Federal Employees Health Benefits Program: First-Year Experience with High-Deductible Health Plans and Health Savings Accounts
Released: 2006-02-02T00:00:00

Letter

Background

CDHPs are relatively new health care benefits plan designs that are offered in various forms, including that of an HDHP coupled with an HSA. The FEHBP began to offer CDHPs in 2003 and first offered HDHPs coupled with HSAs in January 2005.

The Consumer-Directed Health Plan Concept

While insurers and employers offer several variants of CDHPs, these plans generally include three basic precepts—an insurance plan with a high deductible, a savings account to pay for services under the deductible, and enrollee decision support tools.

An insurance plan with a high deductible. CDHP deductibles are about $1,900 on average nationwide for individual coverage and about $3,900 for family coverage, compared to about $320 and $680, respectively, on average, for a traditional PPO plan.

A savings account to pay for services under the deductible. These savings accounts encompass different models, the most prominent being health reimbursement arrangements (HRA) and HSAs. Both HRAs and HSAs are tax advantaged, and funds from these accounts may be spent on qualified medical expenses—such as the plan deductible and payments for covered and noncovered services. Funds that are used for qualified medical expenses that are not covered by the health plan do not count toward meeting the plan’s deductible or out-of-pocket spending limits.

Important distinctions exist between HRAs and HSAs. HRAs are funded solely by the employer and are generally not portable once the employee leaves. These funds may accumulate up to any employer-specified maximums and may only be spent on qualified medical expenses. Although HRAs are generally coupled with health plans that include a high deductible, this is not a requirement for favorable tax treatment.

An HSA is a new type of tax-advantaged savings account that, unlike HRAs, must be coupled with an HDHP that meets statutorily defined minimum deductibles and limits on out-of-pocket expenditures for enrollees. Contributions to an HSA may be made by both the employer and employee. The HSA account holder essentially owns the account and can transfer funds from one HSA account to another. Funds in these accounts may earn interest, are allowed to roll over from year to year, and may accumulate subject only to annual limits on contributions. HSA funds may also be withdrawn for purposes other than qualified medical expenses subject to regular taxes and an additional tax penalty, and may be used as retirement income subject to regular taxes. Certain individuals are not eligible for HSAs, including those eligible for Medicare or covered by another health plan in addition to the HDHP.

Decision support tools. CDHPs may provide decision support tools for consumers to help them become actively engaged in making health care purchase decisions. These tools may provide enrollees online access to their savings accounts to help them manage their spending. They may also provide enrollees with information to assess the quality of health care providers and the prices for health care services.

While health insurance carriers may provide decision support tools to all enrollees, these tools may be more important to CDHP enrollees who have a greater financial incentive to take a more active role in their health care purchase decisions. To help enrollees choose a doctor or a hospital, experts suggest they need data to assess the quality of those providers. Such data may include the volume of procedures provided; the outcomes of those procedures, such as mortality and complication rates; as well as certain process indicators, such as the percentage of cases in which a provider followed established clinical practice guidelines for a particular procedure. To help enrollees manage their HSA account funds and evaluate the price competitiveness of various providers, some experts believe enrollees need information about the expected costs of services— such as an average or expected range of costs for a procedure, or the actual price a provider will charge based on the payment rates negotiated between the provider and the health insurance carrier.

Insurance carriers have faced challenges in obtaining or presenting quality and cost data. For example, experts believe that it may be difficult for carriers to provide hospital- or physician-specific quality measures because such measures are not always readily available, particularly for physicians. They also believe that certain measures can be difficult for consumers to interpret, such as outcomes measures, and may not appropriately account for the poorer patient outcomes that may occur among providers who tend to treat sicker patients. Experts also believe that insurers have been reluctant to make negotiated provider payment rates available to consumers due to concerns over future provider contract negotiations. Therefore, the cost information insurers are willing to provide is more likely to reflect average rates or a range of costs within a geographic region rather than the actual negotiated rates.

FEHBP and Consumer- Directed Health Plans

Federal employees have a choice of multiple health plans offered by private health insurance carriers participating in the FEHBP, with 19 national plans and more than 200 local plans offered in 2005. Plans vary in terms of benefit design and premiums. In 2004, nearly 75 percent of those covered under the FEHBP were enrolled in national plans, with the remainder in regional or local HMOs. Mirroring the private sector, FEHBP carriers began offering CDHP options in 2003.

The FEHBP offers two types of CDHPs—high-deductible plans coupled with an HRA or an HSA. The American Postal Workers Union offered the first HRA-based option under the FEHBP in 2003. This was followed by HRA-based plans offered by Aetna and Humana in 2004. In 2005, 14 HDHPs coupled with HSAs were first offered. As of March 2005, 3,900 individuals were enrolled in these 14 HDHPs. Including retirees and family members, about 7,500 individuals were covered by the plans, with nearly all—about 96 percent—in the three multistate plans.

All HDHPs offered by the FEHBP must include certain features. OPM requires that the plans cover preventive health services before the deductible has been met. In addition, because OPM is prohibited from contracting with plans that deny enrollment based on age, all must be offered with an HRA alternative of equivalent value for those who are ineligible for an HSA, such as Medicare enrollees. All HSAs and HRAs must be managed either by the insurance carrier or a trustee—such as a bank—which has received high ratings from a major financial rating service. OPM requires all HDHP carriers to offer health care decision support tools to enrollees. Finally, all HDHPs offered in the FEHBP must deposit a monthly contribution to the enrollee’s HSA, which is a portion of the enrollee’s premium payment, called the premium pass through. The premium pass through can be thought of as a required contribution to an employee’s HSA, with the remainder of the premium going to the insurance carrier to pay for the insurance coverage.

FEHBP HDHP Enrollees Were Generally Younger and Earned Higher Federal Salaries Than Other FEHBP Enrollees

HDHP enrollees were younger, earned higher federal incomes, were more likely to be male, and were more likely to have individual coverage than other FEHBP enrollees. The average age of HDHP enrollees was similar to that of another new plan, but was 13 years younger than that of all FEHBP enrollees. The share of actively employed enrollees earning federal incomes of $75,000 or more was 43 percent for HDHPs, compared to 14 percent for the other new plan, and 23 percent for all FEHBP plans. About 69 percent of HDHP enrollees were male, compared to 59 percent in both the other new plan and all FEHBP plans, and about 47 percent of HDHP enrollees had individual coverage, compared to 35 and 37 percent for the other new plan and all FEHBP enrollees, respectively.

HDHP Enrollees Were Younger and Included Fewer Retirees Than Enrollees in All FEHBP Plans

The average age of HDHP enrollees was younger than all FEHBP plan enrollees, but was similar to that of enrollees in another new FEHBP plan. The average age of HDHP enrollees was 46, compared to 47 for the other new plan, and 59 for all FEHBP plans. Differences were largely due to fewer retirees selecting the HDHPs. Eleven and 18 percent of the HDHP and other new plan enrollees were retirees, respectively, compared to 45 percent for all FEHBP plan enrollees. Excluding the retirees, the average age narrowed to 44 for both the HDHP and other new plan enrollees, and 47 for all FEHBP plan enrollees. (See table 1.)

The distribution of enrollees by age group similarly illustrates the relatively younger ages of HDHP enrollees and enrollees of the other new plan. Relative to all FEHBP enrollees, the HDHP and other new plan enrollees comprise a larger share of enrollees in each age group under 55 years and a smaller share of enrollees in each age group over 64. (See fig. 1.)

HDHP Enrollees Had Higher Federal Salaries and Were More Likely to Select Individual Plans Than Other FEHBP Enrollees

HDHP enrollees who were actively employed by the federal government earned higher federal salaries than other active federal employees in the FEHBP. The share of enrollees earning federal incomes of $75,000 or more in 2005 was 43 percent for HDHPs, compared to 14 percent for the other new plan and 23 percent for all FEHBP plans. These differences existed across all age groups. (See fig. 2.)

Excluding retirees, HDHP enrollees were more likely to be male and to select individual rather than family plans than were enrollees in other plans. Sixty-nine percent of HDHP enrollees were male, compared to 59 percent of enrollees in both the other new plan and all FEHBP plans. Forty-seven percent of HDHP enrollees selected individual plans, compared to 35 and 37 percent of enrollees in the other new plan and all FEHBP plans, respectively. (See table 2.)

FEHBP HDHPs Generally Covered the Same Services as Traditional Plans, but Enrollees’ Financial Responsibilities Usually Differed

HDHPs generally covered the same services as those covered by their traditional plan counterparts; however, enrollees’ financial responsibilities usually differed. The FEHBP HDHPs had higher deductibles than their traditional plan counterparts. In addition, relative to traditional plans, HDHP cost sharing after the deductible was comparable or lower for preventive services and prescription drugs. Cost sharing was mixed for physician office visits and hospital stays—higher than the carriers’ traditional plans in some instances and the same or lower in others. Two of the HDHPs had higher out-of-pocket spending limits than their traditional plan counterparts, and in most cases the HDHPs had lower premiums.

FEHBP HDHPs Generally Covered the Same Services as Traditional Plans

All three multistate HDHPs generally covered the same services as those covered by their traditional plan counterparts. These plans covered the same broad categories of services, such as preventive, diagnostic, maternity, surgical, outpatient, and emergency care, and all plans typically covered the same services within these categories. While each HDHP defined preventive services slightly differently, each plan covered certain core services: routine physical exam, routine immunizations, cholesterol screening, colorectal cancer screening, annual prostate-specific antigen test, well-child care.

These same services were also covered by the traditional plans. The few instances where covered services differed typically involved vision, dental, or chiropractic care benefits. For example, one HDHP did not include glasses or contact lenses in its vision care coverage, while its counterpart plan did.

While the same services were typically covered by the three multistate HDHPs and their traditional plan counterparts, the plans sometimes imposed different restrictions and stipulations on the coverage of these services. For example, one HDHP allowed more frequent vision exams, but covered fewer days in skilled nursing facilities relative to the traditional plan. Another HDHP had no time restrictions for receiving emergency services following an accidental injury, while the traditional plan did. In addition, the HDHP for which the traditional plan counterparts were HMOs offered coverage for out-of-network providers for nonemergency care, while the HMOs did not. The other two HDHPs had similar restrictions as the traditional plans on obtaining coverage from out-of-network providers.

Enrollees’ Financial Responsibilities Usually Differed between FEHBP HDHPs and Traditional Plans

The three multistate HDHPs often differed from their traditional plan counterparts in terms of enrollees’ financial responsibilities. All three HDHPs had higher deductibles, ranging from $1,100 to $2,500 for individual coverage and from $2,200 to $5,000 for family coverage, compared to $450 to $950 and $900 to $1,900 in their traditional PPO counterparts, respectively. Cost sharing also differed between HDHPs and the traditional plan counterparts. All HDHPs offered preventive care cost sharing for in-network providers that was the same or lower than the traditional plans. In addition, while all HDHPs covered preventive services before the deductible, those services were not always covered before the deductible by the traditional PPO plans. All HDHPs required that the deductible be met before prescription drug coverage began, whereas two of the traditional plans covered all prescription drugs before the deductible was met, and the third covered only generic drugs before the deductible was met. After the deductible was met, all HDHPs had comparable or lower cost sharing than the traditional plans for prescription drugs. Cost sharing for physician office visits for nonpreventive care and for hospital stays was mixed across plans—higher for the traditional plan counterparts in some instances, but the same or lower in others. Finally, two of the HDHPs had higher out-of-pocket spending limits for in-network providers of $4,000 and $5,000 for individual coverage and $8,000 and $10,000 for family coverage, compared to $1,500 and $4,450 and $3,000 and $5,400 for their traditional counterparts, respectively.

HDHPs more often had lower monthly premiums than their traditional plan counterparts. One HDHP had lower premiums than both of its traditional plan counterparts, another plan had lower premiums than one of its two counterparts, and the third HDHP had lower premiums than a majority of its 22 traditional plan counterparts. On average, enrollees’ monthly premiums for the three HDHPs were $91 for individual coverage and $208 for family coverage, compared to $99 and $243 for their traditional plan counterparts, respectively. (See table 3.)

Another difference between the HDHPs and their traditional plan counterparts was the monthly contribution HDHPs made to the enrollee’s HSA—the premium pass through—which was not a feature of the traditional plans. The average monthly pass through of the three multistate HDHPs was $82 for individual coverage and $165 for family coverage, representing 93 percent and 81 percent of the employee’s share of the monthly premium on average, respectively. The annual sum of the monthly contributions represented an average of 53 percent of the annual deductible across the three plans.

FEHBP HDHPs Provided Online Access to Decision Support Tools, but Did Not Always Include Health Care Quality and Cost Information

Each HDHP provided online account management tools and access to health education information on the plan’s Web site. However, the extent to which they also included provider quality and health care cost data was more limited and varied across the plans. Moreover, the quality and cost information provided on the HDHP Web sites was available to both HDHP enrollees as well as to traditional plan enrollees.

FEHBP HDHPs Provided Access to Online Account Management Tools and Health Education Information

Each of the three multistate FEHBP HDHP Web sites provided online access to account management tools and health education information. The plans allowed enrollees to view their progress toward meeting their deductibles and track their HSA balances online. They also provided online access to certain health education information, including information on general preventive care, common medical procedures and conditions, various treatment options for certain conditions, information concerning prescription drug alternatives, and a disease management program. Two plans also provided a health risk assessment tool, and one offered access to a health advice line.

The Extent to Which FEHBP HDHPs Provided Online Access to Provider- Specific Quality and Cost Information Varied

The HDHPs provided varying degrees of provider quality data. Two of the three plans provided data on their Web sites for several measures to assess hospital quality, including outcomes data, procedure volumes, and patient safety ratings, and the other plan provided links to Web sites that contained this type of information. None of the plans provided similar process or outcome measures to assess individual physician quality, although one plan provided information on physicians’ medical board certifications. Each of the plans provided certain general information about the physicians in the plan networks, such as their hospital affiliations, languages spoken, and gender.

Cost information provided by the three multistate plans was limited. One of the plans provided average hospital cost estimates and two provided average physician cost estimates for a limited number of services. For example, one plan provided average cost estimates within certain geographic regions based on its own claims data for certain physician services, such as diagnostic tests and surgical procedures. It also provided estimated total annual costs to treat certain conditions, such as diabetes and heart disease. None of the plans provided the actual payment rates that would be charged to enrollees that the plan had negotiated with specific hospitals or physicians. Two of the three plans provided access to average retail prescription drug prices and estimates of out-of-pocket costs for drugs, and all three plans provided actual prices for drugs purchased through the mail-order pharmacy services offered by the plans. None of the plans provided the actual payment rate the plan had negotiated with particular retail pharmacies. (See table 4.)

The quality and cost information provided on each plan’s Web site was made available to the enrollees of both HDHP and traditional plans. In some instances, information was tailored to the specific plan in which an individual was enrolled. For example, one plan’s out-of-pocket cost estimates for prescription drugs took into account plan-specific coverage and cost-sharing features.

Concluding Observations

Like many large employers, the FEHBP has expanded enrollee health plan choices by offering HDHPs combined with HSAs. While first-year enrollment is modest, the number of carriers offering these products in 2005 and expected to offer them in 2006 indicates that OPM and health insurance carriers anticipate continued interest in these new plans.

Although the first-year enrollment in FEHBP HDHPs may not predict future trends, it does raise the possibility that individuals with certain demographic characteristics may be disproportionately attracted to these plans. For example, first-year HDHP enrollees had consistently higher incomes across all age groups than enrollees of another new plan and all FEHBP enrollees. This may suggest that aspects of HDHPs—such as the greater financial exposure coupled with the potential for tax-advantaged savings—uniquely attract higher-income individuals with the means to pay higher deductibles and the desire to accrue tax-free savings. First-year enrollees were also younger on average than all FEHBP enrollees; however, they were not younger than enrollees in another new plan. Thus it is not clear whether younger individuals were uniquely attracted to HDHPs, or if younger enrollees are typical of recently introduced health plans in general. Additional years of enrollment data will be necessary to determine whether characteristics of first-year enrollees are predictive of future trends; to identify other important characteristics of HDHP enrollees, such as their health status; and to assess the implications of these enrollment trends for the FEHBP.

HDHPs, like other CDHPs, are premised on the notion that enrollees will become more actively involved in making health care purchase decisions than enrollees of traditional health plans. To do so, enrollees need information to help them assess the cost and quality trade-offs between different health care treatments and providers. However, the extent to which FEHBP HDHPs made such information available to enrollees was varied and limited, and HDHP enrollees were not provided any more or different information than was provided to traditional plan enrollees. Most notably lacking was specific information to assess the quality of health care provided by particular physicians and the actual prices plans had negotiated with particular providers. Some of this information may become available in the future. Two of the three largest HDHPs were developing physician-specific patient satisfaction ratings to help enrollees assess physician quality, and one had initiated a pilot project to provide enrollees with the actual, negotiated prices they would pay for certain services performed by a particular provider. Until such provider-specific quality and cost data become more widely available, the CDHP goal of having enrollees make health care purchase decisions based on an informed assessment of the quality/cost trade-offs may not be fully realized.

Agency Comments

We received comments on a draft of this report from OPM (see app. I). OPM expressed interest in our findings on the differences in characteristics of first-year HDHP enrollees compared to traditional FEHBP plan enrollees, and said that it would monitor enrollment trends over time to assess whether certain individuals—such as younger or healthier individuals—disproportionately enroll in HDHPs. OPM also said that it would continue to encourage plans to expand the decision support information they provide to enrollees, including the pricing of health care services.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days after its issue date. At that time, we will send copies to the Director of OPM and other interested parties. We will also make copies available to others upon request. This report is also available at no charge on GAO’s Web site at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact me at (202) 512-7119 or at 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; Gerardine Brennan; and Laura Brogan made major contributions to this report.

Appendix I: Comments from the Office of Personnel Management