Lessons for Health Reform from the Federal Employees Health Benefits Program

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Abstract

The Federal Employees Health Benefits Program is the nation's largest employer-sponsored health plan, offering enrollees numerous options for health insurance. The program has long kept participation high, administrative costs low, and premiums affordable—making it an enticing model for health reformers of all political stripes. Most curent federal reform proposals include a similar insurance "exchange" to offer a range of private-market insurance choices to a broader population. While opening the FEHBP to non-federal employees or replicating its features nationally is not feasible, program experience suggests lessons about benefits design, relations with participating health plans, and avoiding adverse selection in enrollment.

Introduction

The Federal Employees Health Benefits Program (FEHBP) is the country’s largest employersponsored insurance plan and has provided good coverage to millions of enrollees for over half a century. Each year, enrollees choose among many competing health plans, and the program has kept health plan participation high, administrative costs low, and premiums affordable for federal workers and their families. Politically, the program as a model for reform has long held appeal across the spectrum.

Conservatives like the program’s private health plans and its reliance on market competition rather than public controls to set benefits and dampen price increases. Liberals like the prospect of expanding to everyone the FEHBP’s largeemployer- style benefits, community rating, and close oversight of insurer pricing. Barack Obama spoke approvingly of it during his campaign. He and others have signaled that reform should reflect similar principles, and some form of similar purchasing pool or “exchange” is part of many current proposals. It has also been suggested that health reform simply open the existing FEHBP for broader enrollment.

This brief suggests that FEHBP experience offers important insights about how to structure fair and effective health plan competition, an important component of the proposed health insurance exchanges. However, policy makers should not lose sight of the important differences between structuring and administering an employee benefits program and operating an insurance purchasing mechanism for a diverse set of people choosing to enroll from the general population. Moreover, it does not seem to be wise simply to open the existing FEHBP to non-federal enrollment nor feasible to precisely replicate the FEHBP and its national approach outside its current context of federal employment. Those operating a new exchange can still learn from FEHBP’s experience, particularly about benefits design, selection and risk segmentation, and relations with

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