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. 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. 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. 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. 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. 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. 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.) 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.