United States Government Accountability Office

GAO Testimony 

Before the 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 

Premiums Continue to Rise, 

but Rate of Growth Has 

Recently Slowed 

Statement of John E. Dicken 

Director, Health Care 

For Release on Delivery

Expected at 10:30 a.m. EDT 

Friday, May 18, 2007

 

GAO-07-873T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 18, 2007

FEDERAL EMPLOYEES HEALTH 

BENEFITS PROGRAM 

Premiums Continue to Rise, but Rate of 

Growth Has Recently Slowed 

Highlights of GAO-07-873T, a testimony 

before the 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 discuss its 

December 22, 2006 report, entitled

Federal Employees Health Benefits 

Program: Premium Growth Has 

Recently Slowed, and Varies 

Among Participating Plans 

(GAO-07-141). In this report, GAO 

reviewed (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

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.

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

for 2002 to 1.8 percent for 2007. Starting in 2003, FEHBP premium growth 

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

the 10 largest FEHBP plans by enrollment—accounting for about threequarters of total enrollment—ranged from 0 percent to 15.5 percent for 2007.

 

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

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

FEHBP premium growth for 2000 through 2007. Absent other factors, these 

increases would have raised 2007 average premiums by 9 percent. Other 

projected factors, including benefit changes resulting in less generous 

coverage and enrollee migration to lower-cost plans, slightly offset average 

premium growth. In 2006 and 2007, projected withdrawals from reserves

helped offset average premium growth—by 2 percentage points for 2006 and 

5 percentage points for 2007. 

To explain the factors associated with premium growth, officials GAO 

interviewed from most of the FEHBP 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. Officials GAO 

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

adjustments made for previously overestimated projections of cost growth, 

and some officials cited benefit changes that resulted in less generous 

coverage for prescription drugs. The plans with lower-than-average premium 

growth also experienced a decline of 0.5 years in the average age of their 

enrollees compared with an increase of 0.5 years in the average age of all 

FEHBP enrollees. 

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.

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 testimony. 

www.gao.gov/cgi-bin/getrpt?GAO-07-873T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact John E. Dicken 

at (202) 512-7119 or dickenj@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the findings from our December 

2006 report entitled Federal Employees Health Benefits Program: 

Premium Growth Has Recently Slowed, and Varies among Participating 

Plans.

1

 For this report, we were asked to examine the nature and extent of

premium increases in the Federal Employees Health Benefits Program 

(FEHBP) and 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.2

 Federal employees’ health insurance premiums have 

increased each year since the late 1990s, and these increases pose higher 

costs for the federal government and plan enrollees.3

 About 8 million 

federal employees, retirees, and their dependents receive health coverage 

through plans participating in the 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.4

My remarks today will focus on (1) recent FEHBP premium growth trends 

compared to 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. These remarks are based

on information contained in our December 2006 report. 

In conducting our work, we analyzed historic and recent premium trend 

data from 1994 through 2007 from OPM for all FEHBP plans and compared 

 1

GAO-07-141 (Washington, D.C.: Dec. 22, 2006).

2

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. 

3

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). 

4

Pursuant to 5 U.S.C. § 8909. 

Page 1 GAO-07-873T
them with premium data from the California Public Employees’ 

Retirement System (CalPERS)—the second largest public purchaser of 

employee health benefits—and surveys of multiple employer-sponsored 

health plans from Kaiser Family Foundation/Health Research and 

Educational Trust (Kaiser/HRET).5

 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 2007.6

 We also examined aggregate data on the actual growth in 

per-enrollee expenditures from 2003 through 2005 for 5 large FEHBP 

plans.7

 We explored with officials from OPM and 14 selected FEHBP plans 

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

had applied for the subsidy and used it to mitigate premium growth. The 

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

of participation in the FEHBP (at least 3 years). To examine the reasons 

for differing premium growth trends among FEHBP plans, we conducted

interviews with officials from these 14 plans. Eight of the plans had higherthan-average premium growth, and six of the plans had lower-than-average 

premium growth for either (a) 2006 or (b) the 3-year period from 2004 

through 2006. A detailed explanation of our scope and methodology is 

contained in appendix I of the December 2006 report. We conducted our 

work for that report from January 2006 through December 2006 in 

accordance with generally accepted government auditing standards. 

In summary, we found that growth in average FEHBP premiums recently 

slowed from a peak of 12.9 percent for 2002 to 1.8 percent for 2007. This 

 5

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. 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 our December 2006 report did not include growth 

rates for 2007. 

6

Premium 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. 

7

OPM was not able to provide these data for all FEHBP plans for 2005. These 5 plans

accounted for about 90 percent of fee-for-service enrollment and about 67 percent of total 

FEHBP enrollment. 

Page 2 GAO-07-873T
was lower than growth for other purchasers from 2003 through 2007. 

Premium growth rates for the 10 largest FEHBP plans by enrollment, 

accounting for about three-quarters of total enrollment, ranged from 0 to 

15.5 percent for 2007, but varied more widely across the smaller FEHBP 

plans. 

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

in the cost of prescription drugs accounted for most of the average annual 

premium growth across all FEHBP plans for 2000 through 2007. Absent 

projected decreases in the costs of other factors, these increases would 

have raised 2007 average premiums by about 9 percent, rather than the 

1.8 percent actual increase for that year. During this same period, 

projected decreases in the costs associated with certain other factors, 

including benefit changes that resulted in less generous coverage and

enrollee migration to lower-cost plans, generally helped offset premium 

growth to a small extent. In 2006 and 2007, projected withdrawals from 

reserves particularly helped offset average premium growth by about 

2 percentage points for 2006 and about 5 percentage points for 2007.

Regarding the potential effect of the retiree drug subsidy, most plan 

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

effect on premium growth for 2006 had OPM applied for the subsidy and 

used it to mitigate premium growth. Officials from two large plans with 

higher-than-average shares of retirees, however, stated that the subsidy 

would have lowered their plans’ premium growth—officials from one plan 

said by at least 3.5 to 4 percentage points for their plan. We estimated that 

the subsidy would have lowered premium growth across all FEHBP plans 

for 2006 by more than 2 percentage points on average, from the 6.4 percent 

average growth rate for 2006 to about 4 percent. OPM officials said that 

OPM did not apply for the subsidy 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. 

To explain the factors associated with premium growth, 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. Officials we interviewed

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

adjustments made for previously overestimated projections of cost 

growth, and some officials cited benefit changes that resulted in less 

generous coverage for prescription drugs. The plans with lower-thanaverage premium growth also experienced a decline of 0.5 years in the 

average age of their enrollees compared with an increase of 0.5 years in 

the average age of all FEHBP enrollees. 

Page 3 GAO-07-873T
The 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 

employees 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. 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.8

 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. 

By statute, OPM can negotiate contracts with health plans without regard 

to competitive bidding requirements.9

 Plans meeting the minimum 

requirements specified in the statute and regulations may participate in the 

 8

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

premiums beginning in the 1999 contract year. 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. 

9

5 U.S.C. §8902. 

Page 4 GAO-07-873T
program, and plan contracts may be renewed automatically each year. 

OPM may terminate contracts if the minimum standards are not met.10

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.11 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. 

On January 1, 2006, Medicare began offering prescription drug coverage

(also known as Part D) to Medicare-eligible beneficiaries.12 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.13 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 

to average about $670 per beneficiary per year. OPM opted not to apply for 

the retiree drug subsidy. 

 10OPM 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. 

115 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. 

12For more information on Medicare Part D, see GAO, Retiree Health Benefits: Options for 

Employment-Based Prescription Drug Benefits under the Medicare Modernization Act,

GAO-05-205 (Washington, D.C.: Feb. 14, 2005). 

13In general, according to the Centers for Medicare & Medicaid Services, actuarial 

equivalence measures whether the expected amount of paid claims under the employers’

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 5 GAO-07-873T
Growth in Average 

FEHBP Premiums 

Has Recently Slowed 

and Was Lower Than 

That of Other 

Purchasers 

The average annual growth in FEHBP premiums has slowed since 2002—

declining each year from 2003 through 2007—and was generally lower 

than the growth for other purchasers since 2003. After a period of 

decreases in 1995 and 1996, FEHBP premiums began to increase for 1997, 

to a peak increase of 12.9 percent for 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. (See fig. 1). 

Page 6 GAO-07-873T
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 testimony. 

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 for 2007. Premium growth rates across the 

smaller FEHBP plans varied more widely. 

Regarding enrollee premiums—the share of total premiums paid by 

enrollees—the growth in average enrollee premiums generally paralleled

total premium growth from 1994 through 2007. In 2006, average monthly

FEHBP premiums were $415 for individual plans and $942 for family plans 

in total. The enrollee premium contributions were $123 for individual 

plans and $278 for family plans. 

Page 7 GAO-07-873T
Projected increases in the cost and utilization of services and in the cost of 

prescription drugs accounted for most of the average annual premium 

growth across FEHBP plans for the period from 2000 through 2007, 

although projected withdrawals from reserves offset much of this growth

for 2006 and 2007. Absent projected changes associated with other factors, 

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

prescription drugs would have accounted for a 9 percent increase in 

average premiums for 2007. Projected increases in the cost of and 

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

increase 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 certain 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 growth for 2000 through 2007 to a small extent. 

Projected Growth in 

Several Factors 

Contributed to 

Average FEHBP

Premium Growth 

Projected withdrawals from reserves offset average premium growth for 

2006 and 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 contributed to average premium growth—by less than 

1 percentage point—for 2000 through 2005. However, projected 

withdrawals from reserves offset average premium growth by about 

2 percentage points for 2006 and 5 percentage points for 2007.14 (See fig. 2.) 

 14OPM officials 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. According to OPM officials, 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. 

Page 8 GAO-07-873T
Figure 2: Projected Changes in Various Factors Affecting FEHBP Premium Growth, 

2000 through 2007

-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.

We also reviewed detailed data available for five large FEHBP plans on 

claims actually incurred from 2003 through 2005. These data showed that 

most of the increase in total expenditures per enrollee was explained by

expenditures on prescription drugs (34 percent) and on hospital outpatient 

services (26 percent). 

Officials we interviewed from several FEHBP plans stated 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. First, drug costs for 

Medicare beneficiaries enrolled in these plans accounted for a small 

Page 9 GAO-07-873T
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 

growth by 2.6 percentage points from 6.4 percent to about 4 percent.15 The 

reduction in premium growth would have been a onetime reduction for 

2006.

16 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. 

OPM officials explained that there was no need to apply for the subsidy 

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. 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. 

 15We 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. Officials from 

CalPERS stated that the subsidy, which they had received but had not decided how to use 

as of August 2006, amounted to 13 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. 

16Continued use of the subsidy in subsequent years would affect actual FEHBP premiums 

but not their rate of increase. 

Page 10 GAO-07-873T
Officials we interviewed from most of the FEHBP plans with higher-thanaverage premium growth in 2006 cited increases in the actual cost and 

utilization of services and high shares of elderly enrollees and early 

retirees as key 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 five large FEHBP plans that 

represented about two-thirds of total FEHBP enrollment. From 2001 

through 2005, the average age of enrollees across all eight plans with 

higher-than-average premium growth increased by 2.7 years—compared 

with an average increase of 0.5 years across all FEHBP plans. 

Officials we interviewed from most of the FEHBP plans with lower-thanaverage premium growth in 2006 cited adjustments for previously 

overestimated projections of cost growth and benefit changes that 

resulted in less generous coverage for prescription drugs as factors that 

limited premium growth. Our analysis of financial data provided by two 

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. Also, from 2001 through 2005, the average age of enrollees 

across all six of these plans decreased by 0.5 years—compared with an 

average increase of 0.5 years across all FEHBP plans. 

Mr. Chairman, this concludes my prepared remarks. I would be happy to 

answer any questions that you or other Members of the subcommittee may 

have. 

For future contacts regarding this testimony, please contact John E. 

Dicken 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 testimony. Randy Dirosa, Assistant Director; Iola D’Souza; 

and Timothy Walker made key contributions to this testimony. 

Changes in the Cost 

and Utilization of 

Services and Enrollee 

Demographics 

Accounted for 

Differing Premium 

Growth Among 

FEHBP Plans 

Contacts and 

Acknowledgements 

(290639) Page 11 GAO-07-873T
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