and Cost Estimates Do Not Offer Clear 

Consensus about the Potential Effects of Expanding OPM’s 

Contracting Authority 22

Agency Comments 28

Appendix I Federal Employees Health Benefits Program (FEHBP) 

Plan Attributes for Selected Counties in 2015 30

Appendix II Stakeholder Opinions about Other Federal Employees 

Health Benefits Program Aspects That Affect Competition 32

Appendix III GAO Contact and Staff Acknowledgments 39

Related GAO Products 40

Tables

Table 1: Available FEHBP Plan Offerings by Plan Design, 2007 

and 2015 13

Table 2: Comparison of the Top Three FEHBP Carriers’ Median 

County Market Share and Market Share Rank within 

Counties, 2000, 2007, and 2015 19

Table 3: FEHBP Enrollments Captured by BCBSA Service Benefit 

Plan Standard and Basic Options, 2002 and 2015 20

Table 4: FEHBP Enrollment, Plan Offering Availability, and 

Premium Attributes for Selected Counties in 2015 30

Table 5: Hypothetical Illustration of the Government Contribution 

and Enrollee Share of Premiums in the Federal 

Employees Health Benefits Program (FEHBP) 36

Contents
Page ii GAO-18-52 Federal Employees Health Benefits Program

Figures

Figure 1: Total Federal Employees Health Benefits Program 

(FEHBP) Enrollment, and Top Five Carriers Enrollment 

Share, 2000 through 2015 11

Figure 2: Available FEHBP HMO Plan Offerings within U.S. 

Counties (2007, 2009-2015) 14

Figure 3: FEHBP Market Share Held by the Three Largest 

Carriers in a Median County, 2000-2015 16

Figure 4: FEHBP Market Share Held by the Largest Carrier, by 

County, 2000 and 2015 17

Figure 5: Distribution of Market Share for the Combined Three 

Largest Carriers in Each State for FEHBP, Medicare 

Advantage, and Large Group Market (2010-2014) 21
Page iii GAO-18-52 Federal Employees Health Benefits Program

Abbreviations

BCBSA Blue Cross Blue Shield Association

CAHPS Consumer Assessment of Healthcare 

Providers and Systems

CDHP consumer-driven health plan

CMS Centers for Medicare & Medicaid Services

FEHBP Federal Employees Health Benefits Program

FFS fee-for-service

GEHA Government Employees Health Association, Inc.

HDHP high-deductible health plan

HEDIS Healthcare Effectiveness Data and Information Set

HMO health maintenance organization

OPM Office of Personnel Management 

PPO preferred provider organization

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-18-52 Federal Employees Health Benefits Program

441 G St. N.W.

Washington, DC 20548

October 5, 2017

The Honorable Elijah E. Cummings

Ranking Member

Committee on Oversight and Government Reform

House of Representatives

Dear Mr. Cummings:

The Federal Employees Health Benefits Program (FEHBP) is the largest 

employer-sponsored health insurance program in the country, providing 

coverage to about 8.2 million federal employees, retirees, and their 

dependents in 2016.1 The Office of Personnel Management (OPM) 

administers FEHBP in part by entering into contracts with qualified health 

insurance carriers, negotiating plan benefits and premiums as part of that 

process.2 The statute that established FEHBP in 1959 authorized OPM to 

contract with four specific plan types, each of which must meet different 

requirements for their service areas and benefits, among other things.3

Today OPM generally groups these plan types into two main categories 

of plans—fee-for-service (FFS) plans and health maintenance 

organization (HMO) plans. FFS plans are offered nationwide to all 

participants, while HMO plans offer coverage in selected geographic 

areas.4 Despite having a number of plans to choose from, about twothirds of FEHBP participants in 2015 were enrolled in one of the two 

 1

FEHBP was established by the Federal Employees Health Benefits Act of 1959, Pub. L. 

No. 86-382, 73 Stat. 708 (codified as amended at 5 U.S.C. §§ 8901-8914). The law 

became effective on July 1, 1960. Unless otherwise noted, our reference to the statute 

throughout this report refers to these sections of the U.S. Code. 

2

A carrier is generally defined as a voluntary association, corporation, partnership, or 

other nongovernmental organization engaged in providing, paying for, or reimbursing the 

cost of health services, in consideration of premiums or other periodic charges payable to 

the carrier. See 5 U.S.C. § 8901(7). 

3

Throughout this report, when we refer to the term “plan type” we are referring to those 

types of plans with which OPM is allowed to contract by statute. See 5 U.S.C. § 8903.

4

There can be wide variation in the areas served by HMO plans, from as small as a few 

counties within a state to counties in every state across the country. 

Letter
Page 2 GAO-18-52 Federal Employees Health Benefits Program

options offered as part of the Blue Cross Blue Shield Association’s 

(BCBSA) nationwide FFS plan.5

OPM has reported that the health insurance marketplace has changed 

significantly since the statute establishing FEHBP in 1959 defined the 

plan types with which the agency could contract. According to OPM, this 

constrains it from responding to this changed marketplace. Specifically, a 

Director at OPM has testified that the program needs more competition 

between plans and more diverse health plan choices.6 To enhance 

program competition and modernize FEHBP, OPM and some 

stakeholders have proposed that OPM’s contracting authority be 

expanded to allow a greater variety of health plan types to participate in 

FEHBP than are provided for under current law. For example, OPM has 

indicated that it does not have authority under current law to allow carriers 

to offer regional preferred provider organization (PPO) plans, which would 

be an additional kind of FFS plan.7 According to OPM, unlike the existing 

nationwide FFS plans, regional PPO plans would cover smaller regions 

and would not have nationwide premiums. However, some stakeholders 

have raised concerns with the proposal, noting, for example, that if 

 5

A plan option is a level of benefits, e.g., a high or low benefit option. 5 C.F.R. § 890.101 

(2016). BCBSA is a national association of 36 independent, community-based and locally 

operated BCBS companies. Within FEHBP, BCBSA also negotiates annually with OPM to 

determine the benefits and premiums for the two options offered as part of the nationwide 

service benefit plan, which is then administered by the local BCBS companies.

6

Jonathan Foley, Director, Planning and Policy Analysis, OPM, The Federal Employees 

Health Benefits Program, testimony before the Subcommittee on Federal Workforce, U.S. 

Postal Service, and the Census, Committee on Oversight and Government Reform, 

United States House of Representatives, 113th Cong., 1st Sess. (Apr. 11, 2013). 

7

Regional PPOs have been used in other insurance markets, such as Medicare 

Advantage. For example, a 2016 Kaiser Family Foundation report on Medicare 

Advantage—a private health plan alternative to the original Medicare program—found that 

enrollment in regional PPO plans has increased from 1 percent of total Medicare 

Advantage enrollment in 2007 to about 7 percent total Medicare Advantage enrollment in 

2016 (more than 500 percent). However, the report also found that average premiums for 

regional PPOs have increased 28 percent from 2010 to 2016, while premiums for other 

Medicare Advantage plans have decreased. See: Gretchen Jacobson, Giselle Casillas, 

Anthony Damico, Tricia Neuman, and Marsha Gold, Medicare Advantage 2016 Spotlight: 

Enrollment Market Update, (Menlo Park, Calif.: The Henry J. Kaiser Family Foundation 

May 2016). While examining the experience of regional PPOs in the Medicare Advantage 

program may offer additional insight into the potential effects of adding these plan types to 

FEHBP, the applicability of this experience to FEHBP is limited given differences between 

Medicare Advantage and FEHBP—such as enrollee populations, total number of plans, 

and program designs.
Page 3 GAO-18-52 Federal Employees Health Benefits Program

regional PPO plans were added to the program they might have a 

competitive advantage over the nationwide plans.

With these issues in mind, you asked us to examine plan participation in 

FEHBP and the potential impact of OPM adding new plan types to the 

program. This report describes

1. how plans and market shares of carriers participating in FEHBP 

changed in recent years, and how FEHBP market shares compare to 

other selected markets; and

2. what is known about the potential effects of allowing OPM to contract 

with a greater variety of health plan types than are currently offered in 

FEHBP.

To describe how plans and market shares of insurers participating in 

FEHBP have changed in recent years, and how changes to FEHBP 

market shares compare to trends in other selected markets, we analyzed 

OPM data on zip code-level plan availability for 2007 and 2009 through 

2015. (We requested data for 2000 through 2015, but OPM was not able 

to provide zip code-level plan availability data prior to 2007, or for year 

2008.) Using a publicly available zip code conversion file, we converted 

these data from zip codes to counties. We then cross-referenced plan 

codes to other data provided by OPM to classify plans and determine, for 

each year, the number of plan offerings available in each county.8 To 

assess the reliability of the data, we reviewed relevant documentation, 

interviewed OPM officials involved in compiling the data, compared the 

data against FEHBP enrollment records and published plan brochures, 

and conducted data checks for reasonableness, outliers, and 

completeness.9 Based on our review of the data and discussions with 

OPM, we determined that our summaries and medians accurately 

reflected HMO plan availability across counties over time. Therefore, we 

determined that these data were sufficiently reliable for our purposes.

 8

A plan offering refers to FEHBP plans from which an enrollee may choose, including FFS 

and HMO plans, and also includes different levels of benefit options associated with some 

plans (e.g., a single plan may offer enrollees a choice between a high benefit option and a 

low benefit option).

9

As we reviewed the data, we found and resolved, pursuant to conversations with OPM 

officials, several systematic discrepancies with the zip-code level data. OPM corroborated 

that our summaries of the corrected data were a generally reasonable representation of 

plan availability.
Page 4 GAO-18-52 Federal Employees Health Benefits Program

To determine FEHBP carrier market share, we analyzed OPM data on 

county-level enrollments for active employees and annuitants from 2000 

to 2015.10 We used an OPM-provided crosswalk to identify a parent 

company, or carrier, for each plan, allowing us to calculate enrollment 

market shares for carriers at the county, state, and national levels.11 We 

calculated county-level carrier market share in three ways: (1) the market 

share held by the largest, three largest, and five largest carriers in each 

county (regardless of which carriers held that position), (2) the market 

share held by certain specific carriers in each county (e.g., BCBSA and 

Kaiser Permanente), and (3) the combined market share held by plans 

categorized as HMO or FFS plans in each county. We assessed the 

reliability of the data by interviewing OPM officials who regularly use the 

data, testing for missing data, and reviewing the assignment of plans to 

insurance carriers. We determined these data were sufficiently reliable for 

our purposes.

To compare FEHBP market shares to those in other selected markets, we 

analyzed 2010 through 2014 data for the large group market and 

Medicare Advantage. We selected the years of comparison based on 

data available for the large group market from prior GAO reports issued in 

2014 and 2016.12 We selected the large group market (coverage offered 

by large employers) as a comparison market because it includes other 

large public and private employers offering coverage from private carriers 

 10We limited our enrollment-based calculations to the 50 states and the District of 

Columbia, excluding, for example foreign enrollees and those from Puerto Rico and 

Guam. OPM provided family size adjustment files that approximate the number of covered 

dependents associated with each carrier’s policyholders.

OPM was able to provide enrollment data for all years requested, allowing us to 

summarize market share trends across a broader time period than the plan availability 

data. 

11The carriers that we refer to in our report may offer as few as one plan in a single state 

or offer a number of plans within multiple states. For example, as a parent company, 

Kaiser Permanente manages a variety of plans in multiple states.

12See GAO, Private Health Insurance: In Most States and New Exchanges, Enrollees 

Continued to be Concentrated among Few Issuers in 2014, GAO-16-724, (Washington, 

D.C.: Sept. 6, 2016) and GAO, Private Health Insurance: Concentration of Enrollees 

among Individual, Small Group, and Large Group Insurers from 2010 through 2013, 

GAO-15-101R (Washington, D.C.: Dec. 1, 2014). Also, a list of related GAO products 

appears at the end of this report. 
Page 5 GAO-18-52 Federal Employees Health Benefits Program

and plans.13 In prior GAO reports, we analyzed data reported annually by 

carriers and identified the market share held by the largest and three 

largest carriers in each state.14 We relied on reliability testing conducted 

for those prior reports and determined that they were sufficiently reliable 

for our purposes. We selected the Medicare Advantage program—a 

private health plan alternative to the original Medicare program—as a 

comparison market because it is another federal program with nationwide 

enrollees who can choose a plan from a number of options.15 To 

determine Medicare Advantage carrier market shares, we obtained 

enrollment data from the Centers for Medicare & Medicaid Services 

(CMS) for each year from 2010 through 2014 that provides enrollment by 

plan for each state, as of April. Using additional CMS data, we identified 

the parent carrier for each plan and calculated the market share held by 

the largest and the three largest Medicare Advantage carriers in each 

state for each year. We conducted reliability testing of the Medicare 

Advantage state level enrollment data, including tests for missing data 

and comparisons to previously published information related to market 

share, and determined that it was sufficiently reliable for our purposes. 

While we present data from these markets as points of comparison with 

FEHBP, the markets have substantive differences and do not offer perfect 

comparisons. For example, in the large group market data, federal 

agencies participating in FEHBP were considered large group employers 

and FEHBP’s approximately 8 million enrollments were included in the 

 13Federal law defines a large employer as having an average of at least 51 employees 

during the preceding calendar year; however, states have the option to use a definition 

with a higher threshold, up to a threshold of at least 101 employees. See 42 U.S.C. §§ 

300gg-91(e), 18024(b).The large group market is comprised of private employers, public 

employers—including federal agencies that participate in FEHBP—and groups offering 

private insurance. 

14For these prior reports, for 2010 large group market data, we used data reported by

carriers to the National Association of Insurance Commissioners. For 2011 to 2014 data, 

we used data that all carriers reported to CMS that include enrollment data that can be 

used to calculate the market share of covered life-years for fully insured health plans. 

These data are publicly available on the CMS website, 

https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html. 

15Medicare is the federally financed health insurance program for persons age 65 or over, 

certain individuals with disabilities, and individuals with end-stage renal disease. Medicare 

beneficiaries have the option of obtaining coverage for Medicare services from private 

health plans that participate in Medicare Advantage—Medicare’s managed care 

program—also known as Part C. 
Page 6 GAO-18-52 Federal Employees Health Benefits Program

data carriers reported for the large group market.16 In addition, employers 

participating in the large group market are providing coverage options for 

many fewer employees than FEHBP, while often offering fewer plan 

options. Medicare Advantage provides coverage for a larger population of 

enrollees (17.6 million) compared to FEHBP. Medicare Advantage 

enrollees are typically older and more likely to be on a fixed income than 

federal employees and their dependents. Additionally, the 17.6 million 

Medicare Advantage enrollees in 2016 represents about one-third of all 

Medicare enrollees; the remaining two-thirds are enrolled in traditional 

Medicare.

To describe the potential effects of allowing OPM to contract with a 

greater variety of health plan types than are currently offered in FEHBP, 

we interviewed OPM officials and reviewed relevant federal laws, FEHBP 

policies, and other documents related to the potential effects of expanding 

OPM’s contracting authority. We also interviewed 11 FEHBP 

stakeholders and experts (stakeholders)—the Association of Federal 

Health Organizations, two federal employee and retiree organizations, six 

FEHBP carriers, and two FEHBP subject matter experts—and reviewed 

supplementary documents the stakeholders provided.17 For additional 

context on the effects of adding new plans to a health care market, we 

interviewed members of the American Academy of Actuaries and officials 

from the California Public Employees’ Retirement System. In addition to 

 16FEHBP enrollment data could not be separated from the overall large group market data 

used to calculate state-level market share in prior GAO reports. We estimated that, in 

2014, FEHBP enrollment accounted for about 20 percent of the 44 million total enrollment 

in the large group market nationally; however, this percentage varies across states. In 

states where FEHBP comprised a larger percentage of total large group market 

enrollment, it may thus have had a disproportionate impact on large group market trends. 

To determine whether the overlap between FEHBP and large group enrollment in a state 

could significantly impact our results, we compared the market share patterns for states 

with high relative FEHBP enrollment to states with low relative FEHBP enrollment. We 

found market share patterns were not markedly different between the two groups and 

therefore concluded that the inclusion of FEHBP enrollments did not significantly affect the 

national trends we observed in our comparisons. 

17We interviewed the following FEHBP stakeholders: the Association of Federal Health 

Organizations; two organizations representing federal employees and retirees—the 

American Federation of Government Employees and the National Active and Retired 

Federal Employees Association; representatives from six FEHBP carriers— Aetna, 

BCBSA, EmblemHealth, the Government Employees Health Association, Inc., Kaiser 

Permanente, and UnitedHealth Group; and, two additional stakeholders with expertise in 

FEHBP. We selected FEHBP carriers to interview that represented a range of FEHBP 

market shares. Other stakeholders were selected based on factors such as published 

work on FEHBP or prior testimony on this topic.
Page 7 GAO-18-52 Federal Employees Health Benefits Program

the information obtained from OPM and FEHBP stakeholders, we also 

reviewed available estimates of the financial effects of expanding OPM’s 

contracting authority, including two studies we identified from Avalere 

Health and the Center for Health and Economy on the potential effects if 

OPM were to use such authority to add regional PPO plans to FEHBP.18

We also reviewed relevant research related to consumer choice and 

decision-making in health care.

We conducted this performance audit from April 2016 to October 2017 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

FEHBP was established primarily to help the government compete with 

private-sector employers in attracting and retaining talented and qualified 

workers. As indicated by the legislative history of the original FEHBP 

statute, lawmakers wanted enrollees to exercise choice among various 

plan types and, by using their own judgment, select health plans that best 

meet their specific needs.19 While participation in FEHBP is voluntary, in 

2015, 85 percent of federal workers and 90 percent of federal retirees 

were enrolled in the program.

Each FEHBP carrier offers one or more plans, and these plans can have 

up to three options, or levels of benefits, depending on which type of plan 

is being offered.20 Although they may differ in the specific benefits they 

provide, all FEHBP plans cover basic hospital, surgical, physician, 

emergency, and mental health care, as well as childhood immunizations 

and certain prescription drugs. However, FEHBP plans offer different 

levels of benefits, with many plans offering a choice between a more 

 18See Center for Health and Economy, Expanding FEHBP Plan Options (September 

2014). Avalere Health provided a study to BCBSA at their request in December 2013 

titled, Federal Costs Associated with Allowing Regional PPOs Into FEHBP. Avalere Health 

is a research and consulting firm with expertise in healthcare-related issues while the 

Center for Health and Economy is a nonpartisan research organization that provides 

analysis on the outlook of the U.S. healthcare system. 

19See Committee on Post Office and Civil Service, H.R. Rep. No. 86-957, at 3-4 (1959).

205 C.F.R. § 890.201(b) (2016).

Background
Page 8 GAO-18-52 Federal Employees Health Benefits Program

expensive plan option, which offers a higher level of coverage, and a less 

expensive plan option, which offers a lower level of coverage. FEHBP 

enrollees can purchase individual or family coverage. Beginning in 2016, 

enrollees could also purchase coverage for themselves and one eligible 

family member, referred to as “self plus one” coverage. FEHBP enrollees 

can change health care plans during an annual open enrollment period or 

at other times if they experience a qualifying life event, such as a change 

in family status. OPM data indicates that between 2005 and 2015, the 

annual percentage of FEHBP enrollees who changed their plan 

enrollment by choice—rather than because of mergers or plan 

terminations—ranged from 5 to 7 percent.21

The FEHBP statute limits the program to four specific plan types: (1) one 

service benefit plan—a government-wide plan with two levels of benefits; 

(2) one government-wide indemnity benefit plan; (3) employee 

organization plans; and (4) and comprehensive medical plans—also 

known as HMO plans.22 OPM generally refers to these plan types as 

either FFS plans (the service benefit plan and the employee organization 

plans), or HMO plans (comprehensive medical plans). Within the 

categories of FFS and HMO plans, there can be significant variation in 

the plan designs and enrollee cost sharing. Most FFS plans have PPO 

arrangements, which usually have lower out-of-pocket expenses (i.e., a 

smaller copayment and/or a reduced or waived deductible) when 

enrollees use providers within the plan’s preferred network. Compared 

with HMOs, PPOs typically offer their enrollees a greater choice of 

 21OPM reports that data regarding the percentage of enrollment change from 2010 to 

2011 were omitted from this analysis due to a change in record keeping in 2011. 

Additionally, enrollees who were not enrolled in a health plan in both years or who 

changed retirement status between the two years were excluded from these data.

22Although four plan types are authorized under 5 U.S.C. § 8903, the offerings are more 

limited in practice. For example, the indemnity plan type, which is a FFS plan that 

reimburses the beneficiary for actual expenses incurred, is no longer offered. 5 U.S.C. § 

8903(2). The only indemnity plan that participated in FEHBP withdrew from the program in 

1990 and has not been replaced. 

OPM also reports that the employee organizations authorized to carry FEHBP plans were 

grandfathered into FEHBP at inception or shortly thereafter and no new employee 

organizations have been permitted to join. See 5 U.S.C. §§ 8903(3), 8903a, 8901(8) 

(limiting eligible employee organizations to those approved during certain times prior to 

1986). Some employee organization plans allow all active and retired federal employees 

to enroll, while other employee organization plans limit enrollment to their members or 

employees of certain federal agencies. For example, in 2015, four of the nine employee 

organizations—such as the National Rural Letter Carriers’ Association and the American 

Foreign Service Protective Association—only allowed eligible members to enroll.
Page 9 GAO-18-52 Federal Employees Health Benefits Program

providers and have less plan management of the care that enrollees 

receive. HMOs provide or arrange for comprehensive health care 

services on a prepaid basis through designated plan physicians, 

hospitals, and other providers in particular locations. Each HMO sets a 

geographic area for which health care services will be available. Some 

HMOs offer a point of service product that offers FEHBP enrollees the 

choice of using a designated network of providers or using non-network 

providers at an additional cost.

Additionally, in 2003 and 2005 respectively, FEHBP also began offering 

consumer-driven health plan (CDHP) and high-deductible health plan 

(HDHP) designs that are coupled with a tax-advantaged account to help 

enrollees pay for qualified medical expenses. Any of the FEHBP plan 

types may be offered with a CDHP or HDHP design, and therefore 

CDHPs and HDHPs can be either FFS or HMO plans.23 Enrollees in 

typical CDHPs have responsibility for certain up-front medical costs, an 

employer-funded account that enrollees may use to pay these up-front 

costs, and catastrophic coverage with a high deductible. CDHP enrollees 

receive full coverage of in-network preventive care. HDHPs offer low 

premiums but higher deductibles and annual out-of-pockets limits 

combined with a tax-advantaged account. HDHPs can have first dollar 

coverage (no deductible) for preventive care and higher out-of-pocket 

copayments and coinsurance for services received from non-network 

providers.

OPM is responsible for negotiating health benefits and premiums with 

FFS and HMO plans. Each year, OPM sends a letter to all approved and 

participating FFS and HMO plans—its annual “call letter”—to solicit 

proposed benefit and premium changes for the next calendar year, which 

are due by the end of May.24 The descriptions of both covered and 

excluded benefits are incorporated into the final contracts. Each plan 

subsequently prints brochures describing the benefits and costs 

 23Although CDHPs and HDHPs fall within one of the statutory plan types and are also 

either FFS or HMO plans, we report their numbers separately in this report because they 

have clear definitions and are tracked separately from other FFS and HMO plans in 

OPM’s FEHBP data.

24OPM is authorized to negotiate with FFS and HMO plans without regard to competitive 

bidding requirements that typically apply to federal government contracting. See 5 U.S.C. 

§ 8902. Each year, HMOs can submit applications to participate in FEHBP without having 

to respond to a specific request for proposals. The statute limits the participation of FFS 

plans in FEHBP to one service benefit plan, one indemnity plan, and certain employee 

organization plans and thereby limits entry of new FFS plans. 
Page 10 GAO-18-52 Federal Employees Health Benefits Program

according to a standard format, as specified by OPM. The brochures are 

binding statements of benefits and exclusions that plans must follow as 

parties to FEHBP contracts. Those plans meeting the minimum 

requirements specified in the statute and regulations may participate in 

the program and their contracts may be automatically renewed each year.

The federal government and FEHBP enrollees generally each bear a 

portion of the cost of FEHBP plan premiums.25 By statute, the 

government generally pays 72 percent of the weighted average premium 

of all health benefit plans participating in FEHBP, but no more than 75 

percent of any particular plan’s premium, while enrollees pay the 

balance.26 Premium prices vary across plans and within plans and 

depend on whether an enrollee is enrolled in self-only, family, or self plus 

one coverage. The premiums are intended to cover enrollees’ health care 

costs, plans’ expenses, reserves, and OPM’s administrative costs.

Although there has been some minor fluctuation in the number of FEHBP 

enrollees over time, total program enrollment has remained around 8 

million enrollees since 2000. As the Congressional Research Service has 

reported previously, FEHBP enrollment is concentrated among a small 

number of carriers and BCBSA has the largest share of total program 

enrollment by far.27 See figure 1 for the total FEHBP enrollment and 

enrollment market share of the top five carriers in the program from 2000 

through 2015.

 25See 5 U.S.C. §§ 8906(b)–(d). 

26See 5 U.S.C. § 8906(b).

27See, Congressional Research Service, Federal Employees Health Benefits (FEHB) 

Program: An Overview (Washington, D.C.: Feb. 3, 2016), 7. 
Page 11 GAO-18-52 Federal Employees Health Benefits Program

Figure 1: Total Federal Employees Health Benefits Program (FEHBP) Enrollment, and Top Five Carriers Enrollment Share, 

2000 through 2015
Page 12 GAO-18-52 Federal Employees Health Benefits Program

The number of plan offerings available to FEHBP enrollees generally 

increased from 2007 through 2015. In 99 percent of counties nationwide, 

enrollees had more plan offerings in 2015 than they had in 2007. The 

median number of plan offerings available in a county increased from 19 

in 2007 to 24 in 2015. Most of these offerings were the nationwide FFS 

plans that are available in all counties.28 There were 17 such plan 

offerings in 2007 and 19 in 2015. The remaining plan offerings were 

HMOs that were available in more limited areas. While the total number of 

HMO plans that participated in FEHBP decreased from 2007 through 

2015, the median number of HMO plan offerings in a county increased. 

This suggests that those HMO plans in FEHBP in 2015 generally 

participated in more counties than was the case in 2007. (See table 1 for 

a comparison of plan offerings in 2007 and 2015.)

 28From 2007 to 2015, between four and six of the available nationwide FFS plan offerings 

were only offered to select groups of enrollees (e.g., Foreign Service Benefit Plan and 

Rural Carrier Benefit Plan).

The Number of 

Available FEHBP 

Plan Offerings 

Increased Since 2007 

and Enrollment Was 

Increasingly 

Concentrated

Available FEHBP Plan 

Offerings Generally 

Increased in Recent 

Years, although Variation 

Existed among Counties
Page 13 GAO-18-52 Federal Employees Health Benefits Program

Table 1: Available FEHBP Plan Offerings by Plan Design, 2007 and 2015

FEHBP-wide County median

Plan design 2007 plan 

year 

2015 plan 

year 

2007 plan 

year 

2015 plan 

year 

All Nationwide FFSa 17 19 17 19

FFS CDHP 1 2 1 2

FFS HDHP 2 2 2 2

Other FFS 14 15 14 15

All HMO 268 238 2b 5

HMO CDHP 31 17 1 2

HMO HDHP 27 13 1 1

Other HMO 210 208 1 2

Total 285 257 19b 24b

Legend: FEHBP = Federal Employees Health Benefits Program, FFS = fee-for-service, HMO = health 

maintenance organization, CDHP = consumer-driven health plan, HDHP = high-deductible health 

plan

Source: GAO analysis of FEHBP plan availability data from the Office of Personnel Management. | GAO-18-52

Notes: CDHP and HDHP designs are subsets of FFS and HMO plan categories.

a

Nationwide FFS plan offerings are available in all counties. However, six of the offerings in 2007 

(and four in 2015) were only available to select groups of enrollees, such as members of the Foreign 

Service or rural letter carriers.

b

Counts represent the median number of plan offerings for each category across all counties and 

therefore do not add up to total.

Despite increases in the availability of the median number of HMO plan 

offerings in a county, there was wide variation in the number of HMO 

offerings available to enrollees in a given county. For example, while FFS 

plan offerings were available nationwide, in some counties enrollees had 

no HMO plan offerings. Since 2007, however, the number of counties 

without any HMO plan offerings available declined from 18 percent to less 

than 2 percent in 2015.29 Most counties had a couple of HMO plan 

offerings, and some counties had at least 10 HMO offerings. For 

example, in 2015, enrollees in one county in New York had 15 HMO plan 

offerings, giving enrollees a total of 34 offerings from which to select 

coverage. (See fig. 2 for the range of available HMO plan offerings 

among counties across all years.)

 29The less than 2 percent of counties without any HMO plans in 2015 were spread among 

14 different states located across the country. Mississippi, Missouri, and Oregon 

contained the most counties without any HMO plan offerings.
Page 14 GAO-18-52 Federal Employees Health Benefits Program

Figure 2: Available FEHBP HMO Plan Offerings within U.S. Counties (2007, 2009-2015)

Note: The approximately 3,000 counties were divided into four groups and ranked by number of 

available health maintenance organization (HMO) plan offerings in each county. The Office of 

Personnel Management was not able to provide county-level plan availability data prior to 2007, or for 

year 2008.

Regarding reasons for the variation in available FFS and HMO plan 

offerings, OPM officials told us that plans participating in FEHBP enter 

and withdraw based on internal business decisions and often in response 

to changing economic conditions. For example, according to OPM 

officials, some plans may enter the program with the expectation of 

gaining a target market share. OPM officials also noted that decreases in 

plan participation in the past may have been a response to premium 
Page 15 GAO-18-52 Federal Employees Health Benefits Program

increases that impacted plans’ ability to effectively compete.30 In addition, 

a 2012 OPM report noted that many prominent HMO plan carriers have 

reduced the number of states in which they participated since 1985.31

FEHBP enrollment within counties generally became more concentrated 

from 2000 through 2015, although most of that growth occurred prior to 

2007. The share of the market held by the largest carrier increased from a 

county median of 58 percent in 2000 to 70 percent in 2007, to 72 percent 

in 2015. Similarly, the combined median county market share of the three 

largest carriers increased from 86 to 90 percent over the same time 

period. However, we observed that the median market share held by the 

second and third largest carrier generally decreased over time. This 

suggests that the increases in combined market share held by the three 

largest carriers were generally due to increases observed in the single 

largest carrier. Although there was little change in the median county 

market share of the top five carriers, these carriers accounted for nearly 

all enrollments in a county in each of the years we examined. (See fig. 3 

for a comparison of the market share held by the three largest carriers 

over time.)

 30For more information on why HMOs may exit FEHBP, see GAO, Federal Employees’ 

Health Program: Reasons Why HMOs Withdrew in 1999 and 2000, GAO/GGD-00-100, 

(Washington, D.C.: May 2, 2000).

31Office of Personnel Management, Health Plan Competition in the FEHB Program

(Washington, D.C.: 2012). This report references a decreasing participation over time by 

several carriers, including Aetna, Cigna, Coventry, Humana, and United Healthcare.

Market Share Held by the 

Largest FEHBP Carrier in 

Each County, Generally 

BCBSA, Increased from 

2000 through 2015
Page 16 GAO-18-52 Federal Employees Health Benefits Program

Figure 3: FEHBP Market Share Held by the Three Largest Carriers in a Median County, 2000-2015

We found that these increases in concentration were widespread. Overall, 

from 2000 through 2015, almost 90 percent of counties experienced an 

increase in the market share held by the largest carrier. Over this period, 

the percentage of counties in which the largest carrier held at least half of 

the market also increased—from 70 percent in 2000 to 93 percent in 

2015. Additionally, the proportion of counties where at least 80 percent of 

the market share was held by the top three carriers increased from about 

76 percent of counties in 2000 to 94 percent of counties in 2015.32 (See 

fig. 4 for maps showing the market share of the largest carrier in each 

county in 2000 and 2015.)

 32We tested the statistical relationship between county enrollment counts, number of plan 

offerings, and market share. We found that, across all the data, the number of enrollees in 

a county did not reflect a strong relationship to the concentration of market share held by 

the single largest or three largest carriers. We also found that although there was 

consistently a statistically significant negative relationship between number of available 

plan options in a county and the market share held by the largest carrier, the correlation 

was low.
Page 17 GAO-18-52 Federal Employees Health Benefits Program

Figure 4: FEHBP Market Share Held by the Largest Carrier, by County, 2000 and 

2015
Page 18 GAO-18-52 Federal Employees Health Benefits Program

Similar to the combined median county market share of the top five 

carriers, nationwide FFS plans’ combined median county market share 

accounted for almost all FEHBP enrollment and showed a slight increase 

from 97 percent in 2000 to 99 percent in 2015, although variation existed 

in some counties. Comparatively, the combined median county market 

share held by HMO plans decreased from 6 percent to 2 percent.33 In 

addition, in each year since 2000, 16 to 30 percent of counties had all of 

their FEHBP enrollment in FFS plans, and, in years for which we had 

HMO plan availability data, almost all of these counties offered at least 

one HMO plan offering.34 At the same time, we observed a small number 

of counties each year where HMO plans’ combined market share was at 

least 50 percent.

BCBSA was the largest carrier in almost all counties nationwide and the 

share of these markets held by its two nationwide FFS plan options 

increased from 2000 through 2015. While BCBSA was already the largest 

carrier in 93 percent of counties in 2000, by 2015 it was the largest in 98 

percent of counties. Over this same time period, the median county 

market share held by BCBSA also increased—from 58 percent in 2000 to 

72 percent in 2015. Most of BCBSA’s 14 percent market share increase 

occurred between 2000 and 2008.

Other carriers had significantly smaller median county market shares, but 

they had the highest share in a certain limited number of counties.

• The Government Employees Health Association, Inc. (GEHA), 

another carrier offering nationwide FFS plans, had the second highest 

program-wide market share in 2015, and an 8 percent median county 

market share. GEHA held the second or third largest market share in 

77 percent of counties in 2015, reaching as high as 65 percent of the 

county market share, for example, in a county in Texas, but was the 

largest carrier in less than 1 percent of counties.

 33Calculations for HMO plan market share excluded counties without any HMO plan 

enrollments. Therefore, combined FFS and HMO plan market shares do not add to 100. 

34Because OPM only provided plan offering availability for 2007 and 2009-2015, these 

were the only years we could assess which counties with 100 percent FFS market share 

also had HMO plan offerings available to enrollees. Each of these years, except for 2007, 

showed at least one HMO offering available in over 90 percent of these counties. In 2007, 

67 percent of counties where FFS plans combined for 100 percent of market share had 

HMO offerings available to enrollees. We also found that median enrollments for counties 

where FFS plans held 100 percent of market share were lower than median enrollments in 

all counties. 
Page 19 GAO-18-52 Federal Employees Health Benefits Program

• Kaiser Permanente—which offers HMO plans—was the third largest 

carrier program-wide in 2015 and held the largest market share 

among HMOs (6 percent), though its market share decreased slightly 

over time. In counties where a Kaiser Permanente plan was available 

in 2015 (fewer than 200 out of more than 3,000 counties nationwide), 

those plans had a median county market share of 8 percent; however, 

in some counties Kaiser Permanente plans held a larger market 

share, for example, reaching as high as 64 percent in one county in 

California. In counties where Kaiser Permanente plans were available 

in 2015, it was the largest carrier 8 percent of the time and the second 

or third largest carrier in a majority of cases.

(See table 2 for a description of market share and position for the three 

carriers with the largest program-wide market share within FEHBP.)

Table 2: Comparison of the Top Three FEHBP Carriers’ Median County Market Share and Market Share Rank within Counties, 

2000, 2007, and 2015

Median county market 

share (percent)

Percent of counties where carrier was ranked as the...

Largest carrier (percent)

Second largest carrier 

(percent)

Third largest carrier 

(percent)

Year BCBSA GEHA Kaiser BCBSA GEHA Kaiser BCBSA GEHA Kaiser BCBSA GEHA Kaiser

2000 58 8 — 93 1 — 6 23 — 1 31 —

2007 70 6 13 97 <1 19 3 34 45 1 28 14

2015 72 8 8 98 1 8 2 55 39 <1 22 20

Source: GAO analysis of Federal Employees Health Benefits Program (FEHBP) enrollment and plan availability data provided by the Office of Personnel Management (OPM). | GAO-18-52

Note: OPM data describing health maintenance organization plan availability, which is necessary to 

calculate market share for carriers with geographically specific plan service areas was only available 

for 2007 and 2009-2015. Therefore, we were unable to present market shares for Kaiser Permanente 

(Kaiser) plans in intervening years. The median county market share and carrier ranking percentages 

for Kaiser only considers counties in which a Kaiser plan was available, whereas the percentages for 

Blue Cross Blue Shield Association (BCBSA) and Government Employees Health Association, Inc. 

(GEHA) are based on nationwide availability.

BCBSA’s increased FEHBP market share may be due to a number of 

factors. For example, officials from several FEHBP carriers told us that 

BCBSA’s market share performance was tied to several factors, including 

brand recognition, comparably favorable plan premiums, and enrollee 

population characteristics. According to an OPM report, another factor 

contributing to BCBSA’s increased market share was the introduction of 

the Basic option to the Service Benefit Plan in 2002. Compared to its 

Standard option, this nationwide FFS plan option restricts enrollees to a 

more narrowly defined provider network (with some limited exceptions) 

and offers lower premiums, thereby broadening BCBSA’s ability to 
Page 20 GAO-18-52 Federal Employees Health Benefits Program

compete with other lower cost plans.35 As shown in table 3, while 

program-wide enrollments in BCBSA’s nationwide FFS plan options have 

increased by 32 percent following the introduction of the Basic option, 

enrollments in the Standard option decreased, suggesting that enrollees 

are shifting to the Basic option or plans offered by other carriers.

Table 3: FEHBP Enrollments Captured by BCBSA Service Benefit Plan Standard and Basic Options, 2002 and 2015

Year Standard option enrollments Basic option enrollments Total BCBSA enrollments

2002 3,747,444 205,728 3,953,172

2015 3,056,186 2,170,160 5,226,346

Percent change over time -18% 955% 32%

Source: GAO analysis of Federal Employees Health Benefits Program (FEHBP) enrollment data for Blue Cross Blue Shield Association (BCBSA) plans provided by the Office of Personnel Management. | 

GAO-18-52

In addition, a study published in 2012 noted that BCBSA market 

concentration was the possible outcome of the carrier’s established 

provider network and lower relative administrative costs.36 For examples 

of BCBSA’s and other carriers’ premiums, plan offerings, and market 

shares in 2015, in select counties, see appendix I.

The combined market share for the three largest FEHBP carriers in a 

state was generally similar to the large group market and higher than 

Medicare Advantage. As shown in figure 5, in 2014, the median state 

market share for FEHBP was 89 percent compared to 90 percent in the 

large group market and 74 percent for Medicare Advantage.37 And, the 

range of state market shares held by the three largest carriers in 

Medicare Advantage and the large group market (69 and 62 percentage 

points, respectively) was wider than in FEHBP (23 percentage points). 

However, programmatic differences between the three selected markets, 

such as varying enrollee demographics, market sizes, and program 

 35Office of Personnel Management, Health Plan Competition in the FEHB Program

(Washington, D.C.: 2012).

36T. D. McBride, A. R. Barker, L. M. Pollack, L. M. Kemper and K. J. Mueller, “Federal 

Employees Health Program Experiences Lack Of Competition In Some Areas, Raising 

Cost Concerns For Exchange Plans,” Health Affairs, vol. 31, no.6 (2012).

37Since county-level enrollment data were not available for the large group market, we 

used state-level market share measures to compare these selected markets to FEHBP.

FEHBP Market Share 

Concentration among the 

Largest Carriers Was 

Generally Similar to the 

Large Group Market and 

More Concentrated than 

Medicare Advantage
Page 21 GAO-18-52 Federal Employees Health Benefits Program

designs, make it difficult to draw conclusions about these contrasting 

market trends.

Figure 5: Distribution of Market Share for the Combined Three Largest Carriers in Each State for FEHBP, Medicare Advantage, 

and Large Group Market (2010-2014)

Notes: The Centers for Medicare & Medicaid Services published Medicare Advantage enrollment 

data and Medical Loss Ratio data—describing the percentage of premium a carrier spends on its 

customers’ medical claims and activities that improve the quality of care—for private insurance 

markets, including the large group market.

For each market and each year, the 50 states and the District of 

Columbia were ranked from highest to lowest market share for the 

combined three largest carriers in each state and then divided into four 

groups based on those rankings.
Page 22 GAO-18-52 Federal Employees Health Benefits Program

FEHBP enrollment data could not be separated from the overall large 

group market data used to calculate state-level market share in prior GAO 

reports. In 2014, we estimated that FEHBP plans accounted for about 20 

percent of the 44 million total enrollments in the large group market 

nationally.

Compared to Medicare Advantage and the large group market, the state 

market shares held by the largest carrier in FEHBP generally held a 

larger share of the market. For example, in 2014, the median market 

share held by the largest carrier in a state was higher in FEHBP (75 

percent) than both Medicare Advantage (35 percent) and the large group 

market (59 percent).

Seven of the 10 stakeholders we interviewed, and who commented on 

OPM’s contracting authority, generally supported expanding OPM’s 

contracting authority to allow it to contract with a greater variety of health 

plan types than are currently offered in FEHBP.38 Stakeholders we 

interviewed that offer HMO plans generally supported this expansion. 

However, the 2 stakeholders that offer nationwide FFS plans and 1 

stakeholder that represents federal employees opposed it. Most of the 

concerns expressed by these 3 stakeholders were related specifically to 

the potential effects of OPM adding regional PPO plans to FEHBP.

Five of the seven stakeholders we interviewed who supported expanding 

OPM’s contracting authority said that adding additional plan types could 

 38We interviewed 11 stakeholders. However, the Association of Federal Health 

Organizations did not comment on the potential effects of allowing OPM to contract with a 

greater variety of health plan types than are currently offered in FEHBP.

Stakeholder Opinions 

and Cost Estimates 

Do Not Offer Clear 

Consensus about the 

Potential Effects of 

Expanding OPM’s 

Contracting Authority

Stakeholders Generally 

Supported Expanding 

OPM’s Authority, but Said 

Using That Authority to 

Add Regional PPO Plans 

Could Have Negative 

Effects
Page 23 GAO-18-52 Federal Employees Health Benefits Program

result in both positive and negative effects. In terms of positive effects, 

one stakeholder said the authority could potentially allow OPM to offer 

different types of plans—such as value-based plan designs and 

accountable care organizations—that could lead to improved benefit 

options and health outcomes for enrollees.39 One stakeholder also told us 

that OPM’s expanded authority would enable the agency to improve 

transparency by allowing plans to contract with OPM as the type of plan 

they actually are, rather than fitting into outdated statutorily established 

categories, which the stakeholder characterized as an “antiquated 

labeling system.” Another stakeholder said that participation by new plans 

in FEHBP would foster competition and help keep health plan costs 

down. One stakeholder also noted that if plan expansion would only be 

undertaken when it is in the best interests of FEHBP and its enrollees—

as OPM has indicated would be the case—there was little or no downside 

to such expanded authority. Additionally, in April 2013, three FEHBP 

carriers that offer HMO plans sent a letter to Congress in favor of 

expanding OPM’s authority, citing that it would “ensure OPM has the tools 

it needs to lower costs and provide federal workers access to innovation, 

choice, and value” and would allow more competition in the program.

Some stakeholders we interviewed, however, suggested that any positive 

effects of expanding OPM’s authority and adding new plan types could be 

limited due to other aspects of FEHBP that affect competition and 

discourage participation by carriers. In particular, these stakeholders cited 

concerns related to costs associated with FEHBP enrollees who are 

Medicare-eligible but who do not enroll in Medicare, and the formula that 

determines the government’s contributions to enrollee premiums. 

According to these stakeholders, this creates unfair competitive 

advantages for the nationwide plans and BCBSA in particular. They also 

cited FEHBP’s system for assessing the performance of participating 

carriers, which they said discourages competition and participation by 

carriers in FEHBP, particularly for certain HMO plans. OPM reported that 

it was open to considering some program changes related to these 

concerns; however, some proposed changes could require changes to 

the FEHBP statute. For more information about stakeholder comments 

regarding these other aspects of FEHBP, see appendix II.

 39Value-based plan designs are health plans that focus on reducing consumer cost 

sharing in health insurance for preventive tests and medications for chronic diseases. 

Accountable care organizations are organizations of health care providers and suppliers 

that come together voluntarily to provide coordinated care to a defined group of patients 

with the goal of reducing spending while improving quality.
Page 24 GAO-18-52 Federal Employees Health Benefits Program

Some of the 10 stakeholders we interviewed and who commented on 

OPM’s contracting authority also identified other potential negative effects 

that could occur with expanding OPM’s contracting authority. For 

example, 1 stakeholder said that an increase in plan types offered could 

lead to a subsequent increase in OPM’s administrative costs. In addition, 

several of these stakeholders said that adding more plans to FEHBP 

would exacerbate an existing problem of choice overload for enrollees. 

One of the stakeholders said that FEHBP enrollees are already confused 

by the number of available plan offerings, and that the current information 

provided to enrollees does not allow for easy comparison of their choices. 

They noted that additional expansion of offerings will only complicate 

enrollees’ plan analysis.

Consistent with these concerns, studies that we reviewed related to 

consumer choice and decision-making processes in health insurance 

markets suggest that adding additional plans may not always yield 

positive effects or improve competition. For example, a 2016 report by the 

RAND Corporation found that health insurance consumers are unlikely to 

change plans, even as better choices become available.40 Additionally, a 

2009 study examining the Swiss health insurance market similarly found 

that as the number of choices offered to individuals grows their 

willingness to switch plans declines.41 The study found persistently low 

rates of plan switching despite high variation in premiums between plans, 

and found that more choice inhibited plan switching. It concluded that 

having a large number of plans to choose from likely reduces the 

effectiveness of consumer decision making, and that simplifying health 

plan decision making by reducing the number of choices might result in 

more price competition among insurers, and benefit consumers.

 40See E.A. Taylor, et al., for the RAND Corporation, Consumer Decisionmaking in the 

Health Care Marketplace (Santa Monica, CA: 2016). The study reviewed the literature on 

how consumers make choices in the context of health insurance enrollment to determine 

what plan characteristics matter most, what types of errors in decision making are 

common, and what (if any) best practices exist for helping consumers make optimal (or at 

least improved) decisions. They found that consumers are prone to stick with their initial 

choices even if prices change or if new, potentially better choices become available. The 

study identified several potential reasons for this, including the complexity of the 

information needed to make these decisions and consumers’ limited health insurance 

literacy.

41See Frank, Richard G. and Lamiraud, Karine, “Choice, Price Competition and 

Complexity in the Markets for Health Insurance”, Journal of Economic Behavior & 

Organization, vol. 71, no. 2 (2009). Similar to FEHBP, consumers in Switzerland have a 

large number of health plans to choose from, and their number of choices has grown over 

time—in 2004 the mean level of health plans a consumer had to choose from was 56. 
Page 25 GAO-18-52 Federal Employees Health Benefits Program

Additionally, 6 of the 10 stakeholders we interviewed and who 

commented on OPM’s contracting authority said that there would 

potentially be negative effects if OPM were to use the expanded authority 

to add regional PPO plans to FEHBP. For example, 5 of these 6 

stakeholders said there could be instability and higher premiums in 

FEHBP if new regional PPO plans were able to “cherry pick” low cost 

areas in which to participate. This was of particular concern to 1 of the 2 

stakeholders we spoke to who offer nationwide plans. Because they offer 

the same premiums nationally, they said the lower-cost areas of the 

country help subsidize the premiums of the higher-cost areas. If these 

nationwide plans lost customers in lower-cost areas to regional PPO 

plans, then their premiums would likely rise. These 2 stakeholders and a 

third said, therefore, that adding regional PPO plans could result in 

nationwide carriers discontinuing their coverage due to their inability to 

compete with regional plans. According to 1 stakeholder that offers a 

nationwide FFS plan, if the nationwide carriers dropped out of the 

program, plan offerings would be significantly reduced in certain areas of 

the country and some areas could potentially be left with no offerings at 

all.42 Additionally, in 2014 and 2015, six nationwide FEHBP carriers, 

including the two we interviewed, sent letters to Congress expressing 

their opposition to legislation that would add new plan types in FEHBP. In 

the letters, they cited negative effects such as program destabilization, 

increased premiums, and fewer consumer choices—all of which were 

specifically tied to the proposal to add regional PPO plans to FEHBP.

Two of the 10 stakeholders we interviewed and who commented on 

OPM’s contracting authority, however, said that adding regional PPO 

plans to FEHBP would have positive effects. For example, 1 of these 

stakeholders that offers HMO plans and referred to FEHBP’s plan type 

labels as antiquated noted that this would enable them to promote their 

existing FEHBP products—currently categorized as HMO plans—more 

appropriately as regional PPO plans. This stakeholder said the current 

categorization causes enrollees to erroneously believe their plans are 

more restrictive than the plans listed as nationwide FFS plans.

When we shared these stakeholder concerns about expanding OPM’s 

contracting authority with OPM officials, they told us that the agency has 

existing strategies and is working towards implementing additional ones, 

 42As noted previously, in 2015, FEHBP enrollees in less than 2 percent of counties had no 

HMO offerings and had access only to the nationwide FFS plans.
Page 26 GAO-18-52 Federal Employees Health Benefits Program

which officials said should allow it to address many of these concerns. 

For example, OPM officials said in January 2017 that the agency was in 

the process of building models that would allow it to simulate the impact 

that adding new plan types would have on FEHBP, but that the agency is 

still years away from being able to make such assessments. The officials 

said that the agency would only seek to introduce new plan types that it 

determines to be in the best interests of FEHBP enrollees and the federal 

government. With regards to enrollee confusion over the number of plan 

choices, the OPM officials said that the agency is improving the tools 

enrollees can use to learn about the available plans. For open season in 

2016, the agency released what it considers to be a new and improved 

Plan Comparison Tool on its website that enables enrollees to gain more 

knowledge about their health plan options before making a selection. 

According to the officials, some of the improved functions of the tool 

include more details about the plan benefits and services, clearer 

definitions of the health insurance terms, and easier ability to compare the 

plans. Officials also told us that they expect to make more improvements 

to the tool in future years based on feedback from the FEHBP enrollees 

who use it. OPM officials said the agency would continue existing plan 

negotiation strategies that, among other things, would prevent plans from 

“cherry picking”—that is, offering products in only the most profitable 

service areas—by ensuring that new carriers provide services in 

contiguous regions that include both low- and high-cost areas. 

Additionally, related to the concern that nationwide plans might withdraw 

from the program if regional PPO plans were introduced, OPM officials 

noted that if, for example, BCBSA were to cancel its nationwide plan 

options, another carrier might step up to gain the service benefit plan 

designation and provide nationwide service.

We identified three significantly differing estimates of the financial effects 

on the federal budget that expanding OPM’s FEHBP contracting authority 

would have. However, these estimates are based on different 

assumptions about a variety of factors such as premium changes, 

administrative costs, and enrollment, and only limited information was 

available about the methodologies used for each set of estimates. It is 

also important to note that the assumptions used in developing these 

estimates are subject to professional judgment and have inherent 

uncertainty regarding whether the assumed scenarios will be realized. 

The three estimates include:

• The President’s Budget for fiscal year 2017 estimated that expanding 

FEHBP to a greater variety of plan types would save $88 million from 

Estimates of the Financial 

Effects of Expanding 

OPM’s Contracting 

Authority Differed on 

Whether Costs Will 

Increase or Decrease
Page 27 GAO-18-52 Federal Employees Health Benefits Program

2017 through 2026.43 According to information provided by OPM, the 

estimate considered the effect of a broad expansion of OPM’s 

authority to add new plan types, and OPM did not indicate whether 

the agency specifically considered the effect of adding regional PPOs 

to FEHBP when developing this estimate. OPM officials told us that 

these savings were based on a number of assumptions, including an 

estimate of the number of enrollees that will migrate to new plan types 

based on previous FEHBP experience and projecting a medical loss 

ratio of 90 percent for the new plan types added to FEHBP.44

However, in follow-up with the agency, OPM officials were not able to 

provide us with more detailed information about how these savings 

were calculated. The Congressional Budget Office, in its analysis of 

the budget proposal, estimated a range from $50 million in savings to 

$50 million in costs over the 10-year period.45

• A 2014 study from the Center for Health and Economy that examined 

the effects of introducing regional PPOs to FEHBP across three 

scenarios estimated cost savings ranging from $1.2 to $2.1 billion 

over 7 years (2015 to 2021). The study provided limited information 

about the data, assumptions, and methodology the center used to 

develop its estimates.46 The study did explain that the center modeled 

the projected impact on enrollment, average premiums, and the 

federal budget of adding regional PPOs to FEHBP using three 

different sets of assumptions about how expensive the newly 

introduced regional PPO plans would be. Under each scenario, the 

center estimated shifts over time in enrollment from existing FEHBP 

 43Office of Management and Budget, Budget of the United States Government, Fiscal 

Year 2017, Feb. 9, 2016. 

44A medical loss ratio is the is percentage of premiums an insurer spends on its 

customers’ medical claims and activities that improve the quality of care, versus what they 

spend on overhead expenses, such as marketing, profits, salaries, administrative costs, 

and agent commissions. For example, an insurer that uses 90 cents out of every premium 

dollar to pay its customers’ medical claims and activities that improve the quality of care 

has a medical loss ratio of 90 percent. The higher the medical loss ratio, the more value 

per premium dollar a plan is thought to provide. 

45Congressional Budget Office, Proposals for Health Care Programs—CBO’s Estimate of 

the President’s Fiscal Year 2017 Budget, Mar. 29, 2016.

46The Center for Health and Economy reported that it used the Department of Health and 

Human Services’ Medical Expenditure Panel Survey data to estimate premiums for 

various PPO plan designs and OPM contract data for its analysis of enrollee plan choices. 

Medical Expenditure Panel Survey data do not reflect FEHBP-specific claim experience. 

The study did not note what medical loss ratio was assumed for the new plan types added 

to FEHBP.
Page 28 GAO-18-52 Federal Employees Health Benefits Program

plan designs (FFS, HMO, CDHP, and HDHP) to the new PPO plans—

and assumed that these new plans would achieve 10 percent of the 

market share throughout the analysis period. The study also projected 

decreases in average FEHBP premiums and a corresponding 

reduction in total government contributions in each scenario.

A December 2013 study conducted by Avalere Health at BCBSA’s 

request specifically examined the effect of adding regional PPOs into 

FEHBP and estimated an increase in spending of $7.8 billion over 10 

years (2014 to 2023). In developing its estimates, the study noted that it 

assumed that the BCBSA national plans dissolve and would break into 

regional plans in response to new regional plan competition. The study 

stated that the $7.8 billion in increased costs was based on an 

assumption that both regional PPOs and BCBSA regional plans would 

have higher administrative costs as compared to BCBSA’s national plans. 

The study estimated that these costs would be offset slightly by an initial 

anticipated decrease in premiums resulting from new plans introducing 

competition into these regions.47

We provided a draft of this product to OPM for comment. The agency did 

not provide any comments.

 47Avalere Health reported that to develop its estimate it used 2012 BCBSA-provided OPM 

data on plan-level enrollment and premium costs and CMS’s 2011 National Health 

Expenditures data on spending growth projections, among other sources. The study noted 

that Avalere Health assumed a medical loss ratio of 85 percent for both the new BCBSA 

regional plans and the regional PPOs.

Agency Comments
Page 29 GAO-18-52 Federal Employees Health Benefits Program

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to OPM and other interested 

parties. In addition, the report is available at no charge on the GAO 

website at http://www.gao.gov. If you or your staff have any questions 

about this report, please contact me at (202) 512-7114 or 

dickenj@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

GAO staff who made key contributions to this report are listed in appendix 

III.

Sincerely yours,

John E. Dicken

Director, Health Care
Appendix I: Federal Employees Health Benefits 

Program (FEHBP) Plan Attributes for Selected 

Counties in 2015

Page 30 GAO-18-52 Federal Employees Health Benefits Program

In table 4, we present information about a selection of counties that reflect 

a range of FEHBP attributes, but which are not intended to be a 

representative sample of all counties. We chose counties with a range of 

total enrollments, market shares held by different plan offerings (with 

different enrollee premiums), and number of health maintenance 

organization (HMO) plan offerings.

Table 4: FEHBP Enrollment, Plan Offering Availability, and Premium Attributes for Selected Counties in 2015

Washington, D.C.

Honolulu County,

Hawaii

Madison County,

Alabama

Total FEHBP county 

enrollment

344,221 70,780 50,903

Total FEHBP county plan 

options

32 (13 HMO offerings) 26 (7 HMO offerings) 23 (4 HMO offerings)

Top three plan offerings with 

largest enrollment and 

percent of county enrollment Plan name

Enrollment 

share 

(percent) Plan name

Enrollment 

share 

(percent) Plan name

Enrollment 

share 

(percent)

Largest Blue Cross and 

Blue Shield 

Service Benefit 

Plan (Standard)

34 Hawaii Medical 

Service 

Association Plan 

(High)

75 Blue Cross and 

Blue Shield 

Service Benefit 

Plan (Standard)

68

Second largest Blue Cross and 

Blue Shield 

Service Benefit 

Plan (Basic)

19 Kaiser 

Foundation 

Health Plan, 

Inc.—Hawaii 

Region (High)

15 Blue Cross and 

Blue Shield 

Service Benefit 

Plan (Basic)

26

Third largest Kaiser 

Foundation 

Health Plan of 

the Mid-Atlantic 

States, Inc. 

(High)

9 Blue Cross and 

Blue Shield 

Service Benefit 

Plan (Standard)

3 Government 

Employees 

Health 

Association, Inc. 

Benefit Plan 

(Standard)

2

Total bi-weekly premium and 

enrollee’s premium share for 

the county’s top three plan 

offerings (by market share)a

Total bi-weekly 

premium 

(dollar)

Employee 

share (dollar)

Total premium 

(dollar)

Employee 

share 

(dollar)

Total premium 

(dollar)

Employee 

share 

(dollar)

Largest 293.04 91.03 230.00 57.50 293.04 91.03 

Second largest 253.62 63.40 243.84 60.96 253.62 63.40

Third largest 279.94 77.93 293.04 91.03 196.18 49.04 

Appendix I: Federal Employees Health 

Benefits Program (FEHBP) Plan Attributes 

for Selected Counties in 2015
Appendix I: Federal Employees Health Benefits 

Program (FEHBP) Plan Attributes for Selected 

Counties in 2015

Page 31 GAO-18-52 Federal Employees Health Benefits Program

Solano County,

California

Vernon County,

Louisiana

Total FEHBP county enrollment 11,429 3,544

Total FEHBP county plan offerings 28 (9 HMO offerings) 19 (0 HMO offerings)

Top three plan offerings with largest 

enrollment and percent of county 

enrollment

Plan name Enrollment share 

(percent)

Plan name Enrollment share 

(percent)

Largest Kaiser Foundation Health 

Plan, Inc.—Northern 

California Region (High)

40 Blue Cross and 

Blue Shield 

Service Benefit 

Plan (Standard)

61

Second largest Kaiser Foundation Health 

Plan, Inc.—Northern 

California Region 

(Standard)

22 Blue Cross and 

Blue Shield 

Service Benefit 

Plan (Basic)

21

Third largest Blue Cross and Blue 

Shield Service Benefit 

Plan (Standard)

14 Mail Handlers 

Benefit Plan 

(Standard)

6

Total bi-weekly premium and 

enrollee’s premium share of 

premiums for the county’s top three 

plan offerings (by market share)a Total bi-weekly premium (dollar)

Employee share 

(dollar)

Total premium 

(dollar)

Employee share 

(dollar)

Largest 359.81 157.80 293.04 91.03 

Second largest 301.78 99.77 253.62 63.40

Third largest 293.04 91.03 294.66 92.65 

Source: GAO analysis of Federal Employees Health Benefits Program (FEHBP) enrollment and plan availability data provided by the Office of Personnel Management. | GAO-18-52

Note: a These values reflect the self-only coverage premium.
Appendix II: Stakeholder Opinions about Other 

Federal Employees Health Benefits Program 

Aspects That Affect Competition

Page 32 GAO-18-52 Federal Employees Health Benefits Program

Some of the stakeholders we interviewed suggested that any positive 

effects of expanding the Office of Personnel Management’s (OPM) 

contracting authority and adding additional plan types to the Federal 

Employees Health Benefits Program (FEHBP) could be limited because 

of other aspects of the program that affect competition and discourage 

carrier participation.1 In particular, stakeholders cited concerns related to: 

Medicare-eligible enrollees, the government contribution formula for 

FEHBP premiums, and FEHBP’s plan performance assessment system.2

Medicare-eligible enrollees. Six of the 11 stakeholders we interviewed 

suggested that problems associated with Medicare-eligible enrollees 

negatively affect FEHBP premiums, and 5 of the 6 noted these problems 

create an unfair competitive advantage for the nationwide FEHBP plans. 

These stakeholders suggested that because certain older, Medicareeligible FEHBP enrollees tend to incur higher health care costs, they drive 

up premiums. Some stakeholders noted that plans—in particular, health 

maintenance organizations (HMOs) that offer service in areas with higher 

concentrations of older enrollees—experience challenges keeping 

premium rates competitive with the nationwide plans like those offered by 

the Blue Cross Blue Shield Association (BCBSA). Additionally, 3 

stakeholders we interviewed that offer HMO plans pointed specifically to 

costly retirees who opt not to enroll in in Medicare coverage of outpatient 

services, known as Part B, making it difficult for them to compete. FEHBP 

retirees eligible to enroll in Medicare are not required to do so, and some 

maintain only their FEHBP coverage instead.3 While there is no penalty 

 1

We interviewed 11 FEHBP stakeholders—health insurance carriers, federal employee 

and retiree organizations, and subject matter experts—and reviewed supplementary 

documents they provided. One stakeholder that offered comments on these other aspects 

of FEHBP that affect competition did not wish to comment about the potential effects of 

allowing OPM to contract with a greater variety of health plan types than are currently 

offered in FEHBP.

2

Medicare is the federally financed health insurance program for persons age 65 or over, 

certain individuals with disabilities, and individuals with end-stage renal disease. Medicare 

Parts A and B are known as Medicare fee-for-service. Medicare Part A covers hospital 

and other inpatient stays. Medicare Part B covers hospital outpatient, physician, and other 

services. 

3

According to OPM, in 2015, about 21 percent of Medicare-eligible retirees with self-only 

coverage and 24 percent with family coverage were not enrolled in Medicare coverage of 

outpatient services (Part B). Additionally, about 5 percent of Medicare-eligible retirees with 

self-only coverage and 2 percent with family coverage percent were not enrolled in 

Medicare coverage for hospital services (Part A). 

Appendix II: Stakeholder Opinions about 

Other Federal Employees Health Benefits 

Program Aspects That Affect Competition
Appendix II: Stakeholder Opinions about Other 

Federal Employees Health Benefits Program 

Aspects That Affect Competition

Page 33 GAO-18-52 Federal Employees Health Benefits Program

for choosing not to enroll in Medicare, retirees who later decide to enroll 

in Part B must pay a penalty.4 For retirees in FEHBP who choose not to 

enroll in Medicare, their FEHBP plan remains the primary payer and they 

continue to receive the same level of coverage through that plan as they 

did prior to becoming eligible for Medicare.5 Two stakeholders said that 

charging the same rates to the retiree population without Part B and the 

active employee population—a scenario that occurs in FEHBP—is not 

typical of the private, commercial insurance market.

In a recent publication, one of the stakeholders we interviewed reported 

that these types of issues have been a problem for FEHBP since its 

inception, and that it is therefore in the interest of every enrollee to join 

plans with the lowest proportion of high-cost retirees.6 The stakeholder 

noted that this distorts plan selection and alters results, noting that while 

the Kaiser plans on the West Coast do an outstanding job of keeping 

costs low for enrollees, they have a disproportionate number of retirees 

who correctly understand that they do not need to enroll in Medicare. 

According to the stakeholder, this puts Kaiser at a disadvantage since it 

has to cover the age-related costs of these enrollees.

Stakeholders we interviewed offered a number of potential solutions for 

OPM to address these challenges. For example, two stakeholders 

suggested that OPM could introduce some form of risk adjustment into 

FEHBP to assist plans that have a disproportionate number of Medicareeligible enrollees. Risk adjustment provides a way to correct for 

imbalances that occur when some carriers attract a larger share of 

enrollees at low risk for expensive claims and other carriers attract a 

larger share of enrollees at high risk for expensive claims. One of the two 

stakeholders suggested that FEHBP could introduce a budget-neutral risk 

adjustment program that adjusts the amount of a plan’s premium that is 

paid by the government based on a plan’s ratio of age-65 retirees with 

Medicare (Parts A, B, or both) to those without. The stakeholder said that 

this would greatly improve plan competition over time.

 4

Medicare beneficiaries generally would be billed an extra 10 percent of their monthly 

premium for each full 12-month period that they were eligible for Part B coverage but did 

not sign up for it. 

5

In general, for those FEHBP retirees eligible-for and enrolled in Medicare and FEHBP, 

Medicare is the primary insurer, and the FEHBP plans typically cover any expenses that 

Medicare does not cover. 

6

W. Francis, “Postal Service Health Benefits and the FEHBP: The Urgent Case for Getting 

Reform Right,” The Heritage Foundation BACKGROUNDER, no. 3155 (2016).
Appendix II: Stakeholder Opinions about Other 

Federal Employees Health Benefits Program 

Aspects That Affect Competition

Page 34 GAO-18-52 Federal Employees Health Benefits Program

OPM officials agreed with stakeholders that providing nationwide service 

is an advantage for carriers like BCBSA in high cost areas, but noted that 

it is a disadvantage in low cost areas, and said that, similarly, a lack of 

risk adjustment in the program works both in favor of and against BCBSA 

and HMOs. OPM officials said, for example, that the BCBSA Standard 

option would likely benefit from risk adjustment, while the BCBSA Basic 

option would likely be negatively impacted.7 OPM officials also said that 

risk adjustment could be a way for the agency to compensate plans that 

have enrollees with higher than average risk and to improve competition 

by discouraging plans from avoiding those higher risk enrollees. However, 

officials noted that risk adjustment would require the agency to have 

reliable claims-level data from each of the plans, which the agency does 

not have. In January 2017, OPM officials said that the agency is in the 

process of collecting claims data from FEHBP carriers and expects to 

have a sufficiently reliable data set by July 2018. OPM officials also noted 

that before implementing any form of risk adjustment in FEHBP they 

would have to use that data to determine the effects on the program, and 

they would also need to determine whether doing so would require any 

legislative changes.

Some stakeholders we interviewed also suggested retirees could be 

incentivized to enroll in Medicare Part B (for example, by waiving the 

Medicare Part B late enrollment fee for FEHBP retirees, or by having 

FEHBP plans subsidize Part B premiums), and two stakeholders went as 

far as suggesting that Medicare enrollment should be required for those 

eligible.8 OPM officials said that they already encourage enrollment in 

Medicare Part B; in particular, they noted that in their annual call letters 

they have encouraged carriers to offer benefits in their plans that 

incentivize Medicare enrollment for eligible FEHBP enrollees. However, 

OPM officials said that they are open to pursuing additional approaches 

 7

The BCBSA Standard option has a higher proportion of retirees than the BCBSA Basic 

option. For example, in 2015, 59 percent of the Standard option’s 1,618,701 policyholders 

were retirees, while only 21 percent of the Basic option’s 888,199 policyholders were 

retirees. 

8

We have previously reported on a proposal to increase U.S. Postal Service retirees’ use 

of Medicare, which would decrease the Postal Service’s costs but increase Medicare 

costs. Because we have also previously reported that Medicare is on a fiscally 

unsustainable path over the long term, we noted that any additional costs resulting from 

such a proposal would also have to be weighed alongside the fiscal pressure already 

faced by Medicare. See GAO, U.S. Postal Service: Proposed Health Plan Could Improve 

Financial Condition, but Impact on Medicare and Other Issues Should Be Weighed before 

Approval, GAO-13-658 (Washington, D.C.: July 18, 2013). 
Appendix II: Stakeholder Opinions about Other 

Federal Employees Health Benefits Program 

Aspects That Affect Competition

Page 35 GAO-18-52 Federal Employees Health Benefits Program

that would encourage FEHBP retirees to fully participate in Medicare 

coverage.

9

The government contribution formula for FEHBP premiums. Five of 

the 11 stakeholders we interviewed suggested that the government 

contribution formula for FEHBP premiums negatively impacts program 

competition. The FEHBP statute establishes the amount the government 

contributes towards the costs of FEHBP plan premiums. By statute, the 

government pays an amount equal to 72 percent of the weighted average 

premium across all FEHBP plans, but no more than 75 percent of any 

particular plan’s premium.10 Enrollees generally pay the remaining 

premium. As such, enrollee contributions will generally be 25 percent for 

lower-premium plans and can be higher than 28 percent if their plan’s 

premiums are significantly higher than the weighted average FEHBP 

plan.

Some stakeholders we interviewed noted that BCBSA has an advantage 

under the contribution formula, and that the existing formula does not 

incentivize enrollees to choose low cost plans. Two stakeholders noted 

that BCBSA’s large program market share—66 percent of total program 

enrollment in 2015—allows it significant influence over the government 

contribution amount. Therefore, several stakeholders suggested that 

BCBSA’s enrollees end up paying closer to the minimum of 25 to 28 

percent of their premium’s costs. Conversely, other plans—particularly 

HMOs operating in high cost areas—may have premiums that are higher 

than BCBSA’s and the weighted program average, resulting in their 

enrollees having to pay considerably more than 28 percent of their total 

premium’s costs. Two stakeholders said that, as a result, carriers may 

exit the program once their premiums exceed the weighted program 

average. Additionally, two stakeholders we interviewed suggested that 

the formula does not incentivize enrollees to choose lower cost plans 

because the maximum government contribution amount is 75 percent—

regardless of whether the plan’s premiums are less than the weighted 

 9

For example, in OPM’s 2015 FEHBP call letter to carriers, the agency noted that it was 

focusing on encouraging participation in Medicare Part B, and that plans should propose 

benefit changes that allow members to maximize their benefits under FEHBP and 

Medicare, such as reduced cost sharing under hospital, medical or pharmacy benefits for 

members with Part B.

10See 5 U.S.C. § 8906(b). Some agencies, such as the U.S Postal Service and the 

Federal Deposit Insurance Corporation, provide higher premium contributions for FEHBP 

enrollees. 
Appendix II: Stakeholder Opinions about Other 

Federal Employees Health Benefits Program 

Aspects That Affect Competition

Page 36 GAO-18-52 Federal Employees Health Benefits Program

FEHBP average. See table 5 for examples of how the government 

contribution formula affects the share of premiums that enrollees pay.

Table 5: Hypothetical Illustration of the Government Contribution and Enrollee Share of Premiums in the Federal Employees 

Health Benefits Program (FEHBP)

Plan A – Premium is the 

weighted FEHBP average

Plan B – Premium is below 

the weighted FEHBP average

Plan C – Premium exceeds 

the weighted FEHBP average

Total bi-weekly premium $100.00 $75.00 $125.00

Government contribution $72.00 $56.25 $72.00

Enrollee share $28.00 $18.75 $53.00

Enrollee share, as percentage of 

total premium

28% 25% 42%

Source: GAO. | GAO-18-52

Note: The federal government and FEHBP enrollees bear a portion of the cost of FEHBP plan 

premiums. By statute, the government pays 72 percent of the weighted average premium of all health 

benefit plans participating in FEHBP, but no more than 75 percent of any particular plan’s premium, 

while enrollees pay the balance. See 5 U.S.C. § 8906(b). In this hypothetical illustration it is assumed 

that the weighted average premium of all health benefit plans participating in FEHBP is $100.00.

Some stakeholders we interviewed proposed solutions to the concerns 

they identified with the government contribution formula. For example, 

two stakeholders suggested that the formula be changed so that plans 

that cost less than 72 percent of the weighted average would be covered 

either in full or to a greater extent by the government. They noted that this 

would incentivize enrollees to choose lower cost plan options and would 

strengthen the competitiveness of lower-cost plans—particularly as

compared to the BCBSA options. One stakeholder also suggested that 

the government contribution formula could be varied by metropolitan 

regions (i.e., vary government and enrollee premium contributions based 

on regional health care costs), which they suggested would lead to more 

carriers introducing more plan offerings overall. While the government 

contribution formula is set in statute, OPM officials said that they are open 

to pursuing changes that would encourage FEHBP enrollees to select the 

health plans that meet their current and expected health care needs at 

affordable costs.

FEHBP plan performance assessment system. Five of the 11 

stakeholders we interviewed cited concerns with OPM’s system for 

assessing FEHBP plan performance, with 2 noting that it discourages 

competition and participation in FEHBP. OPM announced a new 

methodology for assessing plan performance in a letter to carriers in 

2015, noting that the agency would use a discrete set of quantifiable 

measures to examine aspects of contract performance and link this 
Appendix II: Stakeholder Opinions about Other 

Federal Employees Health Benefits Program 

Aspects That Affect Competition

Page 37 GAO-18-52 Federal Employees Health Benefits Program

performance assessment to the profit plans receive.11 OPM reported in 

the letter that it implemented performance assessment to move away 

from paying for procedures or services and towards paying for value and 

prevention of disease. It also noted that the system was intended to 

create a more objective performance standard and provide more 

transparency for enrollees. Stakeholders we interviewed, however, were 

particularly critical of the way in which community-rated plans are 

assessed in this new system, noting that plans are penalized rather than 

rewarded.12 Regulations specify a process by which OPM may withhold a 

portion of payments to a community-rated carrier based on plan 

performance thereby reducing the carrier’s profits. 13 Two of these 

stakeholders said that the only way for a plan to not receive a financial 

penalty is to get a perfect score on the assessment and said that it is 

impossible to receive such a score. Therefore, one stakeholder noted that 

the system is extremely discouraging to carriers, particularly to new 

carriers considering joining FEHBP. Additionally, two stakeholders said 

that the measures used in the assessment—Healthcare Effectiveness 

Data and Information Set (HEDIS) and Consumer Assessment of 

Healthcare Providers and Systems (CAHPS) measures—favor certain 

types of HMOs. For example, one stakeholder noted that some carriers 

can have problems meeting the HEDIS measure for breast cancer 

screening rates, because they have to get patients to go to a separate 

mammography center while carriers that are part of more integrated 

health systems can offer mammograms in-house.

 11OPM, FEHB Program Carrier Letter No. 2015-10 (Washington, D.C.: May 12, 2015). 

12OPM negotiates plan premiums with carriers and establishes premiums in one of two 

ways: experience rating or community rating. Experience-rated carriers set their premiums 

based on their experience; that is, their actual costs of providing health care services and 

the costs of administrative services. Most community-rated carriers set their FEHBP 

premiums based on a medical loss ratio formula comparing non-claim costs to overall 

expenditures, except for plans required by state law to use traditional community rating. 

All of the nationwide, fee-for-service FEHBP plans are experience-rated while HMOs can 

be either experience-rated or community-rated. See 48 C.F.R. § 1615.402 (2016).

13Under the 2015 final rule, OPM uses a standardized methodology to asses plan 

performance that is applied differently to community-rated and experience-rated carriers. 

See 80 Fed. Reg. 37180 (June 30, 2015). For community-rated carriers, OPM withholds a 

performance adjustment from net-to-carrier payments. In contrast, for experience-rated 

carriers, OPM uses a performance based percentage in negotiating the projected total 

profit or service charge for a contract. See 48 C.F.R. §§ 1615.404-4, 1615.404-70 and 

1632.170 (2016).
Appendix II: Stakeholder Opinions about Other 

Federal Employees Health Benefits Program 

Aspects That Affect Competition

Page 38 GAO-18-52 Federal Employees Health Benefits Program

With regard to how the plan performance assessment system could be 

improved, stakeholders we interviewed suggested that OPM should 

switch to a reward or incentive-based system for community-rated 

carriers. Several stakeholders suggested that OPM could implement a 

system similar to the Medicare Advantage star ratings system.14 In 

December 2016, OPM officials told us that they were listening to 

community-rated plans’ concerns regarding the performance assessment 

penalty and would consider adjustments to address these concerns. Then 

in March 2017, in response to some of these concerns, OPM issued a 

letter to FEHBP carriers proposing an update to the assessment of 

community-rated plans that would allow carriers with high-performing 

plans to avoid any financial penalties.15 Regarding the concern about the 

use of HEDIS and CAHPS measures, OPM officials said that these 

measures are well-established and commonly required by other 

commercial and government payers, such as Medicare Advantage. 

Nonetheless, OPM officials said that the plan performance system will 

continuously be improved through the introduction of new measures and 

the retirement of measures on which all FEHBP plans have achieved 

satisfactory performance.

 14The Medicare Advantage program, an alternative to the original Medicare fee-for-service 

program, provides health care coverage to Medicare beneficiaries through private health 

plans offered by organizations under contract with the Centers for Medicare & Medicaid 

Services. To help Medicare beneficiaries select a Medicare Advantage plan in their area, 

the Centers for Medicare & Medicaid Services rates Medicare Advantage contractors on a 

5-star scale, with 5 stars indicating the highest quality. As an incentive for plans to achieve 

high star ratings, plans receive bonus payments based on these ratings.

15OPM, FEHB Program Carrier Letter No. 2017-02 (Washington, D.C.: Mar. 16, 2017).
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 39 GAO-18-52 Federal Employees Health Benefits Program

John Dicken, (202) 512-7114 or dickenj@gao.gov

In addition to the contact named above, William Hadley (Assistant 

Director), Kristi Peterson (Assistant Director), Christina Ritchie (Analyst in 

Charge), Leonard Brown, William Garrard, Daniel Ries, and Said 

Sariolghalam made key contributions to this report. Also contributing were 

Sandra George, Emei Li, Yesook Merrill, Laurie Pachter, Vikki Porter, 

Jennifer Rudisill, Frank Todisco, and Merrile Sing.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact:

Staff 

Acknowledgments
Related GAO Products

Page 40 GAO-18-52 Federal Employees Health Benefits Program

Private Health Insurance: In Most States and New Exchanges, Enrollees

Continued to be Concentrated among Few Insurers in 2014. 

GAO-16-724. Washington, D.C.: September 6, 2016.

Private Health Insurance: The Range of Premiums and Plan Availability 

for Individuals in 2014 and 2015. GAO-15-687. Washington, D.C.: August 

10, 2015.

Private Health Insurance: Concentration of Enrollees among Individual, 

Small Group, and Large Group Insurers from 2010 through 2013. 

GAO-15-101R. Washington, D.C.: December 1, 2014.

Federal Employees Health Benefits Program: Oversight of Carriers’ Fraud 

and Abuse Programs. GAO-14-39. Washington, D.C.: November 14, 

2013.

U.S. Postal Service: Proposed Health Plan Could Improve Financial 

Condition, but Impact on Medicare and Other Issues Should Be Weighed 

before Approval. GAO-13-658. Washington, D.C.: July 18, 2013.

Federal Employees Health Benefits Program: Premium Growth Has 

Recently Slowed, and Varies among Participating Plans. GAO-07-141. 

Washington, D.C.: December 22, 2006.

Federal Employees Health Benefits Program: First-Year Experience with 

High-Deductible Health Plans and Health Savings Accounts. 

GAO-06-271. Washington, D.C.: January 31, 2006.

Federal Employees Health Benefits Program: Early Experience with a 

Consumer-Directed Health Plan. GAO-06-143. Washington, D.C.: 

November 21, 2005.

Federal Employees Health Benefits Program: Competition and Other 

Factors Linked to Wide Variation in Health Care Prices. GAO-05-856. 

Washington, D.C.: August 15, 2005.

Federal Employees’ Health Plans: Premium Growth and OPM’s Role in 

Negotiating Benefits. GAO-03-236. Washington, D.C.: December 31, 

2002.

Federal Employees’ Health Program: Reasons Why HMOs Withdrew in 

1999 and 2000. GAO/GGD-00-100. Washington, D.C.: May 2, 2000.

Related GAO Products

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