United States Government Accountability Office

GAO Report to the Ranking Minority Member, 

Subcommittee on Oversight of Government 

Management, the Federal Workforce, and the 

District of Columbia, Committee on Homeland 

Security and Governmental Affairs, U.S. Senate

FEDERAL 

EMPLOYEES 

HEALTH BENEFITS 

PROGRAM 

Premium Growth Has 

Recently Slowed, and 

Varies among 

Participating Plans 

December 2006 

 

GAO-07-141 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

December 2006

FEDERAL EMPLOYEES HEALTH 

BENEFITS PROGRAM 

Premium Growth Has Recently Slowed, 

and Varies among Participating Plans 

Highlights of GAO-07-141, a report to the 

Ranking Minority Member, Subcommittee 

on Oversight of Government

Management, the Federal Workforce, and 

the District of Columbia, Committee on 

Homeland Security and Governmental 

Affairs, U.S. Senate 

Average health insurance 

premiums for plans participating in 

the Federal Employees Health 

Benefits Program (FEHBP) have 

risen each year since 1997. These

growing premiums result in higher

costs to the federal government

and plan enrollees. The Office of

Personnel Management (OPM) 

oversees FEHBP, negotiating 

benefits and premiums and 

administering reserve accounts 

that may be used to cover plans’ 

unanticipated spending increases.

GAO was asked to evaluate the 

nature and extent of premium 

increases. To do this, GAO

examined (1) FEHBP premium 

trends compared with those of

other purchasers, (2) factors 

contributing to average premium 

growth across all FEHBP plans, 

and (3) factors contributing to

differing trends among selected 

FEHBP plans. GAO reviewed data

provided by OPM relating to

FEHBP premiums and factors 

contributing to premium growth. 

For comparison purposes, GAO

also examined premium data from 

the California Public Employees’ 

Retirement System (CalPERS) and 

surveys of other public and private 

employers. GAO also interviewed

officials from OPM and eight 

FEHBP plans with premium growth 

that was higher than average, and 

six FEHBP plans with premium 

growth that was lower than

average to discuss premium growth 

trends and the variation in growth

across plans. 

Growth in FEHBP premiums recently slowed, from a peak of 12.9 percent 

for 2002 to 1.8 percent for 2007. During this period FEHBP premium growth 

was generally slower than for other purchasers. Premium growth rates for 

the 10 largest FEHBP plans by enrollment ranged from 0 percent to 

15.5 percent in 2007, while growth rates among smaller FEHBP plans varied 

more widely. The growth in average enrollee premium contributions—the 

share of total premiums paid by enrollees—was similar to the growth in total 

FEHBP premiums from 1994 through 2006, and was generally comparable

with recent growth in enrollee premium contributions for surveyed 

employers. 

Projected increases in the cost and utilization of health care services and in 

the cost of prescription drugs accounted for most of the average premium 

growth increases for 2000 through 2007. Other factors, including benefit 

changes resulting in less generous coverage and enrollee migration to lower 

cost plans, were projected to slightly offset premium increases. In 2006 and 

2007, projected withdrawals from reserves significantly helped offset the 

effect of other factors on premium growth. 

 

Officials from most of the plans with higher-than-average premium growth 

cited increases in the cost and utilization of services as well as a high share 

of elderly enrollees and early retirees. GAO’s analysis of financial and 

enrollment data found that these plans generally experienced faster-thanaverage growth in the cost and utilization of services and faster-than-average 

growth in their share of elderly enrollees and retirees in recent years.

Officials from most of the plans with lower-than-average premium growth 

cited adjustments for previously overestimated projections of cost growth. 

Officials also cited benefit changes that resulted in less generous coverage 

for prescription drugs. GAO’s analysis of financial data provided by these 

plans found that that their increase in per enrollee expenditures for 

prescription drugs was significantly lower than average in recent years. 

In commenting on a draft of this report, OPM said the draft confirms that 

growth in average FEHBP premiums has slowed and has been lower than 

that of other large employer purchasers for the last several years.

Growth in Average Premiums for FEHBP and Other Purchasers 

-5

0

5

10

15

20

25

FEHBP CalPERS Surveyed employer plans

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Percentage

Year

Sources: OPM, CalPERS, and Kaiser Family Foundation/Health Research and Educational Trust.

www.gao.gov/cgi-bin/getrpt?GAO-07-141.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact John Dicken at 

(202) 512-7119 or dickenj@gao.gov. 
Contents 

Letter 1

Results in Brief 4

Background 6

Growth in Average FEHBP Premiums Has Recently Slowed and 

Was Lower Than That of Other Purchasers 8 

Projected Growth in Several Factors Contributed to Average 

FEHBP Premium Growth 13 

Changes in the Cost and Utilization of Services and Enrollee 

Demographics Accounted for Differing Premium Growth among 

FEHBP Plans 17 

Agency Comments and Our Evaluation 20 

Appendix I Scope and Methodology 22 

Appendix II Comments from the Office of Personnel 

Management 26 

Tables 

Table 1: Growth in Premiums for 10 Largest FEHBP Plans, 2005 

through 2007 10 

Table 2: Actual Cost Drivers for Five Large FEHBP Plans, 2003 

through 2005 16 

Table 3: Eight FEHBP Plans with Higher-Than-Average Premium 

Growth: Enrollee Demographic Changes, 2001 through 

2005 18 

Table 4: Six FEHBP Plans with Lower-Than-Average Premium 

Growth: Enrollee Demographic Changes, 2001 through 

2005 19 

Table 5: Plans with Higher- or Lower-Than-Average Premium 

Growth Selected by GAO 24 

Figures 

Figure 1: Growth in Average Premiums for FEHBP and Other 

Purchasers, 1994 through 2007 9 

Figure 2: Growth in Average FEHBP Premium and Enrollee 

Premium Contribution, 1994 through 2007 12 

Page i GAO-07-141 FEHBP Premium Trends
Figure 3: Growth in Average Enrollee Premium Contributions for 

FEHBP and Surveyed Employer Plans, 1994 through 2006 13 

Figure 4: Projected Changes in Various Factors Affecting FEHBP 

Premium Growth, 2000 through 2007 15 

Abbreviations 

CalPERS California Public Employees’ Retirement System 

CDHP consumer-directed health plan 

FEHBP Federal Employees Health Benefits Program 

FFS fee-for-service 

Kaiser/HRET Kaiser Family Foundation/Health Research and 

 Educational Trust 

HMO health maintenance organization 

OPM Office of Personnel Management 

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Page ii GAO-07-141 FEHBP Premium Trends
United States Government Accountability Office

Washington, DC 20548 

 

December 22, 2006 

The Honorable Daniel K. Akaka 

Ranking Minority Member 

Subcommittee on Oversight of Government Management, 

 the Federal Workforce, and the District of Columbia 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

The Honorable Daniel K. Akaka 

Ranking Minority Member 

Subcommittee on Oversight of Government Management, 

 the Federal Workforce, and the District of Columbia 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

Dear Senator Akaka: 

Federal employees’ health insurance premiums have steadily increased 

since the late 1990s, after a brief period of decreases.1

 About 8 million 

federal employees, retirees, and their dependents receive health coverage 

through plans participating in the Federal Employees Health Benefits 

Program (FEHBP), the largest employer-sponsored health insurance 

program in the country. The Office of Personnel Management (OPM) 

administers the program by contracting with multiple health insurance 

carriers to offer health plans through the program and negotiates benefits

and premium rates with each carrier. OPM also administers reserve 

accounts for each plan that may be used to cover plans’ unanticipated 

spending increases.2

Federal employees’ health insurance premiums have steadily increased 

since the late 1990s, after a brief period of decreases.1

 About 8 million 

federal employees, retirees, and their dependents receive health coverage 

through plans participating in the Federal Employees Health Benefits 

Program (FEHBP), the largest employer-sponsored health insurance 

program in the country. The Office of Personnel Management (OPM) 

administers the program by contracting with multiple health insurance 

carriers to offer health plans through the program and negotiates benefits

and premium rates with each carrier. OPM also administers reserve 

accounts for each plan that may be used to cover plans’ unanticipated 

spending increases.2

Because higher FEHBP premiums pose higher costs to the federal 

government and plan enrollees, you asked us to evaluate the extent and 

nature of these increases. You also asked us to examine the potential 

effect on premium growth of the Medicare retiree drug subsidy had OPM 

applied for the subsidy and used it to offset premium growth.3

 To do this 

we examined 

Because higher FEHBP premiums pose higher costs to the federal 

government and plan enrollees, you asked us to evaluate the extent and 

nature of these increases. You also asked us to examine the potential 

effect on premium growth of the Medicare retiree drug subsidy had OPM 

applied for the subsidy and used it to offset premium growth.3

 To do this 

we examined 

 1

GAO previously reported on federal employees’ health insurance premium trends through

2003. See GAO, Federal Employees’ Health Plans: Premium Growth and OPM’s Role in

Negotiating Benefits, GAO-03-236 (Washington, D.C.: Dec. 31, 2002). 

2

Pursuant to 5 U.S.C. § 8909. 

3

As of January 1, 2006, employers offering prescription drug coverage to Medicare-eligible 

retirees enrolled in their plans could apply for a tax-exempt government subsidy. See

Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-

173, 117 Stat. 2066, 2125 (2003). OPM has chosen not to apply for the subsidy. 

Page 1 GAO-07-141 FEHBP Premium Trends
1. recent FEHBP premium growth trends and compared them with those 

of plans offered by other purchasers, 

2. the factors that contributed to average premium growth trends across 

all FEHBP plans as well as the effect the Medicare retiree drug subsidy 

would have had on premium growth, and 

3. the factors that contributed to differing premium growth among 

selected FEHBP plans. 

To identify growth trends in FEHBP premiums and enrollee premium 

contributions—the portion of the total premium paid by enrollees—we 

obtained premium trend data from 1994 through 2007 from OPM. We 

analyzed the data to identify trends in average premiums and average

enrollee premium contributions for all plans.4

 To assess the variation in 

premium trends across all FEHBP plans by such characteristics as plan 

type,5

 plan option,6 geographic area served, and share of retirees, we 

obtained plan-level premium and enrollment data from 2003 through 2006

from OPM.7

 To compare FEHBP premium trends with those of other 

purchasers, we obtained premium data from the California Public 

Employees’ Retirement System (CalPERS)—the second largest public 

purchaser of employee health benefits—and surveys of employer-

 4

Throughout the report, the terms average premium and average enrollee premium 

contribution refer to the average premium and average enrollee contribution weighted by 

each plan’s enrollment. 

5

Several types of plans are offered to FEHBP enrollees, including fee-for-service (FFS), 

health maintenance organization (HMO), and consumer-directed health plans (CDHP). FFS 

plans are generally available to all enrollees nationwide. The plans offer a choice of

preferred providers within the plans’ networks at a lower cost to enrollees; providers

outside the networks cost more. HMO plans are available to enrollees in particular 

geographic areas and generally have cost-containment mechanisms that require 

authorization from an enrollee’s primary care physician before the enrollee can access

services by specialist health providers. CDHPs are high-deductible plans that feature a 

savings account used to pay for health care and may be offered nationally or within 

particular geographic areas.

6

Some FEHBP plans offer two levels of benefits, also known as high or low options. Highoption plans offer more comprehensive coverage and richer benefits and have higher 

monthly premiums than do low-option plans.

7

As 2007 premium data became available, we incorporated these data into our analyses as 

appropriate. 

Page 2 GAO-07-141 FEHBP Premium Trends
sponsored health plans from Kaiser Family Foundation/Health Research 

and Educational Trust (Kaiser/HRET).8,9

To identify factors contributing to average FEHBP premium growth trends 

across all FEHBP plans, we analyzed OPM summary reports assessing the 

effect of projected changes in various factors, including the cost and 

utilization of services, enrollee demographics, and use of reserves, on 

premium growth trends from 2000 through 2007.10 We also examined 

aggregate data on the actual growth in per-enrollee expenditures by 

service category, including prescription drugs, hospital outpatient care,

hospital inpatient care, and physician and other services, from 2003 

through 2005 for 5 large FEHBP plans.11 We explored with officials from 

OPM and 14 selected FEHBP plans the potential effect on premium growth 

of the retiree drug subsidy had OPM applied for the subsidy and used it to

mitigate premium growth. 

To examine the reasons for differing premium growth trends among 

FEHBP plans, we conducted interviews with officials from the 14 plans—

selected because of size (at least 5,000 enrollees) and length of

participation in FEHBP (at least 3 years)—with higher- or lower-thanaverage premium growth in 2006 or for the 3-year period from 2004 

through 2006. Eight of the 14 selected plans had higher-than-average 

premium growth and 6 had lower-than-average premium growth. We 

analyzed aggregate data on the actual growth in per-enrollee expenditures 

by service category from 2003 through 2005 provided by officials from 6 of 

the 8 plans with higher-than-average premium growth and 2 of the 6 plans 

 8

Kaiser/HRET has conducted surveys of employer-sponsored health benefits since 1999. 

These surveys capture data from employers ranging in size from 3 to 300,000 or more

workers. KPMG Peat Marwick conducted the surveys before 1999. 

9

We analyzed premium growth trends for CalPERS from 1994 through 2007. We analyzed 

premium growth trends for Kaiser/HRET surveyed employers from 1994 through 2006, 

because the Kaiser/HRET survey data available when we prepared this report did not 

include growth rates for 2007.

10Premium rates for each year are prospectively set by individual FEHBP plans based on 

their projections of growth for various factors. OPM calculates the average premium 

growth across all FEHBP plans and estimates the composite projected growth in each of 

these factors across all FEHBP plans based on the plans’ projections. Actual growth for 

each factor may differ from these projections. 

11These five plans accounted for about 90 percent of FFS enrollment and about two-thirds

of total FEHBP enrollment. OPM was not able to provide these data for all FEHBP plans 

for 2005.

Page 3 GAO-07-141 FEHBP Premium Trends
with lower-than-average premium growth. We also analyzed demographic 

enrollment data provided by OPM for all 14 plans for 2001 through 2005. 

We did not independently verify the data from OPM, the selected FEHBP 

plans, CalPERS, or the Kaiser/HRET surveys. We performed certain quality 

checks, such as determining consistency where similar data were provided 

by OPM and the plans. We collected and evaluated information from OPM 

regarding collection, storage, and maintenance of the data. We reviewed 

all data for reasonableness and consistency and determined that these 

data were sufficiently reliable for our purposes. Appendix I provides more 

detailed information on our methodology. We conducted our work from

January 2006 through December 2006 in accordance with generally 

accepted government auditing standards. 

Growth in average FEHBP premiums recently slowed and was lower than 

growth for other purchasers, while premium growth varied across FEHBP 

plans. Growth in average FEHBP premiums slowed from a peak of 

12.9 percent for 2002 to 1.8 percent for 2007. The average annual growth in 

FEHBP premiums has been slower than for other purchasers beginning in

2003—7.3 percent for FEHBP, compared with 14.2 percent for CalPERS 

and 10.5 percent for surveyed employers. Premium growth rates for the 10

largest FEHBP plans by enrollment, accounting for about three-quarters of 

total enrollment, ranged from 0 percent to 15.5 percent for 2007. The 

growth in average enrollee premium contributions—the portion of the 

total premium paid by enrollees—was similar to the growth in total 

FEHBP premiums from 1994 through 2007 and was generally comparable

with the recent growth in enrollee premium contributions for surveyed 

employers. 

Results in Brief 

Premium growth was affected by projected increases and decreases in the 

costs associated with several factors. Projected increases in the cost and 

utilization of health care services and in the cost of prescription drugs 

accounted for most of the average premium growth across all plans for 

2000 through 2007. Absent projected changes in the costs associated with

other factors, projected increases in the cost and utilization of services 

alone would have accounted for a 6 percent increase in premiums for 

2007, down from a peak of about 10 percent for 2002. Similarly, projected 

increases in the cost of prescription drugs alone would have accounted for 

about a 3 percent increase in premiums for 2007, down from a peak of 

about 5 percent in 2002. Projected decreases in the costs associated with 

other factors, including benefit changes that resulted in less generous 

coverage and enrollee migration to lower cost plans, generally helped

Page 4 GAO-07-141 FEHBP Premium Trends
offset average premium increases from 2000 through 2007. From 2000 

through 2005, projected additions to reserves contributed less than 

1 percent to premium growth. However, projected withdrawals from 

reserves helped offset the effect of other factors on premium growth by 

about 2 percent for 2006 and 5 percent for 2007. Regarding the potential

effect of the retiree drug subsidy, plan officials differed on whether the 

subsidy would have affected growth in FEHBP premiums in 2006 had OPM 

applied for the subsidy and used it to mitigate premium growth. Most plan 

officials we interviewed stated that the subsidy would have had a small 

effect on premium growth. Officials from two large plans with higher-thanaverage shares of retirees stated that the subsidy would have lowered their 

plans’ premium growth—officials from one plan claimed by at least 3.5 to

4 percentage points for their plan. We estimated that the subsidy would 

have lowered the growth in premiums across all FEHBP plans for 2006 by

more than 2 percentage points on average, from 6.4 percent to about 

4 percent. OPM officials stated that OPM did not apply for the subsidy for 

FEHBP because the intent of the subsidy was to encourage employers to 

continue offering prescription drug coverage to Medicare-eligible 

enrollees, and FEHBP plans were already doing so. 

Officials we interviewed from most of the plans with higher-than-average 

premium growth cited increases in the cost and utilization of services as 

well as a high share of elderly enrollees and early retirees. Our analysis of 

financial data provided by these plans and enrollment data provided by

OPM found that these plans experienced faster-than-average growth in the 

cost and utilization of services and faster-than-average growth in their 

share of elderly enrollees and retirees in recent years. Officials we 

interviewed from most plans with lower-than-average premium growth 

cited adjustments made for previously overestimated projections of cost 

growth. Officials also cited benefit changes that resulted in less generous 

coverage for prescription drugs. Our analysis of financial data provided by

these plans showed that the increase in their per-enrollee expenditures for 

prescription drugs was significantly lower than average in recent years. In 

addition, our analysis of enrollment data found that these plans 

experienced greater declines than average in their share of aging enrollees. 

In commenting on a draft of this report, OPM said the draft confirms that 

growth in average FEHBP premiums has slowed and has been lower than 

that of other large employer purchasers for the last several years. 

Regarding our discussion of benefit changes that resulted in less generous 

coverage for prescription drugs, OPM said that some plans have modified

their prescription drug benefit to create incentives to use generic 

medications, and that this does not result in a less generous benefit. While 

Page 5 GAO-07-141 FEHBP Premium Trends
we agree that plans can change benefits to encourage generic drug 

utilization without resulting in less generous coverage, officials from three 

of the six plans we interviewed with lower–than-average premium growth 

said that they made benefit changes that resulted in less generous 

coverage. 

FEHBP is the largest employer-sponsored health insurance program in the 

country, providing health insurance coverage for about 8 million federal 

employees, retirees, and their dependents through contracts with private 

insurance plans. All currently employed and retired federal workers and 

their dependents are eligible to enroll in FEHBP plans, and about 

85 percent of eligible workers and retirees are enrolled in the program. For 

2007, FEHBP offered 284 plans, with 14 fee-for-service (FFS) plans, 209 

health maintenance organization (HMO) plans, and 61 consumer-directed 

health plans (CDHP). About 75 percent of total FEHBP enrollment was 

concentrated in FFS plans, about 25 percent in HMO plans, and less than 

1 percent in CDHPs. 

Background 

Total FEHBP health insurance premiums paid by the government and 

enrollees were about $31 billion in fiscal year 2005. The government pays a 

portion of each enrollee’s total health insurance premium. As set by 

statute, the government pays 72 percent of the average premium across all 

FEHBP plans but no more than 75 percent of any particular plan’s 

premium.12 The premiums are intended to cover enrollees’ health care 

costs, plans’ administrative expenses, reserve accounts specified by law, 

and OPM’s administrative costs. Unlike some other large purchasers, 

FEHBP offers the same plan choices to currently employed enrollees and

retirees, including Medicare-eligible retirees who opt to receive coverage 

through FEHBP plans rather than through the Medicare program. The 

plans include benefits for medical services and prescription drugs. 

 12The Balanced Budget Act of 1997 established the government’s current share of the 

premiums beginning in 1999. Pub. L. No. 105-33, §7002, 111 Stat. 251, 662 (amending 5

U.S.C. §8906). OPM determines separate averages for individual plans and for family plans. 

Although the average enrollee premium contribution is 28 percent of the average premium 

for all plans, enrollee premium contributions can be higher than 28 percent for plans with 

premiums significantly higher than the average FEHBP plan. For example, the 2006 

monthly premium for a particular FEHBP plan was $642, compared with the average

premium of $415. Because the government’s share is $299 (72 percent of $415), the enrollee 

premium contribution for this particular plan was $343 ($642 minus $299), or about 

53 percent of the plan’s premium. 

Page 6 GAO-07-141 FEHBP Premium Trends
By statute, OPM can negotiate contracts with health plans without regard 

to competitive bidding requirements.13 Plans meeting the minimum 

requirements specified in the statute and regulations may participate in the 

program, and plan contracts may be renewed automatically each year. 

OPM may terminate contracts if the minimum standards are not met.14

OPM administers a reserve account within the U.S. Treasury for each 

FEHBP plan, pursuant to federal regulations. Reserves are funded by a 

surcharge of up to 3 percent of a plan’s premium.15 Funds in the reserves 

above certain minimum balances may be used, under OPM’s guidance, to

defray future premium increases, enhance plan benefits, reduce 

government and enrollee premium contributions, or cover unexpected 

shortfalls from higher-than-anticipated claims. 

As of January 1, 2006, Medicare began offering prescription drug coverage 

(also known as Part D) to Medicare-eligible beneficiaries. Employers 

offering prescription drug coverage to Medicare-eligible retirees enrolled 

in their plans could, among other options, offer their retirees drug 

coverage that was actuarially equivalent to standard coverage under Part

D and receive a tax-exempt government subsidy to encourage them to 

retain and enhance their prescription drug coverage.16 The subsidy 

provides payments equal to 28 percent of each qualified beneficiary’s 

prescription drug costs that fall within a certain threshold and is estimated 

 135 U.S.C. §8902. 

14OPM can terminate a plan’s contract at the end of the contract term if fewer than 300 

federal employees and retirees were enrolled during the two preceding contract terms. In 

addition, if a plan fails to meet minimum standards, OPM can withdraw its approval after 

giving the plan notice and providing an opportunity for a hearing. 

155 U.S.C.§8909. Reserves may also be credited with any unused portions of funds set aside 

for OPM’s administrative expenses and income from investment of the reserves. In the case

of FFS plans, reserves may also be credited with portions of excess premiums that may

remain after claims and the plan’s administrative costs and other financial obligations have

been met. These excess premiums may not be transferred into reserve accounts for most

HMO plans. 

16In general, according to the Centers for Medicare & Medicaid Services, actuarial 

equivalence measures whether the expected amount of paid claims under the employer’s

prescription drug coverage is at least equal to the expected amount of paid claims under

the standard prescription drug coverage under Medicare Part D. The conference committee 

report for the legislation authorizing this subsidy indicated a belief by the committee that

the subsidy would help employers retain and enhance their prescription drug coverage in 

the face of increasing pressure to drop or scale back such coverage. H.R. Conf. Rep. No. 

108-391, at 484 (2003). 

Page 7 GAO-07-141 FEHBP Premium Trends
to average about $670 per beneficiary per year. OPM opted not to apply for 

the retiree drug subsidy. 

The average annual growth in FEHBP premiums slowed from 2002 

through 2007 and was generally lower than the growth for other 

purchasers since 2003. Premium growth rates of the 10 largest FEHBP 

plans by enrollment varied to a lesser extent than did growth rates of 

smaller plans from 2005 through 2007. The growth in the average FEHBP 

enrollee premium contribution generally tracked average premium growth 

and was generally similar to recent growth in enrollee premium 

contributions for surveyed employers. 

After a period of decreases in 1995 and 1996, FEHBP premiums began to 

increase in 1997, to a peak increase of 12.9 percent in 2002. The growth in 

average FEHBP premiums began slowing in 2003 and reached a low of 

1.8 percent for 2007. The average annual growth in FEHBP premiums was 

faster than that of CalPERS and surveyed employers from 1997 through 

2002—8.5 percent compared with 6.5 percent and 7.1 percent, respectively.

However, beginning in 2003, the average annual growth rate in FEHBP 

premiums was slower than that of CalPERS and surveyed employers— 

7.3 percent compared with 14.2 percent and 10.5 percent, respectively.17

(See fig. 1.).

Growth in Average 

FEHBP Premiums 

Has Recently Slowed 

and Was Lower Than 

That of Other 

Purchasers 

Growth in Average FEHBP 

Premiums Slowed and Was 

Lower Than That of Other 

Purchasers in Recent Years 

 17In 2006, average monthly FEHBP premiums were $415 for individual plans and $942 for 

family plans. Average monthly premiums for private employer plans were $354 for

individual plans and $957 for family plans.

Page 8 GAO-07-141 FEHBP Premium Trends
Figure 1: Growth in Average Premiums for FEHBP and Other Purchasers, 1994 

through 2007 

Percentage

Year

Sources: OPM, CalPERS, and Kaiser/HRET.

-5

0

5

10

15

20

25

Surveyed employer plans

CalPERS

FEHBP

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Note: The 2007 average premium growth rate for employer plans in the Kaiser/HRET surveys was 

not available at the time we completed our work for this report. 

FEHBP Premium Growth 

Varied Less for Large Plans 

Than for Smaller Plans 

from 2005 through 2007 

The premium growth rates for the 10 largest FEHBP plans by enrollment—

accounting for about three-quarters of total FEHBP enrollment—ranged 

from 0 percent to 15.5 percent in 2007. The average annual premium 

growth for these plans fell within a similar range for 2005 through 2007. 

(See table 1.) 

Page 9 GAO-07-141 FEHBP Premium Trends
Table 1: Growth in Premiums for 10 Largest FEHBP Plans, 2005 through 2007 

Plan 

Premium 

growth,

2007

Average 

premium 

growth,

2005-2007

Kaiser Foundation Health Plan of California 15.5% 10.2%

Kaiser Foundation Health Plan Mid-Atlantic States 9.7% 10.3%

M.D. Individual Practice Association 7.3% 8.7%

Mail Handlers Benefit Plan – (standard option) 3.0% 15.4%

National Association of Letter Carriers 2.0% 6.1%

American Postal Workers Union Health Plan – (high option) 1.7% 3.4%

Government Employees Hospital Association Benefit Plan

- (high option) 1.3% 6.3%

Blue Cross Blue Shield – (standard option) 1.0% 5.4%

Government Employees Hospital Association Benefit Plan

- (standard option) 0.0% 3.3%

Blue Cross Blue Shield – (basic option) 0.0% 0.0%

Average of 10 largest plans 1.7% 6.3%

Average of all FEHBP plans 1.8% 5.2%

Source: GAO analysis of FEHBP premium data from OPM.

Premium growth rates across the smaller FEHBP plans in 2007 varied 

more widely, from a decrease of 43 percent to an increase of 27.1 percent.

The average premium growth in 2006 also varied by such characteristics as

plan type, plan option, geography, and share of retirees. 

• Premium growth for FFS plans (6.0 percent) was lower than for HMO 

plans (8.5 percent). 

• Premium growth for low-option plans (2.6 percent) was lower than that 

for high-option plans (7.3 percent). 

• Premium growth was higher for regional HMO plans in the southern 

United States (9.2 percent) than for regional HMO plans elsewhere (from 

7.2 percent to 8.7 percent).18

 18National FFS plans charge the same premium in all geographic areas. 

Page 10 GAO-07-141 FEHBP Premium Trends
• Premium growth for plans with 20 percent or fewer retirees (4.5 percent) 

was lower than for plans with greater than 20 percent retirees (7 percent). 

Growth in average FEHBP enrollee premium contributions generally

paralleled premium growth from 1994 through 2007. The average annual 

growth in enrollee premium contributions during this period was 

6.9 percent, while premium growth was 6.1 percent. After decreasing in 

1995, average enrollee premium contributions began to increase, rising to

a peak of 12.8 percent in 1998. Paralleling premium growth trends, the 

average annual growth in enrollee premium contributions has slowed 

since 2002, except for an upward spike in 2006.19 (See fig. 2.) 

Growth in Average FEHBP 

Enrollee Premium 

Contributions Tracked 

Average Premium Growth 

and Was Comparable with 

That of Surveyed 

Employer Plans 

 19The simultaneous slowing in average premium growth and acceleration in average 

enrollee premium contributions in 2006 are related in part to the statutory level of federal

contribution to premiums. Because the federal government share of plan premiums is 

72 percent of the average premium across all FEHBP plans, enrollees in plans with higherthan-average premiums or rates of growth will pay a higher share of the premium than 

other enrollees. Thus, because the premium for the largest FEHBP plan increased at a 

higher rate than the average of all FEHBP plans—8.5 percent compared with 6.4 percent, 

respectively—enrollees in this plan saw their premium contributions rise faster in 2006. 

Page 11 GAO-07-141 FEHBP Premium Trends
Figure 2: Growth in Average FEHBP Premium and Enrollee Premium Contribution,

1994 through 2007

The growth in average FEHBP enrollee premium contributions was 

generally similar to that of surveyed employer plans. (See fig. 3.) From 

1994 through 2006, the average annual growth in FEHBP enrollee premium 

contributions ranged from a decrease of 1.2 percent to an increase of 

12.8 percent, compared with a decrease of 10.1 percent to an increase of 

20.9 percent for surveyed employer plans. From 2003 through 2006, the 

average annual increase in FEHBP enrollee premium contributions— 

8.8 percent—was comparable with that of surveyed employer plans.20

Percentage

Year

Source: OPM.

-5

0

5

10

15

Enrollee premium contributions

Premiums

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

 20In 2006, average monthly FEHBP enrollee premium contributions were $123 for individual 

plans and $278 for family plans. Average monthly enrollee premium contributions for 

surveyed employer plans were $52 for individual plans and $248 for family plans. 

Page 12 GAO-07-141 FEHBP Premium Trends
Figure 3: Growth in Average Enrollee Premium Contributions for FEHBP and

Surveyed Employer Plans, 1994 through 2006 

Note: Data on the growth in enrollee premium contributions for CalPERS were not available. 

The growth in enrollee premium contributions for the 10 largest FEHBP 

plans by enrollment ranged from negative 1.1 percent to 51.5 percent in 

2007. The growth in enrollee premium contributions for smaller FEHBP 

plans varied more widely, from negative 62.6 percent to 86.8 percent. 

Projected increases in the cost and utilization of services and in the cost of 

prescription drugs accounted for most of the average premium growth 

across FEHBP plans. However, projected withdrawals from reserves offset 

much of this growth from 2006 through 2007. Officials we interviewed 

from most of the FEHBP plans said that the retiree drug subsidy would 

have had a small effect on premium growth had OPM applied for the 

subsidy and used it to offset premiums. Our interviews with officials from 

two large plans and our analysis of the potential effect of the subsidy 

showed that it would have lowered the growth in premiums and enrollee 

premium contributions for 2006. OPM officials stated that the subsidy was 

not necessary because its intent was to encourage employers to continue 

Percentage

Year

Sources: OPM and Kaiser/HRET.

-20

-10

0

10

20

30

Surveyed employer plans

FEHBP 

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Projected Growth in 

Several Factors 

Contributed to 

Average FEHBP

Premium Growth 

Page 13 GAO-07-141 FEHBP Premium Trends
offering prescription drug coverage to Medicare-eligible enrollees, and 

FEHBP plans were already doing so. The potential effect of the subsidy on

premium growth would also have been uncertain because the statute did 

not require employers to use the subsidy to mitigate premium growth. 

Projected increases in the cost and utilization of health care services and 

the cost of prescription drugs accounted for most of the average FEHBP 

premium growth from 2000 through 2007. Absent projected changes 

associated with other factors, projected increases in the cost and 

utilization of services alone would have accounted for a 6 percent increase 

in premiums for 2007, down from a peak of about 10 percent for 2002.

Projected increases in the cost of prescription drugs alone would have 

accounted for about a 3 percent increase in premiums for 2007, down from 

a peak of about 5 percent for 2002. Enrollee demographics—particularly 

the aging of the enrollee population—were projected to have less of an 

effect on premium growth. Projected decreases in the costs associated 

with other factors, including benefit changes that resulted in less generous 

coverage and enrollee choice of plans—typically the migration to lower 

cost plans—generally helped offset average premium increases for 2000

through 2007. 

Officials we interviewed from most of the plans stated that OPM 

monitored their plans’ reserve levels and worked closely with them to 

build up or draw down reserve funds gradually to avoid wide fluctuations 

in premium growth from year to year. Projected additions to reserves 

nominally increased premium growth—by less than 1 percent—from 2000 

through 2005. However, projected withdrawals from reserves helped offset

the effect of increases by about 2 percent for 2006 and 5 percent for 2007.21

(See fig. 4.) According to OPM, increases in the actual cost and utilization 

of services in 2006 were lower than projected for that year, and therefore 

the projected withdrawals from reserves were not made in 2006. Because

of the resulting higher reserve balances, plans and OPM projected even 

larger reserve withdrawals for 2007. 

Projected Increases in the 

Cost and Utilization of 

Health Care Services 

Accounted for Most of the 

Premium Growth but Were 

Mitigated by Use of 

Reserves in Recent Years 

 21OPM said that reserves had a larger effect in mitigating average premium growth for 2007

for FFS plans compared with HMO plans because FFS plans had larger accumulated 

reserves upon which they could draw. 

Page 14 GAO-07-141 FEHBP Premium Trends
Figure 4: Projected Changes in Various Factors Affecting FEHBP Premium Growth, 

2000 through 2007

Detailed data on total claims expenditures and expenditures by service 

category actually incurred were available for five large FEHBP plans. 

These data showed that total expenditures per enrollee increased an 

average of 25 percent from 2003 to 2005. Most of this increase in total 

expenditures per enrollee was explained by expenditures on prescription 

drugs and on hospital outpatient services. (See table 2.) 

-10

-5

0

5

10

15

20

Prescription drug costs

Cost and utilization of services

Demographics

Enrollee choice

Benefit changes

Changes in reserves

Premium growth

2000 2001 2002 2003 2004 2005 2006 2007 

Percentage

Year

Factors contributing to premium growth

Source: OPM.

Page 15 GAO-07-141 FEHBP Premium Trends
Table 2: Actual Cost Drivers for Five Large FEHBP Plans, 2003 through 2005 

Service category 

Contribution to increase in total 

expenditures per enrollee 

Prescription drugs 34%

Hospital outpatient 26%

Hospital inpatient 14%

Physician services 14%

All other 13%

Source: GAO analysis of data provided by FEHBP plans. 

Notes: These five plans represent about 90 percent of total FFS enrollees and about two-thirds of 

total FEHBP enrollees. 

Numbers do not total 100 percent due to rounding.

Officials we interviewed from several plans stated that the retiree drug 

subsidy would have had a small effect on premium growth because of two 

factors. First, drug costs for Medicare beneficiaries enrolled in these plans 

accounted for a small proportion of total expenses for all enrollees, and 

the subsidy would have helped offset less than one-third of these 

expenses. Second, because the same plans offered to currently employed 

enrollees were offered to retirees, the effect of the subsidy would have

been diluted when spread across all enrollees. However, officials we 

interviewed from two large plans with high shares of elderly enrollees 

stated that the subsidy would have lowered premium growth for their 

plans. Officials from one of these plans estimated that 2006 premium 

growth could have been 3.5 to 4 percentage points lower. 

Our analysis of the potential effect of the retiree drug subsidy on all plans 

in FEHBP showed that had OPM applied for the subsidy and used it to 

offset premium growth, the subsidy would have lowered the 2006 premium 

Plan Officials Differed on 

Whether OPM’s Decision 

Not to Accept the Retiree 

Drug Subsidy Would Have 

Affected FEHBP Premium 

Growth 

Page 16 GAO-07-141 FEHBP Premium Trends
growth by 2.6 percentage points from 6.4 percent to about 4 percent.22,23

The reduction in premium growth would have been a onetime reduction 

for 2006.24 Absent the drug subsidy, FEHBP premiums in the future would 

likely be more sensitive to drug cost increases than would be premiums of 

other large plans that received the retiree drug subsidy for Medicare 

beneficiaries. 

Officials from OPM explained that there was no need to apply for the 

subsidy because its intent was to encourage employers to continue 

offering prescription drug coverage to enrolled Medicare beneficiaries, 

which all FEHBP plans were already doing. As such, the government 

would be subsidizing itself to provide coverage for prescription drugs to 

Medicare-eligible federal employees and retirees. The potential effect of 

the subsidy on premium growth would also have been uncertain because 

the statute did not require employers to use the subsidy to mitigate 

premium growth. 

Officials we interviewed from most of the plans with higher-than-average 

premium growth stated that increases in the cost and utilization of 

services as well as a high share of elderly enrollees and early retirees were 

key drivers of premium growth. Our analysis of these plans’ financial and 

enrollee demographic data showed that these plans experienced fasterthan-average growth in the cost and utilization of services and faster-thanaverage growth in their share of elderly enrollees and retirees in recent 

years. Officials we interviewed from most of the plans with lower-thanaverage premium growth cited adjustments made for previously 

overestimated projections of cost growth. Officials also cited benefit 

changes that resulted in less generous coverage for prescription drugs. 

Our analysis of financial data provided by two of these plans showed that 

Changes in the Cost 

and Utilization of 

Services and Enrollee 

Demographics 

Accounted for 

Differing Premium 

Growth among 

FEHBP Plans 

 22We used the nationwide average subsidy estimated by the Centers for Medicare &

Medicaid Services to be about $670 per Medicare-eligible retiree. The actual subsidy for 

Medicare-eligible retirees in FEHBP may have varied from this average. 

23Officials from CalPERS stated that the subsidy, which they had applied for but not yet 

decided how to use, amounted to 13 percent to 17 percent of the total premium for 

Medicare-eligible enrollees in 2006. They stated that the subsidy would have a greater 

effect on premiums for CalPERS enrollees because, unlike FEHBP, CalPERS offers 

separate plans for employed enrollees and retirees (including Medicare beneficiaries), and

the subsidy would thus be applied exclusively to premiums for retirees. 

24Continued use of the subsidy in subsequent years would affect actual FEHBP premiums 

but not their rate of increase. 

Page 17 GAO-07-141 FEHBP Premium Trends
the increase in their per-enrollee expenditures for prescription drugs was 

significantly lower than average in recent years. In addition, our analysis 

of enrollment data found that these plans experienced greater declines 

than average in their share of aging enrollees. 

Officials we interviewed from most of the plans with higher-than-average 

premium growth cited large increases in the actual cost and utilization of 

services as one of the key cost drivers of premium growth. Our analysis of

financial data provided by six of these plans showed that the average 

increase in total expenditures per enrollee from 2003 through 2005 was 

about 40 percent, compared with the average of 25 percent for the five 

large FEHBP plans. 

Although enrollee demographics were projected to have a small effect on 

premium growth in the average FEHBP plan for 2006, change in enrollee 

demographics was cited as a key cost factor for most plans with higherthan-average premium growth. Officials we interviewed from five of these

plans stated that an aging population and higher shares of early retirees 

were factors driving premium growth for their plans. For example, 

officials from two plans cited a high concentration of elderly enrollees in 

their respective service areas of southern New Jersey and Pennsylvania,

while officials from another plan cited an aging population in its service 

area of San Antonio, Texas. 

Our comparison of the demographic characteristics of the eight plans with 

higher-than-average premium growth with those of all FEHBP plans from 

2001 through 2005 supports the officials’ statements that unique 

demographic profiles contributed to higher premium increases. (See 

table 3.) 

Table 3: Eight FEHBP Plans with Higher-Than-Average Premium Growth: Enrollee 

Demographic Changes, 2001 through 2005 

Plans with High Premium 

Growth Had Higher-ThanAverage Increases in the 

Cost and Utilization of 

Services and Faster Rising 

Shares of Elderly Enrollees 

Demographic characteristics 

Plans with higherthan-average 

premium growth All plans

Change in average age (years) 2.7 0.5

Percentage change in share of enrollees aged 65+ 3.7 -1.0

Percentage change in share of early retirees 1.8 1.0

Source: GAO analysis of OPM enrollment data. 

Page 18 GAO-07-141 FEHBP Premium Trends
Officials we interviewed from most of the plans with lower-than-average 

premium growth for their plans in 2006 cited adjustments for previously 

overestimated projections of cost growth. Officials from two of these 

plans stated that projections for a new low-option plan they had recently

introduced were pegged high because of concerns about potential 

migration of high-cost enrollees from their high-option plan. The actual 

cost increases of enrollees in the low-option plan in 2004 (the basis for 

2006 rates) turned out to be lower than projected. Officials from two other 

plans said that the projected cost growth of 14 percent to 20 percent in 

2004 (the basis for 2006 rates) for those plans was much higher than the 

actual cost growth in 2006 of about 5 percent to 8 percent. 

Officials we interviewed from three plans with lower-than-average growth 

cited lower-than-anticipated rates of increase in prescription drug costs 

caused by benefit changes that resulted in less generous coverage to 

explain low rates of premium growth for their plans. Our analysis of 

financial data provided by two of these plans showed that per-enrollee 

expenditures for prescription drugs increased by 3 percent for one plan 

and 13 percent for the other from 2003 through 2005, compared with 

30 percent for the average of the five large FEHBP plans. The six plans 

with lower-than-average premium growth also had greater declines in their 

share of elderly enrollees compared with all plans from 2001 through 2005. 

(See table 4.) 

Table 4: Six FEHBP Plans with Lower-Than-Average Premium Growth: Enrollee 

Demographic Changes, 2001 through 2005 

Plans with Lower-ThanAverage Premium Growth 

Cited Adjustments for 

Previously Overestimated 

Cost Growth and Benefit 

Changes and Had Greater 

Declines in the Shares of 

Elderly Enrollees 

Demographic characteristics 

Plans with lowerthan-average 

premium growth All plans

Change in average age (years) -0.5 0.5

Percentage change in share of enrollees aged 65+ -2.9 -1.0

Percentage change in share of early retirees 0.9 1.0

Source: GAO analysis of OPM enrollment data. 

Page 19 GAO-07-141 FEHBP Premium Trends
We received comments on a draft of this report from OPM (see app. II). 

OPM said the draft report confirms that growth in average FEHBP 

premiums has slowed and has been lower than that of other large 

employer purchasers for the last several years. Regarding the projected 

withdrawals of reserves for 2007, OPM said that the actual drawdown 

could be lower if the actual increase in the cost and utilization of services 

in 2007 is less than projected. We agree this could occur, and as we noted 

in the draft report and as OPM said in its comments, the projected 

withdrawals of reserves for 2006 were ultimately not made because of 

lower than expected increases in the cost and utilization of services in that

year. Regarding the manner in which premiums are set, OPM said that rate

negotiations between OPM and the plans are guided by projections of 

future costs that are based on a retrospective analysis of actual costs, and 

that adjustments to the reserve accounts of most plans are made when 

actual costs differ from the projections. OPM said that, as a result, these 

reserve adjustments help stabilize premium growth over time and ensure 

that premiums ultimately reflect actual cost increases. We agree with this 

characterization of the effect of reserve adjustments. Regarding our 

discussion of benefit changes that resulted in less generous coverage for 

prescription drugs, OPM said that some plans modified their prescription 

drug benefit to create incentives to use generic medications, and that this 

does not result in a less generous benefit. While we agree that plans can 

change benefits to encourage generic drug utilization without resulting in 

less generous coverage, officials from three of the six plans we 

interviewed with lower-than-average premium growth said that they made

benefit changes that resulted in less generous coverage. OPM provided 

other comments describing aspects of FEHBP and provided technical 

comments that we incorporated as appropriate. 

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

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

its date. At that time, we will send copies of this report to the Director of 

OPM and other interested parties. We will also make copies available to 

others upon request. In addition, this report will be available at no charge 

on the GAO Web site at http://www.gao.gov. 

Agency Comments 

and Our Evaluation 

Page 20 GAO-07-141 FEHBP Premium Trends
If you or your staff have any questions about this report, please contact me 

at (202) 512-7119 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. Randy Dirosa, Assistant Director; Iola D’Souza; Menq-Tsong 

P. Juang; and Timothy Walker made key contributions to this report. 

Sincerely yours, 

John E. Dicken 

Director, Health Care 

Page 21 GAO-07-141 FEHBP Premium Trends
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To identify growth trends in the average Federal Employees Health 

Benefits Program (FEHBP) premiums and enrollee premium 

contributions, we analyzed trend data for 1994 through 2007 from the 

Office of Personnel Management (OPM). To identify the variation in 

premium trends across plans by plan characteristics, we analyzed detailed

plan-level premium data and enrollment data for 2003 through 2006 from 

OPM.1

 We examined the variation in premiums based on plan type—feefor-service (FFS), health maintenance organization (HMO), and consumerdirected health plan (CDHP)—plan option (high option, low option); 

geography (West, Midwest, South, Northeast); and share of retirees.2

To compare FEHBP premium trends with those of other purchasers, we 

obtained premium trend data for 1994 through 2007 from the California 

Public Employees’ Retirement System (CalPERS)—the second largest 

public purchaser of employee health benefits after FEHBP—and from 

surveys of employer-sponsored health benefits conducted by KPMG Peat 

Marwick from 1993 through 1998 and by Kaiser Family Foundation/Health

Research and Educational Trust (Kaiser/HRET) from 1999 through 2006.3

To identify factors contributing to average FEHBP premium growth trends 

for all plans, we obtained and analyzed OPM summary reports on the 

projected effects of various factors on premium growth for all FEHBP 

plans from 2000 through 2007.

4

 We analyzed more detailed data obtained

individually from five large FFS plans on actual growth in per-enrollee 

expenditures by service category, including prescription drugs, hospital 

 1

Plan-level premium data for 2007 were not available at the time we conducted our analysis 

of premium growth by plan characteristics. 

2

Geographical analyses of the plans were based on the U.S. Census Bureau’s regional

designation for the states in which the plans operated. 

3

These surveys capture data from employers ranging in size from 3 workers to 300,000 or

more workers. The survey for 2007 had not been conducted at the time we prepared our 

report. 

4

Premium rates for each year are prospectively set by individual FEHBP plans based on 

their projections of growth trends for various factors, such as the cost and utilization of 

services, changes in benefits, and enrollee demographics. OPM calculates the average

premium growth across all FEHBP plans and estimates the composite projected growth in 

each factor across all FEHBP plans based on individual plan projections. Actual growth for

each factor may differ from the projections. 

Page 22 GAO-07-141 FEHBP Premium Trends
Appendix I: Scope and Methodology 

outpatient care, hospital inpatient care, and physician and other services,

from 2003 through 2005.5

To examine the reasons for differing premium growth trends among 

FEHBP plans, we conducted interviews with officials from 14 plans with 

higher- or lower-than-average premium growth in either 2006 or the 3-year 

period from 2004 through 2006, and analyzed financial data provided by 

some of these plans. We limited our study sample to plans participating in 

FEHBP for at least 3 years and with at least 5,000 enrollees in 2005.

6,7

Among these plans, we identified those with premium growth for 2006 or 

the average annual growth for the 3-year period from 2004 through 2006 of

above or below one standard deviation of the mean. Of the 23 plans 

meeting these criteria, we selected 14 plans.8

 (See table 5.) 

 5

Because OPM was not able to provide these data for all FEHBP plans for 2005, we used 

data provided by the five large plans. These plans were representative of the average

FEHBP plan because they accounted for about 90 percent of FFS enrollment and about

two-thirds of total FEHBP enrollment. 

6

Enrollment data for 2006 were unavailable when we selected the plans. 

7

We excluded plans with significantly higher- or lower-than-average premium growth. 

These plans tended to be smaller plans with fewer than 500 enrollees. 

8

The 14 plans included 5 nationwide FFS plans, 1 nationwide CDHP, and 8 HMO plans from 

eight states. 

Page 23 GAO-07-141 FEHBP Premium Trends
Appendix I: Scope and Methodology 

Table 5: Plans with Higher- or Lower-Than-Average Premium Growth Selected by GAO

Plan Premium growth, 2006

Average annual 

premium growth, 

2004-2006

Plans with higher-than-average growth

Aetna Open Access (Southern New Jersey and Southeastern Pennsylvania) 21.8% 15.1%

Blue Cross HMO (California) 20.3% 12.0%

CDPHP Universal Benefits, Inc. (New York) 17.2% 12.1%

HealthAmerica Pennsylvania (Central, high option) 13.0% 17.4%

Humana Health Plan of Texas (San Antonio, high option) 13.0% 20.5%

Kaiser Foundation Health Plan of Colorado (high option) 16.8% 10.2%

Mail Handlers Benefit Plan (high option) 5.0% 20.0%

Mail Handlers Benefit Plan (standard option) 6.7% 19.4%

Plans with lower-than-average growth

American Postal Workers Union Health Plan (CDHP) -1.9% 3.6%

American Postal Workers Union Health Plan (high option) 0.3% 5.9%

Blue Cross Blue Shield Service Benefit Plan (basic option) 0.0% 2.9%

Government Employees Hospital Association, Inc., Benefit Plan (standard option) 0.0% 6.7%

Health Alliance Plan 2.6% 5.4%

Kaiser Foundation Health Plan, Inc., Hawaii Region (high option) 2.1% 6.9%

Average of all FEHBP plans 6.4% 7.7%

Source: GAO analysis of OPM data. 

We analyzed aggregate data on the actual growth in per-enrollee 

expenditures by service category from 2003 through 2005 provided by

officials from some of these plans and demographic enrollment data from

2001 through 2005 from OPM. 

We also explored with officials from OPM and the selected plans the 

potential effect of the retiree drug subsidy on premium growth had OPM 

applied for the subsidy and used it to offset premiums. To estimate the 

effect the subsidy would have had on average premium growth, we first 

calculated the total annual amount of the subsidy that would have been 

available for all Medicare-eligible beneficiaries in FEHBP using 2006 

enrollment data and an estimate by the Centers for Medicare & Medicaid 

Services of the average annual subsidy per Medicare beneficiary in 2006 

(about $670). We then divided this amount by total annual premiums for 

all FEHBP enrollees in 2005. 

Page 24 GAO-07-141 FEHBP Premium Trends
Appendix I: Scope and Methodology 

We did not independently verify the data from OPM, the selected FEHBP 

plans, CalPERS, or the Kaiser/HRET surveys. We performed certain quality 

checks, such as determining consistency where similar data were provided 

by OPM and the plans. We collected and evaluated information from OPM 

regarding collection, storage, and maintenance of the data. We reviewed 

all data for reasonableness and consistency and determined that these 

data were sufficiently reliable for our purposes. We conducted our work 

from January 2006 through December 2006 in accordance with generally

accepted government auditing standards. 

Page 25 GAO-07-141 FEHBP Premium Trends
Appendix II: Comments from the Office of Appendix II: Comments from the Office of Personnel Management 

Personnel Management 

Page 26 GAO-07-141 FEHBP Premium Trends
Appendix II: Comments from the Office of

Personnel Management 

(290514) Page 27 GAO-07-141 FEHBP Premium Trends
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