The Federal Employees Health Benefits (FEHB) Program is a system of "managed competition" through which employee health benefits are provided to civilian government employees and annuitants of the United States government. The government contributes 72% of the weighted average premium of all plans, not to exceed 75% of the premium for any one plan (calculated separately for individual and family coverage).
The FEHB program allows some insurance companies, employee associations, and labor unions to market health insurance plans to governmental employees. The program is administered by the United States Office of Personnel Management (OPM).
History
The program was created in 1960. Employer sponsorship of health insurance in the United States became prevalent during World War II, as one of the few ways by which employers could escape wage and price control limitations on employee wages. The government originally proposed a system that would revolve around a dominant government-directed plan, but unions and employee associations, which had sponsored their own plans, protested. Reflecting the political pressure thus created, the Congress modified the Executive Branch proposal and all existing plans were "grandfathered" into the program. Thus, through what was essentially a historical accident and a political compromise, a system of competition among health plans driven by consumer choices was created.
Plans
Choices among health plans are available to employees during an "open enrollment" period, or "open season," after which the employee will be covered fully in any plan he or she chooses without limitations regarding pre-existing conditions. After the annual enrollment, changes can be made only upon a "qualifying life event" such as marriage, divorce, adoption or birth of a child, or change in employment status of a spouse, until the next annual open season, during which employees can enroll, disenroll, or change from one plan to another. The exact dates of the open season change from year to year but are usually from the Monday of the second full week in November through Monday, the second full week of December. Enrollment begins at or near the beginning of the calendar year and lasts until a different plan choice is made in a subsequent open season or through a qualifying life event. In practice, there is a great deal of inertia in enrollment, and only about 5 percent of employees change plans in most open seasons.
Premiums vary from plan to plan and are paid in part by the employer (the U. S. government agency that the employee works for or, for annuitants, OPM) and the remainder by the employee. The employer pays an amount up to 72 percent of the average plan premium for self-only or family coverage (not to exceed 75 percent of the premium for the selected plan), and the employee pays the rest. This dollar amount is recalculated each year as health care costs and plans' premiums increase. Certain employees (such as postal workers) have a higher portion of their premiums paid as the result of collective bargaining agreements. The precise percentage of the average paid by the employer is relatively unimportant to the design of this program and has changed over time to become more generous. What is important is that it is a "capped premium" design, in which the entire marginal cost of joining a plan with a premium near, at, or above the all-plan average is borne by the enrollee.
In 2010 about 250 plans participate in the program. About 20 plans are nationwide or almost nationwide, such as the ones offered by some employee unions such as the National Association of Letter Carriers, by some employee associations such as GEHA, and by national insurance companies such as Aetna and the Blue Cross and Blue Shield Association on behalf of its member companies. There are about 230 locally available plans, almost all HMOs. The FEHB program is open to most federal employees. For example, as of 2014 members of the United States Congress and their staff are excluded from the FEHB and required to purchase health insurance through the health care exchange due to the Affordable Care Act. However, the federal government provides a premium contribution for the purchase of this health insurance. The FEHBP's cost is about $40 billion in 2010, including both premiums and out-of-pocket costs. About four million employees and annuitants are enrolled, making a total of eight million people, when dependents are included.