The Federal Employees Health Benefits Program (FEHBP) is the nation’s largest employer-sponsored health plan, offering enrollees numerous options for health insurance. Over its 50-year history, the program has kept participation high, administrative costs low and premiums affordable—making it an enticing model for health reformers of all political stripes. Conservatives like its reliance on private plans and market competition. Liberals like the prospect of expanding to everyone the FEHBP’s large-employer-style benefits, community rating, and close oversight of insurer pricing.
The FEHBP model is so popular that most federal reform proposals include versions of a similar insurance "exchange" as a way to offer a range of private-market insurance choices to a broader population. A new paper from the Urban Institute shows that while opening the FEHBP to non-federal employees or replicating its features nationally is not feasible, lessons can be drawn from the program that enhance and inform federal reform efforts.
The paper offers three main observations for reformers, drawn from experience with FEHBP:
- Because people outside of large employer groups are quite diverse in health status and income, they and their health risks are likely to be unevenly distributed across health plans. Strong countermeasures to make sure plans are not disproportionately saddled with the costliest clients will need to be identified.
- It can be challenging to maintain a wide range of benefit packages for enrollees to choose among, and actions could be taken in this regard.
- FEHBP’s model of relating to health plans through negotiation is an alternative to conventional contracting, and is worth considering.