The Federal Employees Health Benefits Program: Program Design, Recent Performance, and Implications for Medicare Reform

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Abstract:

The Federal Employees Health Benefits Program (FEHBP) offers a choice of health plans to
federal employees and annuitants, using a premium contribution scheme that provides incentives
for participants to select less costly plans. FEHBP is often held out as a working model of
market-based insurance programs. Proponents of a competitive system for Medicare often cite
FEHBP as a prototype, and there have also been proposals to use FEHBP itself or a similar
system as a mechanism for extending health plan choice to small employers or individuals.
This paper provides a basic description of FEHBP’s structure, benefits, financing, and
operations. It then moves on to assess FEHBP’s recent performance in a variety of areas,
including cost increases, benefit changes, access to providers, and risk selection. It concludes
with a brief discussion of the implications of the FEHBP experience for Medicare reform
proposals.