Federal Employees Health Benefits Program: Early Experience with a Consumer-Directed Health Plan
Published: 2005-11-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since 2003, the Federal Employees Health Benefits Program (FEHBP) has offered "consumer-directed" health plans (CDHP) to federal employees. A CDHP is a high-deductible health plan coupled with a savings account enrollees use to pay for health care. Unused balances may accumulate for future use, providing enrollees the incentive to purchase health care prudently. However, some have expressed concern that CDHPs may attract younger and healthier enrollees, leaving older, less healthy enrollees to drive up costs in traditional plans. They also question whether enrollees are satisfied with the plans, and have sufficient access to health care providers and discounts on health care services. GAO was asked to study the first FEHBP CDHP, offered by the American Postal Workers Union (APWU). GAO compared the number, characteristics, and satisfaction of APWU enrollees to those of FEHBP enrollees in other recently introduced (new) non-CDHP plans, and national preferred provider organization (PPO) plans. GAO also compared the APWU CDHP provider networks and discounts to those of other FEHBP plans.
section_title: What GAO Found
paragraphs: The APWU CDHP is a small but growing FEHBP health plan whose enrollees were younger than PPO plan enrollees, and healthier and better educated than other new plan and PPO enrollees. The average age of APWU CDHP and other new plan enrollees was the same (47 years), but younger than that of PPO plan enrollees (62 years), largely because fewer retirees and elderly people selected the new plans. Excluding retirees and the elderly, the average age of enrollees was more similar across the plans. A larger share of nonelderly enrollees in the APWU CDHP reported being in "excellent" or "very good" health status compared to the other new plan and PPO plan enrollees--73 percent versus 64 and 58 percent, respectively. Similarly, a larger share of nonelderly enrollees in the APWU CDHP reported having a 4-year or higher college degree compared to enrollees in the other new plans and PPO plans--49 percent versus 42 and 36 percent, respectively. Enrollee satisfaction with the APWU CDHP was mixed compared to enrollee satisfaction with the other FEHBP plans. For overall plan performance, APWU enrollees were more satisfied than other new plan enrollees, but less satisfied than PPO plan enrollees. For four of five specific quality measures--access to health care, timeliness of health care, provider communication, and claims processing--APWU enrollees were as satisfied as other enrollees. On the fifth measure, customer service, APWU enrollees were more satisfied than other new plan enrollees, but less satisfied than PPO plan enrollees. In particular, a lower share of APWU enrollees were satisfied with their ability to find or understand written or online plan information, the help provided by customer service, and the amount of paperwork required by the plan. The APWU CDHP provider networks and discounts were comparable to other FEHBP PPO plans. In 21 states, the APWU CDHP used the same networks used by other national PPO plans. In the remaining states, the APWU CDHP networks were among the most commonly used networks nationwide, or were large, nationally accredited, or comparable in size to networks used by other FEHBP plans. Across all states the average hospital inpatient and physician discounts obtained by the APWU CDHP were within 2 percentage points of the discounts obtained by another large national FEHBP PPO plan. GAO received comments on a draft of this report from the Office of Personnel Management (OPM) and APWU. Both generally concurred with our findings. Regarding the potential for CDHPs to disproportionately attract healthier enrollees, OPM said it would continue to monitor the enrollment trends and take appropriate action to eliminate or minimize any adverse effects.

section_title: Letter
paragraphs: The federal government provides health insurance coverage for over 8  million federal employees, retirees, and their family members through  health plans participating in the Federal Employees Health Benefits  Program (FEHBP), the largest employer-based health insurance program  in the country. Similar to many large employers, the FEHBP has recently  begun offering “consumer-directed” health plans (CDHPs). A CDHP is a  high-deductible health plan coupled with a savings or reimbursement  account that enrollees use to pay for a portion of their health care  expenses. The high deductibles typically result in lower premiums than  for a traditional plan with similar benefits, because the enrollee bears a  greater share of the initial costs of care. CDHPs may also provide enrollees  decision-support tools to help them become more actively involved in  making health care purchase decisions—such as information about the  cost of health care services and the quality of health care providers, and  online access to the savings account to enable them to track their  expenses and progress toward meeting their deductibles.
Views are mixed about the potential benefits and risks associated with  CDHPs. Proponents believe the plans can help restrain health care  spending. Enrollees have an incentive to seek lower-cost health care  services, and only obtain services when necessary because unspent  account funds can accrue from year to year within defined limits. They  also suggest that the lower premiums make the health plans more  affordable. Others, however, express concern that CDHPs may  disproportionately attract younger, healthier, or wealthier enrollees who  are less likely to use health care or who can better afford to pay the higher  deductibles. If this occurred to a large extent, premiums for traditional  plans could rise due to a disproportionate share of older and less-healthy  enrollees with higher health care expenses remaining in the traditional  plans. Because CDHPs are a relatively new concept in health plan design,  there is also interest in determining whether enrollees are satisfied with  the quality of services provided and whether the plans provide enrollees  with the same access to health care providers and negotiated discounts on  provider charges as do traditional plans.
In light of the recent introduction of CDHPs as a health coverage option,  you asked us to evaluate the early experience of the first CDHP offered  under the FEHBP by the American Postal Workers Union (APWU) in 2003.  We examined: (1) the number and characteristics of enrollees in the  APWU CDHP compared to other FEHBP plans, (2) enrollee satisfaction  with the APWU CDHP compared to other FEHBP plans, and (3) provider  networks and discounts under the APWU CDHP compared to other  FEHBP plans.
To identify characteristics of APWU CDHP enrollees, we analyzed data  provided by APWU CDHP and the Office of Personnel Management  (OPM), the federal agency responsible for administering the FEHBP. To  determine age, gender, and family status, we analyzed enrollment data for  the plan years 2003 through 2005. To determine health status and  education, we analyzed enrollee survey data that were available for plan  years 2003 and 2004. To determine how the identified characteristics of  enrollees in the APWU CDHP compared to enrollees in other FEHBP  plans, we compared the characteristics to those of two groups of  enrollees. First, we compared the characteristics to those of enrollees in  all national PPO plans combined. These 19 plans include approximately  75 percent of all federal employees covered through the FEHBP. Second,  because characteristics of APWU CDHP enrollees may differ from the  typical FEHBP enrollee primarily because the plan was recently  introduced, we compared the APWU CDHP enrollee characteristics to  those of two FEHBP plans that had similarly been introduced within the  past 5 years. To control for the effects of a disproportionately small share  of retirees and the elderly in the APWU CDHP plan, we excluded from the  analysis retirees and those aged 65 or older, or both, when comparing  other enrollee demographic characteristics between the plans.
To assess enrollee satisfaction, we reviewed enrollee survey data obtained  from APWU and OPM for the APWU CDHP and the other FEHBP plans for  the plan years 2003 and 2004. These surveys use a standardized instrument  to measure enrollee satisfaction along several plan quality measures, such  as access to health care, claims processing, customer service, and overall  plan performance. We also examined the volume and nature of appeals  regarding claim disputes filed with OPM by APWU CDHP enrollees and  other plan enrollees for plan years 2003 and 2004.
To determine how the APWU CDHP provider networks compare to those  used by other FEHBP plans, we examined aspects of the APWU CDHP  networks used in each state and the District of Columbia (hereafter  referred to as a state), and compared them to the networks used by other  national FEHBP plans. We identified the states in which the networks  were the same, and for the remaining states, identified other  characteristics of the networks used, such as their size and accreditation  status. We also compared the average hospital and physician discounts in  each state between the APWU CDHP and another large, national PPO  plan. We had several discussions with APWU CDHP, its plan  administrator, Definity Health Plan, and OPM to clarify our understanding  of the data and materials.
We did not independently verify the data provided by APWU CDHP and  OPM; however, we performed certain quality checks, such as determining  consistency where similar data were provided by both sources. We also  evaluated information from APWU CDHP and OPM concerning how the  data are collected, stored, and maintained, and determined that the data  were adequate for this report. We conducted our work according to  generally accepted government auditing procedures from November 2004  to November 2005.
subsections: section_title: Background
paragraphs: Federal employees have a choice of multiple health plans offered by  private health insurance carriers participating in the FEHBP. Mirroring  private sector trends, several participating carriers have begun to offer  CDHPs. In 2003, the APWU plan became the first CDHP offered to federal  employees.
OPM administers the FEHBP by contracting with private health insurance  carriers to provide health benefits to over 8 million federal employees,  retirees, and their dependents. Federal employees enrolled in the FEHBP  can select from a number of private insurance plans. In 2005, 19 national  plans and more than 200 local plans were offered through the FEHBP.  Plans vary in terms of benefit design and premiums. In 2004, nearly 75  percent of those covered under the FEHBP were enrolled in national  PPOs; the remainder were in regional or local HMOs.
subsections: section_title: The CDHP Concept
paragraphs: CDHPs are a relatively new health care plan design. While many variants  exist on CDHP models, such plans generally include three basic precepts:    An insurance plan with a high deductible. Deductibles are about  $1,900 on average for an individual plan and about $3,900 for a family plan,  compared to about $320 and $680, respectively, on average for a  traditional PPO plan.
A savings account to pay for services under the deductible. The  savings account may encompass different models, the two most prominent  being health reimbursement arrangements (HRAs) and health savings  accounts (HSAs). Important distinctions exist between HRAs and HSAs.  HRAs are funded solely by the employer, are generally not portable once  the employee leaves, and may accumulate up to a specified maximum. In  contrast, HSAs may include contributions from both the employer and the  employee, are portable, and may accumulate without limit.
Unused savings account balances from prior years may roll over and  accumulate, along with the annual contributions from year to year. If the  savings account is exhausted, the enrollee pays out of pocket for services  until the deductible is met, after which point, the plan pays for services  much like a traditional health plan. To avoid the likelihood of enrollees  curtailing preventive care services—such as cancer screening tests or  immunizations—to preserve their account balances, most of the cost of  these services is typically paid for by the plan, regardless of whether or not  the enrollee has met the deductible.
Decision-support tools. CDHPs may provide enrollees information to  help them become actively engaged in making health care purchase  decisions, such as the typical fees charged for specific health procedures  at participating hospitals, and quality measures for participating health  care providers. In addition, plans may provide enrollees online access to  their savings account to help them manage their spending.
Proponents of CDHPs assert that the savings account and higher  deductibles encourage consumers to become more price conscious, and  use only necessary health care services to maintain and accumulate  balances in their savings accounts. The availability of information on  provider fees and quality is also expected to enable consumers to select  providers on the basis of price and quality. In addition, the higher  deductibles typically result in lower premiums than for a PPO plan with  similar benefits, because the enrollee bears a greater share of the initial  costs of care.
Opponents, however, question the underlying premise of CDHPs—that  health care spending is discretionary and will be constrained to any  significant extent by the financial incentives offered through a health  savings or reimbursement account. They cite, for example, research that  indicates that 10 percent of the population accounts for the majority— about 70 percent—of health care spending. For such high-cost users, a  savings or reimbursement account would likely be quickly exhausted and  provide little incentive for enrollees to change health care utilization and  purchasing behavior. Some analysts have also reported that decision- support tools such as comparative cost and quality information about  providers—important to enable effective consumer participation in health  care purchase decisions—are lacking or not widely used.
Given the relatively recent introduction of CDHPs, conclusive assessments  of their effectiveness at restraining health care utilization and spending  have not been made. Analysts believe that enrollment in CDHPs should  reach sufficient levels for a sustained period of time before definitive  conclusions about the cost and utilization of services can be drawn.
section_title: CDHPs Are a Small but Growing Segment of the Employer-Sponsored Health Insurance Market
paragraphs: Employers are increasingly offering CDHPs to their employees. According  to a 2005 annual survey, the share of employers offering such plans  coupled with either an HRA or HSA was 4 percent, compared to the   1 percent reported in a separate 2004 annual survey. Many health  insurance carriers now offer CDHPs, including Aetna, Anthem/Wellpoint,  Blue Cross and Blue Shield plans, CIGNA, Humana, and United  HealthCare.
The FEHBP has recently begun to offer CDHPs to federal employees. The  American Postal Worker’s Union (APWU CDHP) was the first to offer a  CDHP in 2003, followed by Aetna and Humana in 2004. In January 2005,  several carriers began offering health plans designed to be coupled with  the newly authorized HSAs, increasing the number of CDHPs in the  FEHBP to 3 national and 13 local plans. OPM expects that additional  CDHPs will be offered in 2006. Nevertheless, as of January 2005, these  plans collectively insured fewer than 38,000 covered lives, a small share of  the more than 8 million employees, retirees, and dependents covered  under the FEHBP.
section_title: The APWU CDHP
paragraphs: Administered by Definity Health Plan, the APWU CDHP is a high- deductible PPO plan coupled with an HRA. The deductibles are currently  $1,800 for an individual plan and $3,600 for a family plan. For an individual  plan, the first $1,200 of the deductible is paid for from the HRA—which is  funded every year by the enrollee’s employing federal agency. The  remaining $600 of the deductible is considered the member’s  responsibility. Unused balances may accumulate and roll over from year to  year up to a maximum of $5,000 for an individual plan and $10,000 for a  family plan. The member responsibility is paid by the employee, either out  of pocket or from accumulated balances in the HRA from prior years.
Once the deductible has been met and the HRA is exhausted, the plan  generally pays 85 percent of the cost of covered services.
The HRA may be used to pay for two types of services: basic expenses,  such as doctor visits and hospital charges, and “extra” expenses, such as  certain preventive care services that are not covered by the plan. The  HRA coverage of extra expenses does not count toward the deductible.  For example, if an enrollee exhausts the HRA by spending $1,200 on basic  physician office visit expenses, and then spends another $600 out of  pocket for extra preventive care services, the enrollee would need to  spend another $600 out of pocket on basic expenses before the $1,800  deductible is met and the plan begins paying 85 percent of expenses.
section_title: APWU CDHP Enrollees Were Generally Younger, Healthier, Better Educated, and More Likely to Select an Individual Plan Than Other FEHBP Enrollees
paragraphs: The APWU CDHP is a small but fast-growing health plan whose enrollees  on average were younger than enrollees in national PPO plans. In addition,  the APWU CDHP enrollees were healthier, better educated, and more  likely to enroll in an individual plan than enrollees in other new plans and  the national PPO plans.
subsections: section_title: APWU CDHP Enrollment Is Small but Growing
paragraphs: Enrollment in the APWU CDHP grew from 4,500 in 2003, its first year of  operation, to approximately 7,600 in 2004, an increase of almost 70  percent. In 2005, enrollment grew an additional 25 percent, to  approximately 9,500. Including dependents, total covered lives were  estimated to be approximately 10,000, 16,800, and 21,000 in each of the 3  years, respectively. Most APWU CDHP enrollees in 2003 and 2004 migrated  from FEHBP national PPO plans—57 percent—and HMO plans—  26 percent, while 17 percent were not previously covered by an FEHBP  plan.
section_title: APWU CDHP Enrollees Included Few Retirees and Elderly and Were Younger than Other FEHBP Enrollees
paragraphs: Fewer retirees and elderly people selected the APWU CDHP compared to  the national PPO plans, a phenomenon also found among the other new  plans. Among the APWU CDHP and other new plans, 11 and 19 percent of  enrollees, respectively, were retirees or aged 65 or over, compared to   53 percent for the national PPO enrollees. The distribution of enrollees  by age groups was similar for the APWU CDHP and other new plans, while  national PPO plans had a smaller share of enrollees in all age groups under  55 and a significantly higher share of enrollees in the over-65 age group.  Figure 1 illustrates the share of enrollees in the APWU CDHP, the other  new plans, and the national PPO plans within each age group.
The average age of APWU CDHP enrollees was comparable to that of  enrollees in other new plans, but lower than enrollees in the national PPO  plans by about 15 years—47 each in both the APWU CDHP and the other  new plans compared to 62 for the PPO plans. Excluding the elderly and  retirees, the average ages of enrollees in the APWU CDHP, the other new  plans, and the national PPO plans were more similar—45, 43, and 47,  respectively. (See table 1.)
section_title: APWU CDHP Enrollees Were Healthier, Better Educated, and More Likely to Enroll in Individual Plans
paragraphs: Excluding enrollees over age 65, the proportion of APWU CDHP enrollees  who reported on annual satisfaction surveys being in “excellent” or “very  good” health status was higher than among the other new plan and PPO  plan enrollees. APWU CDHP enrollees also appeared to be better  educated than enrollees in other new plans and the PPO plans. The  proportion of APWU CDHP enrollees under the age of 65 who reported  having a 4-year or higher college degree was higher than among the other  new plan and the PPO plan enrollees. (See table 2.)
Excluding retirees and the elderly, a lower share of APWU CDHP enrollees  selected family plans compared to other enrollees. About 55 percent of  APWU CDHP enrollees selected family plans, compared to 66 percent and  65 percent of enrollees in other new plans and PPO plans, respectively.
section_title: APWU CDHP Enrollee Satisfaction Was Mixed Compared to Other FEHBP Plan Enrollees
paragraphs: APWU CDHP enrollee satisfaction with overall plan performance was  higher than that of other new plan enrollees, but lower than that of  national PPO plan enrollees. APWU CDHP enrollee satisfaction was  generally comparable to that of other new plan and national PPO plan  enrollees on four of five specific plan performance measures—access to  health care, timeliness of health care, provider communications, and  claims processing. APWU CDHP enrollee satisfaction was higher than  other new plan enrollees but lower than national PPO plan enrollees for  the remaining specific measure relating to customer service. In addition,  some APWU CDHP enrollees may have more difficulty tracking their  health care spending under the APWU CDHP compared to other FEHBP  enrollees.
subsections: section_title: APWU CDHP Enrollee Satisfaction with Overall Plan Performance Was Mixed Compared to Other Plans
paragraphs: On the overall plan performance measure included in annual consumer  satisfaction surveys, APWU CDHP enrollees were more satisfied than  other new plan enrollees, but less satisfied than national PPO plan  enrollees—67 percent versus 53 and 76 percent, respectively. This  performance measure is not comprised of component scores, nor is it  directly related to the scores for the other performance measures. Rather,  according to OPM, overall plan performance is a measure of enrollees’  broad assessment of the plan. (See fig. 2.)
section_title: APWU CDHP Enrollees Were Generally as Satisfied as Other Plan Enrollees on Four of Five Specific Performance Measures
paragraphs: For four of five specific plan performance measures—access to health  care, timeliness of health care, provider communications, and claims  processing—APWU CDHP enrollee satisfaction was generally comparable  to that of other enrollees. APWU CDHP enrollee satisfaction with  customer service, though higher than that of other new plan enrollees, was  lower than that of the PPO plan enrollees by 7 percentage points—  67 percent versus 59 and 74 percent respectively. (See fig. 3.)
Moreover, for three of the components that constitute the customer  service performance measure, APWU CDHP enrollees were less satisfied  than national PPO plan enrollees. The components are satisfaction with  finding or understanding information, satisfaction with getting help when  calling customer service, and satisfaction with the health plan paperwork.  (See fig. 4.)
section_title: Some APWU CDHP Enrollees Face Difficulty Tracking Their Spending
paragraphs: Our analysis of appeals regarding claim disputes filed with OPM for the  APWU CDHP and PPO plans in 2003 and 2004 indicate a higher rate of  confusion about certain APWU CDHP features, such as enrollees’ ability to  track their account expenditures and their progress toward meeting their  deductibles. The average annual rate of appeals per 1000 enrollees filed  with OPM against the APWU CDHP was almost twice as high as the rate  for national PPO plans—1.98 and 1.11 respectively. Some health policy  researchers have noted that this may be expected as CDHP enrollees gain  familiarity with a relatively new plan concept. However, whereas appeals  for the PPO plans were distributed among a wider variety of issues, a  disproportionate share of the APWU CDHP appeals—over half—related to  tracking account expenditures or deductible balances.
Possibly contributing to enrollee inability to track their progress toward  meeting their deductible, the APWU CDHP brochure contains potentially  confusing language about whether expenses for dental and vision services  count toward the deductible. APWU CDHP officials told us that in 2005,  the HRA may be used to pay for dental and vision services, and that these  services would also count toward the member’s deductible. However,  while one page of the plan brochure explicitly states that these expenses  count toward the deductible, another page appears to indicate that such  expenses do not count toward the deductible.
section_title: Instances of Lower Satisfaction and Difficulty Tracking Health Care Spending May Relate to the APWU CDHP’s Recent Introduction
paragraphs: The lower enrollee satisfaction related to overall plan performance and  customer service, and enrollee confusion in tracking their account  spending, may relate to the recent introduction of the APWU CDHP. OPM  officials said that a higher rate of dissatisfaction and confusion about plan  features are traits typically observed among new plans, as enrollees gain  familiarity with their benefits and features. According to one health policy  analyst, CDHP enrollees are more likely to report problems understanding  the plan because CDHPs are a relatively new concept, and plan paperwork  and management of the HRA account are new experiences for enrollees.
section_title: APWU CDHP Enrollee Access to Provider Networks and Discounts Was Generally Comparable to Other FEHBP Plans
paragraphs: Provider networks appeared to provide APWU CDHP enrollees with  similar access to health care providers compared to networks of other  FEHBP plans. In 21 states, the APWU CDHP used the same provider  networks as other large, national PPO plans participating in the FEHBP— each with over 70,000 enrollees. These 21 states account for approximately  40 percent of the total APWU CDHP enrollment. In 13 of the remaining  states, accounting for approximately 22 percent of total plan enrollment,  the APWU CDHP used networks that were listed among the 25 most  commonly used PPO networks nationwide. In 8 states, accounting for  another 22 percent of total plan enrollment, the APWU CDHP used  generally large networks that had been in existence for over 10 years. For  example, the APWU CDHP network included over 70 percent of the  hospitals in one state, and over 90 percent of the hospitals in another state.  In the remaining 9 states, accounting for approximately 16 percent of total  plan enrollment, the APWU CDHP used networks that were either  nationally accredited, or were comparable in size to networks used by  other FEHBP plans based on counts of hospitals or physicians included in  the network. (See table 3).
Provider networks appeared to provide APWU CDHP enrollees with  negotiated provider discounts that were comparable to those of another  large national FEHBP plan. Across all states, the average hospital inpatient  and physician discounts for the APWU CDHP and another national PPO  plan differed by no more than 2 percentage points. The actual level of the  hospital and physician discounts in the APWU CDHP and the national PPO  plan were comparable to industry standard discounts negotiated by large  PPO plans, according to an industry expert we interviewed.
section_title: Agency Comments and Comments from APWU
paragraphs: We received comments on a draft of this report from OPM (see app. I) and  APWU. Both generally concurred with our findings. OPM said that  consumer-directed health plans have the potential to lower health  insurance costs by allowing health plan members greater choice over their  health care spending. Regarding the potential for CDHPs to  disproportionately attract healthier enrollees, OPM said that while  enrollment in the APWU CDHP is growing, the plan accounted for a small  fraction of total FEHBP enrollment and that OPM did not anticipate any  harm accruing to other FEHBP enrollees as a result of its enrollment  trends. Nevertheless, OPM said it would continue to monitor enrollment  trends and take appropriate action to eliminate or minimize any adverse  effects. OPM also provided technical comments, which we incorporated in  the report as appropriate.
APWU acknowledged that the language concerning dental and vision  coverage in its plan brochure could have contained greater clarity, and  said that in consultation with OPM it has revised the language for the 2006  plan brochure. APWU also stated that in spite of the potentially confusing  language, the plan credited enrollees’ dental and vision services incurred  in 2005 toward the enrollees’ deductible. We made reference to their  comment in our report. APWU also requested that we disclose the source  of the appeals data we cited in the report because it did not believe its rate  of appeals was significantly higher than other national PPO plans. We  notified APWU officials that we obtained the appeals data from OPM.
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If you or your staff has any questions about this report, please contact me  at (202) 512-7119 or at dickenj@gao.gov. Contact points for our Office of  Congressional Relations and Public Affairs may be found on the last page  of this report. Randy DiRosa, Assistant Director, and Iola D’Souza also  made key contributions to this report.
section_title: Appendix I: Comments from the Office of Personnel Management