PPACA’s excise tax on high-cost employer-sponsored health insurance is imposed when the value of employees’ health coverage exceeds a threshold, referred to as the tax’s applicable dollar limit. The applicable dollar limit was established in statute for 2018, the year the tax was originally to be implemented. PPACA stipulated that for 2019, the applicable dollar limit would increase by the amount of the Consumer Price Index for All Urban Consumers (CPI-U), plus an additional 1 percent. Starting in 2020, the applicable dollar limit would then increase in step with the CPI-U each year thereafter. The Consolidated Appropriations Act, 2016 delayed the tax’s implementation until 2020. Some economists have noted that because health care premiums have historically outpaced the CPI-U, it can be expected that the share of employers impacted by the tax should grow over time. The basis for determining the value of employees’ health coverage that is measured against the applicable dollar limit of the tax—referred to as applicable coverage—is defined in statute. Applicable coverage includes both the employer’s and the employee’s pre-tax contributions to the premium for a group health plan and to a flexible spending arrangement, Archer Medical Savings Account, health savings account, or health reimbursement arrangement. The amount of an employee’s applicable coverage that exceeds their applicable dollar limit—known as the excess benefit—is subject to the tax. Because applicable coverage can vary by employee, for example, depending on whether or not they chose to contribute to a flexible spending arrangement or health savings account, the tax is determined separately for each employee. As a result, the tax could be owed for some employees and not others. The age and gender adjustment is designed to make the applicable dollar limit—the threshold for the tax—higher for employers with workforce demographics that are typically costlier than average. Specifically, the law stipulates that the age and gender adjustment would increase the applicable dollar limit by an amount equal to the excess of a) the premium cost of the BCBS Standard plan, if priced for the age and gender characteristics of all employees of an employer, over b) the premium cost of the BCBS Standard plan, if priced for the age and gender characteristics of the national workforce. In 2015, the IRS released a notice outlining a draft proposal for how the age and gender adjustment might be implemented. The notice proposed using BCBS Standard plan premium and claims cost data (including claims costs classified into 5- year age and gender groups), as well as CPS national workforce data, to produce published tables that an employer could use to calculate its age and gender adjustment based on its specific workforce data. In its notice, IRS asked for comments on whether the calculation of group costs should rely on actual claims data from the BCBS Standard plan or, as an alternative, on “national claims data reflecting plans with a design similar to that of the .” FEHBP provides health care coverage to federal employees, retirees, and their dependents through health insurance carriers that contract with OPM. In 2015, FEHBP provided an estimated $47.9 billion in health care benefits to roughly 8.2 million individuals, according to agency officials. Carriers offer plans in which eligible individuals may enroll to receive health care coverage. For the 2015 plan year, FEHBP options included fee-for-service plans that were available nationwide, plans available only to certain types of federal employees (e.g., postal workers), and plans offered by health maintenance organizations that were available only in certain regions. Of these plans, some were high-deductible plans and consumer-driven plans. Generally, individuals are able to choose from several plans, but most FEHBP contract holders were in plans offered by the BCBSA. In addition to offering the Standard plan, BCBSA also offers the Basic plan, and combined, these two plans are among the most popular of FEHBP plans. The BCBS Standard plan has many characteristics that experts cited as important when considered for use as the basis of the age and gender adjustment. However, they also noted that it has limitations because it is not fully representative of the national workforce, has selection bias, and has experienced declining enrollment in recent years. Experts identified alternative cost data sources, but these data sources also have limitations. Some experts also expressed concern with the use of a premium value as the basis for the adjustment and suggested alternative approaches. According to industry and actuarial experts we interviewed and stakeholders that commented on IRS’s notices for the age and gender adjustment, BCBS Standard plan data have several benefits when considered for use as the basis of an age and gender adjustment, as stipulated in the law. Specifically, it is a large dataset that includes several years of data and is readily available (convenient). Experts we spoke with identified these as important characteristics for cost data that is to be used as the basis of an age and gender adjustment. Specifically, experts noted that the data source should have the following characteristics: Be representative. Several experts noted that the data source should reflect the demographics of the broader U.S. population, the national workforce, or the population eligible for employer-sponsored insurance, to the extent possible. Differences in the demographics between the broader population and the data source used for an adjustment could have an impact on health care costs and utilization and, thus, have an impact on the adjustment. Be large. Several experts pointed out that an ideal data source would be large, in terms of the number of individuals covered, in part due to the fact that there needs to be sufficient data within each of the age and gender groups. Contain several years of data. Some experts pointed out the benefit of using a data source that has been in existence for some time and that has several years of data so that one would have confidence that the data for a given year are not unusual. Be convenient. For the purposes of the government’s use, several experts also noted that convenience of the data source could be important to consider—such as the ease with which the government can access and use the data and the costs for obtaining them. Notably, the data from the BCBS Standard plan meet several of these characteristics because the plan is large, relatively popular, and covered just over 3 million members across the United States in 2015, making it the FEHBP plan with the highest enrollment. It is also a mature plan that has been in existence since 1959. Finally, it is convenient in that it is already available and familiar to the federal government, and BCBSA already provides summary cost and enrollment data to OPM on an annual basis. However, experts and stakeholders identified two important limitations to using BCBS Standard plan cost data as the basis of an age and gender adjustment: 1) not being representative of the national workforce due to selection bias and 2) declining enrollment. Selection bias. Enrollment in the BCBS Standard plan is affected by selection bias among the FEHBP options that may result in it not being representative of the national workforce. Within the FEHBP, federal employees can choose among many different health plan options. The BCBS Standard plan is a relatively expensive plan within the FEHBP and covers older and sicker members compared to other, less expensive plans, such as the other nationwide BCBS FEHBP option, BCBS Basic. Actuarial experts also noted that the BCBS Standard plan may be less attractive to healthier individuals and younger families who may be more attracted to the FEHBP health maintenance organization options, including high-deductible and consumer-driven plans, or the BCBS Basic plan. Officials from OPM noted, and our review of two years of cost data confirm, that members in the BCBS Standard plan generally have higher health care costs than their counterparts in BCBS Basic and that this is particularly true for younger members. While other employers may offer more than one plan, most employers do not provide the number of options that the federal government provides, so selection bias among plans offered by other employers may be less extreme. Experts and stakeholders noted that the selection bias within the FEHBP of more young members with higher health care costs in the BCBS Standard plan may result in an age and gender adjustment that is not adequate. For example, in part because the BCBS Standard plan disproportionately covers young members with higher health care costs, the ratio of the average claims costs of the older age groups to the average claims costs of the younger age groups is smaller than it would be in a plan that did not have that particular selection bias issue. As such, the ratios of costs for older age groups to costs for younger age groups would be understated compared to the ratios calculated based on data of a more representative population. If the claims cost data used for the adjustment had ratios that were understated in this way, then the adjustment based on these data might also be too small, for example, for employers with older demographics. Some experts and stakeholders also noted selection bias in the FEHBP more broadly, in that its members, who include employees as well as retired former employees and their dependents, are not representative of the national workforce. For example, they noted that the federal workforce is skewed to a higher proportion of older workers than the national workforce. However, some experts we spoke with asserted that this may not be a limitation that would generally affect the use of FEHBP data for the age and gender adjustment because relative costs between older and younger employees in the federal workforce are likely similar to those of the national workforce. Declining enrollment. In addition, while the BCBS Standard plan is large, it has experienced declining enrollment in recent years. Specifically, from 2010 through 2015, enrollment in the BCBS Standard plan decreased by over 10 percent. In contrast, enrollment in the BCBS Basic plan increased significantly from 2010 through 2015—a 46 percent increase in contract holders. (See table 1.) Notably, the cumulative enrollment for the two BCBS FEHBP plans has been relatively stable over time.