Federal Employees Health Benefits Program: Early Experience with a Consumer-Directed Health Plan
Released: 2005-12-21T00:00:00

Letter

Background

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.

The CDHP Concept

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.

CDHPs Are a Small but Growing Segment of the Employer-Sponsored Health Insurance Market

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.

The APWU CDHP

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.

APWU CDHP Enrollees Were Generally Younger, Healthier, Better Educated, and More Likely to Select an Individual Plan Than Other FEHBP Enrollees

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.

APWU CDHP Enrollment Is Small but Growing

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.

APWU CDHP Enrollees Included Few Retirees and Elderly and Were Younger than Other FEHBP Enrollees

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.)

APWU CDHP Enrollees Were Healthier, Better Educated, and More Likely to Enroll in Individual Plans

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.

APWU CDHP Enrollee Satisfaction Was Mixed Compared to Other FEHBP Plan Enrollees

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.

APWU CDHP Enrollee Satisfaction with Overall Plan Performance Was Mixed Compared to Other Plans

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.)

APWU CDHP Enrollees Were Generally as Satisfied as Other Plan Enrollees on Four of Five Specific Performance Measures

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.)

Some APWU CDHP Enrollees Face Difficulty Tracking Their Spending

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.

Instances of Lower Satisfaction and Difficulty Tracking Health Care Spending May Relate to the APWU CDHP’s Recent Introduction

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.

APWU CDHP Enrollee Access to Provider Networks and Discounts Was Generally Comparable to Other FEHBP Plans

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.

Agency Comments and Comments from APWU

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.

As arranged with your office, 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 of this report to OPM and other interested parties. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.

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.

Appendix I: Comments from the Office of Personnel Management