Health plan selection in the Federal Employees Health Benefits Program

Area of Science:

• Health Services Research
• Health Economics
• Insurance Market Dynamics

Background:

• The Federal Employees Health Benefits Program (FEHBP) offers multiple health insurance choices, including fee-for-service and Health Maintenance Organizations (HMOs).
• Despite available options, the FEHBP has historically shown stability in enrollment patterns.

Purpose of the Study:

• To analyze health insurance plan selection within the FEHBP when various fee-for-service and HMO options are available.
• To investigate the factors influencing enrollment stability and plan switching behavior among federal employees.

Main Methods:

• A survey of over 8,500 U.S. Department of Health and Human Services (DHHS) employees during the May 1982 open season.
• Analysis of enrollment data for all DHHS employees participating in the FEHBP.

Main Results:

• Evidence suggests biased selection of health risks within the FEHBP.
• Only 21% of DHHS employees switched plans, indicating significant enrollment inertia.
• Switching enrollees astutely identified cost savings, reducing annual premiums by nearly 40% while maintaining benefit levels.
• Plans with generous coverage for specific services attracted enrollees anticipating high utilization of those services.

Conclusions:

• Enrollment stability in the FEHBP may be due to controls on entry, benefit/premium changes, and consumer inertia.
• Health plan selection is influenced by perceived value, with consumers adept at finding cost-effective options.
• The degree of adverse or beneficial selection into HMOs is contingent upon the pricing and benefit comprehensiveness of competing fee-for-service plans.