This is the accessible text file for GAO report number GAO-07-873T 
entitled 'Federal Employees Health Benefits Program: Premiums Continue 
to Rise, but rate of Growth Has Recently Slowed' which was released on 
May 18, 2007. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Testimony: 

Before the Subcommittee on Oversight of Government Management, the 
Federal Workforce, and the District of Columbia, Committee on Homeland 
Security and Governmental Affairs, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:30 a.m. EDT: 

Friday, May 18, 2007: 

Federal Employees Health Benefits Program: 

Premiums Continue to Rise, but Rate of Growth Has Recently Slowed: 

Statement of John E. Dicken: 
Director, Health Care: 

GAO-07-873T: 

GAO Highlights: 

Highlights of GAO-07-873T, a testimony before the Subcommittee on 
Oversight of Government Management, the Federal Workforce, and the 
District of Columbia, Committee on Homeland Security and Governmental 
Affairs, U.S. Senate 

Why GAO Did This Study: 

Average health insurance premiums for plans participating in the 
Federal Employees Health Benefits Program (FEHBP) have risen each year 
since 1997. These growing premiums result in higher costs to the 
federal government and plan enrollees. The Office of Personnel 
Management (OPM) oversees FEHBP, negotiating benefits and premiums and 
administering reserve accounts that may be used to cover plans’ 
unanticipated spending increases. 

GAO was asked to discuss its December 22, 2006 report, entitled Federal 
Employees Health Benefits Program: Premium Growth Has Recently Slowed, 
and Varies Among Participating Plans (GAO-07-141). In this report, GAO 
reviewed (1) FEHBP premium trends compared with those of other 
purchasers, (2) factors contributing to average premium growth across 
all FEHBP plans, and (3) factors contributing to differing trends among 
selected FEHBP plans. GAO reviewed data provided by OPM relating to 
FEHBP premiums and factors contributing to premium growth. For 
comparison purposes, GAO examined premium data from the California 
Public Employees’ Retirement System (CalPERS) and surveys of other 
public and private employers. GAO also interviewed officials from OPM 
and eight FEHBP plans with premium growth that was higher than average 
and six FEHBP plans with premium growth that was lower than average. 

What GAO Found: 

Growth in FEHBP premiums recently slowed, from a peak of 12.9 percent 
for 2002 to 1.8 percent for 2007. Starting in 2003, FEHBP premium 
growth was generally slower than for other purchasers. Premium growth 
rates for the 10 largest FEHBP plans by enrollment—accounting for about 
three-quarters of total enrollment—ranged from 0 percent to 15.5 
percent for 2007. 

Projected increases in the cost and utilization of health care services 
and in the cost of prescription drugs accounted for most of the average 
annual FEHBP premium growth for 2000 through 2007. Absent other 
factors, these increases would have raised 2007 average premiums by 9 
percent. Other projected factors, including benefit changes resulting 
in less generous coverage and enrollee migration to lower-cost plans, 
slightly offset average premium growth. In 2006 and 2007, projected 
withdrawals from reserves helped offset average premium growth—by 2 
percentage points for 2006 and 5 percentage points for 2007. 

To explain the factors associated with premium growth, officials GAO 
interviewed from most of the FEHBP plans with higher-than-average 
premium growth cited increases in the cost and utilization of services 
as well as a high share of elderly enrollees and early retirees. 
Officials GAO interviewed from most plans with lower-than-average 
premium growth cited adjustments made for previously overestimated 
projections of cost growth, and some officials cited benefit changes 
that resulted in less generous coverage for prescription drugs. The 
plans with lower-than-average premium growth also experienced a decline 
of 0.5 years in the average age of their enrollees compared with an 
increase of 0.5 years in the average age of all FEHBP enrollees. 

Figure: Growth in Average Premiums for FEHBP and Other Purchasers: 

[See PDF for Image] 

Source: OPM, CalPERS, and Kaiser Family Foundation/Health Research and 
Educational Trust. 

[End of figure] 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-873T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact John E. Dicken at (202) 
512-7119 or dickenj@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the findings from our December 
2006 report entitled Federal Employees Health Benefits Program: Premium 
Growth Has Recently Slowed, and Varies among Participating 
Plans.[Footnote 1] For this report, we were asked to examine the nature 
and extent of premium increases in the Federal Employees Health 
Benefits Program (FEHBP) and the potential effect on premium growth of 
the Medicare retiree drug subsidy, had OPM applied for the subsidy and 
used it to offset premium growth.[Footnote 2] Federal employees' health 
insurance premiums have increased each year since the late 1990s, and 
these increases pose higher costs for the federal government and plan 
enrollees.[Footnote 3] About 8 million federal employees, retirees, and 
their dependents receive health coverage through plans participating in 
the FEHBP, the largest employer-sponsored health insurance program in 
the country. The Office of Personnel Management (OPM) administers the 
program by contracting with multiple health insurance carriers to offer 
health plans through the program and negotiates benefits and premium 
rates with each carrier. OPM also administers reserve accounts for each 
plan that may be used to cover plans' unanticipated spending 
increases.[Footnote 4] 

My remarks today will focus on (1) recent FEHBP premium growth trends 
compared to those of plans offered by other purchasers, (2) the factors 
that contributed to average premium growth trends across all FEHBP 
plans as well as the effect the Medicare retiree drug subsidy would 
have had on premium growth, and (3) the factors that contributed to 
differing premium growth among selected FEHBP plans. These remarks are 
based on information contained in our December 2006 report. 

In conducting our work, we analyzed historic and recent premium trend 
data from 1994 through 2007 from OPM for all FEHBP plans and compared 
them with premium data from the California Public Employees' Retirement 
System (CalPERS)--the second largest public purchaser of employee 
health benefits--and surveys of multiple employer-sponsored health 
plans from Kaiser Family Foundation/Health Research and Educational 
Trust (Kaiser/HRET).[Footnote 5] To identify factors contributing to 
average FEHBP premium growth trends across all FEHBP plans, we analyzed 
OPM summary reports assessing the effect of projected changes in 
various factors, including the cost and utilization of services, 
enrollee demographics, and use of reserves, on premium growth trends 
from 2000 through 2007.[Footnote 6] We also examined aggregate data on 
the actual growth in per-enrollee expenditures from 2003 through 2005 
for 5 large FEHBP plans.[Footnote 7] We explored with officials from 
OPM and 14 selected FEHBP plans the potential effect on premium growth 
of the retiree drug subsidy if OPM had applied for the subsidy and used 
it to mitigate premium growth. The 14 plans were selected because of 
size (at least 5,000 enrollees) and length of participation in the 
FEHBP (at least 3 years). To examine the reasons for differing premium 
growth trends among FEHBP plans, we conducted interviews with officials 
from these 14 plans. Eight of the plans had higher-than-average premium 
growth, and six of the plans had lower-than-average premium growth for 
either (a) 2006 or (b) the 3-year period from 2004 through 2006. A 
detailed explanation of our scope and methodology is contained in 
appendix I of the December 2006 report. We conducted our work for that 
report from January 2006 through December 2006 in accordance with 
generally accepted government auditing standards. 

In summary, we found that growth in average FEHBP premiums recently 
slowed from a peak of 12.9 percent for 2002 to 1.8 percent for 2007. 
This was lower than growth for other purchasers from 2003 through 2007. 
Premium growth rates for the 10 largest FEHBP plans by enrollment, 
accounting for about three-quarters of total enrollment, ranged from 0 
to 15.5 percent for 2007, but varied more widely across the smaller 
FEHBP plans. 

Projected increases in the cost and utilization of health care services 
and in the cost of prescription drugs accounted for most of the average 
annual premium growth across all FEHBP plans for 2000 through 2007. 
Absent projected decreases in the costs of other factors, these 
increases would have raised 2007 average premiums by about 9 percent, 
rather than the 1.8 percent actual increase for that year. During this 
same period, projected decreases in the costs associated with certain 
other factors, including benefit changes that resulted in less generous 
coverage and enrollee migration to lower-cost plans, generally helped 
offset premium growth to a small extent. In 2006 and 2007, projected 
withdrawals from reserves particularly helped offset average premium 
growth by about 2 percentage points for 2006 and about 5 percentage 
points for 2007. Regarding the potential effect of the retiree drug 
subsidy, most plan officials we interviewed stated that the subsidy 
would have had a small effect on premium growth for 2006 had OPM 
applied for the subsidy and used it to mitigate premium growth. 
Officials from two large plans with higher-than-average shares of 
retirees, however, stated that the subsidy would have lowered their 
plans' premium growth--officials from one plan said by at least 3.5 to 
4 percentage points for their plan. We estimated that the subsidy would 
have lowered premium growth across all FEHBP plans for 2006 by more 
than 2 percentage points on average, from the 6.4 percent average 
growth rate for 2006 to about 4 percent. OPM officials said that OPM 
did not apply for the subsidy because the intent of the subsidy was to 
encourage employers to continue offering prescription drug coverage to 
Medicare-eligible enrollees, and FEHBP plans were already doing so. 

To explain the factors associated with premium growth, officials we 
interviewed from most of the plans with higher-than-average premium 
growth cited increases in the cost and utilization of services as well 
as a high share of elderly enrollees and early retirees. Officials we 
interviewed from most plans with lower-than-average premium growth 
cited adjustments made for previously overestimated projections of cost 
growth, and some officials cited benefit changes that resulted in less 
generous coverage for prescription drugs. The plans with lower-than- 
average premium growth also experienced a decline of 0.5 years in the 
average age of their enrollees compared with an increase of 0.5 years 
in the average age of all FEHBP enrollees. 

Background: 

The FEHBP is the largest employer-sponsored health insurance program in 
the country, providing health insurance coverage for about 8 million 
federal employees, retirees, and their dependents through contracts 
with private insurance plans. All currently employed and retired 
federal employees and their dependents are eligible to enroll in FEHBP 
plans, and about 85 percent of eligible workers and retirees are 
enrolled in the program. For 2007, FEHBP offered 284 plans, with 14 fee-
for-service (FFS) plans, 209 health maintenance organization (HMO) 
plans, and 61 consumer-directed health plans (CDHP). About 75 percent 
of total FEHBP enrollment was concentrated in FFS plans, about 25 
percent in HMO plans, and less than 1 percent in CDHPs. 

Total FEHBP health insurance premiums paid by the government and 
enrollees were about $31 billion in fiscal year 2005. As set by 
statute, the government pays 72 percent of the average premium across 
all FEHBP plans but no more than 75 percent of any particular plan's 
premium.[Footnote 8] The premiums are intended to cover enrollees' 
health care costs, plans' administrative expenses, reserve accounts 
specified by law, and OPM's administrative costs. Unlike some other 
large purchasers, FEHBP offers the same plan choices to currently 
employed enrollees and retirees, including Medicare-eligible retirees 
who opt to receive coverage through FEHBP plans rather than through the 
Medicare program. The plans include benefits for medical services and 
prescription drugs. 

By statute, OPM can negotiate contracts with health plans without 
regard to competitive bidding requirements.[Footnote 9] Plans meeting 
the minimum requirements specified in the statute and regulations may 
participate in the program, and plan contracts may be renewed 
automatically each year. OPM may terminate contracts if the minimum 
standards are not met.[Footnote 10] 

OPM administers a reserve account within the U.S. Treasury for each 
FEHBP plan, pursuant to federal regulations. Reserves are funded by a 
surcharge of up to 3 percent of a plan's premium.[Footnote 11] Funds in 
the reserves above certain minimum balances may be used, under OPM's 
guidance, to defray future premium increases, enhance plan benefits, 
reduce government and enrollee premium contributions, or cover 
unexpected shortfalls from higher-than-anticipated claims. 

On January 1, 2006, Medicare began offering prescription drug coverage 
(also known as Part D) to Medicare-eligible beneficiaries.[Footnote 12] 
Employers offering prescription drug coverage to Medicare-eligible 
retirees enrolled in their plans could, among other options, offer 
their retirees drug coverage that was actuarially equivalent to 
standard coverage under Part D and receive a tax-exempt government 
subsidy to encourage them to retain and enhance their prescription drug 
coverage.[Footnote 13] The subsidy provides payments equal to 28 
percent of each qualified beneficiary's prescription drug costs that 
fall within a certain threshold and is estimated to average about $670 
per beneficiary per year. OPM opted not to apply for the retiree drug 
subsidy. 

Growth in Average FEHBP Premiums Has Recently Slowed and Was Lower Than 
That of Other Purchasers: 

The average annual growth in FEHBP premiums has slowed since 2002-- 
declining each year from 2003 through 2007--and was generally lower 
than the growth for other purchasers since 2003. After a period of 
decreases in 1995 and 1996, FEHBP premiums began to increase for 1997, 
to a peak increase of 12.9 percent for 2002. The growth in average 
FEHBP premiums began slowing in 2003 and reached a low of 1.8 percent 
for 2007. The average annual growth in FEHBP premiums was faster than 
that of CalPERS and surveyed employers from 1997 through 2002--8.5 
percent compared with 6.5 percent and 7.1 percent, respectively. 
However, beginning in 2003, the average annual growth rate in FEHBP 
premiums was slower than that of CalPERS and surveyed employers--7.3 
percent compared with 14.2 percent and 10.5 percent, respectively. (See 
fig. 1). 

Figure 1: Growth in Average Premiums for FEHBP and Other Purchasers, 
1994 through 2007: 

[See PDF for image] 

Source: OPM, CalPERS, and Kaiser/HRET. 

Note: The 2007 average premium growth rate for employer plans in the 
Kaiser/HRET surveys was not available at the time we completed our work 
for this testimony. 

[End of figure] 

The premium growth rates for the 10 largest FEHBP plans by enrollment-
-accounting for about three-quarters of total FEHBP enrollment--ranged 
from 0 percent to 15.5 percent for 2007. Premium growth rates across 
the smaller FEHBP plans varied more widely. 

Regarding enrollee premiums--the share of total premiums paid by 
enrollees--the growth in average enrollee premiums generally paralleled 
total premium growth from 1994 through 2007. In 2006, average monthly 
FEHBP premiums were $415 for individual plans and $942 for family plans 
in total. The enrollee premium contributions were $123 for individual 
plans and $278 for family plans. 

Projected Growth in Several Factors Contributed to Average FEHBP 
Premium Growth: 

Projected increases in the cost and utilization of services and in the 
cost of prescription drugs accounted for most of the average annual 
premium growth across FEHBP plans for the period from 2000 through 
2007, although projected withdrawals from reserves offset much of this 
growth for 2006 and 2007. Absent projected changes associated with 
other factors, projected increases in the cost and utilization of 
services and the cost of prescription drugs would have accounted for a 
9 percent increase in average premiums for 2007. Projected increases in 
the cost of and utilization of services alone would have accounted for 
about a 6 percent increase premiums for 2007, down from a peak of about 
10 percent for 2002. Projected increases in the cost of prescription 
drugs alone would have accounted for about a 3 percent increase in 
premiums for 2007, down from a peak of about 5 percent for 2002. 
Enrollee demographics--particularly the aging of the enrollee 
population--were projected to have less of an effect on premium growth. 
Projected decreases in the costs associated with certain other factors, 
including benefit changes that resulted in less generous coverage and 
enrollee choice of plans--typically the migration to lower-cost plans-
-generally helped offset average premium growth for 2000 through 2007 
to a small extent. 

Projected withdrawals from reserves offset average premium growth for 
2006 and 2007. Officials we interviewed from most of the plans stated 
that OPM monitored their plans' reserve levels and worked closely with 
them to build up or draw down reserve funds gradually to avoid wide 
fluctuations in premium growth from year to year. Projected additions 
to reserves nominally contributed to average premium growth--by less 
than 1 percentage point--for 2000 through 2005. However, projected 
withdrawals from reserves offset average premium growth by about 2 
percentage points for 2006 and 5 percentage points for 2007.[Footnote 
14] (See fig. 2.) 

Figure 2: Projected Changes in Various Factors Affecting FEHBP Premium 
Growth, 2000 through 2007: 

[See PDF for image] 

Source: OPM. 

[End of figure] 

We also reviewed detailed data available for five large FEHBP plans on 
claims actually incurred from 2003 through 2005. These data showed that 
most of the increase in total expenditures per enrollee was explained 
by expenditures on prescription drugs (34 percent) and on hospital 
outpatient services (26 percent). 

Officials we interviewed from several FEHBP plans stated that the 
retiree drug subsidy would have had a small effect on premium growth 
had OPM applied for the subsidy and used it to offset premiums. First, 
drug costs for Medicare beneficiaries enrolled in these plans accounted 
for a small proportion of total expenses for all enrollees, and the 
subsidy would have helped offset less than one-third of these expenses. 
Second, because the same plans offered to currently employed enrollees 
were offered to retirees, the effect of the subsidy would have been 
diluted when spread across all enrollees. However, officials we 
interviewed from two large plans with high shares of elderly enrollees 
stated that the subsidy would have lowered premium growth for their 
plans. Officials from one of these plans estimated that 2006 premium 
growth could have been 3.5 to 4 percentage points lower. 

Our analysis of the potential effect of the retiree drug subsidy on all 
plans in FEHBP showed that had OPM applied for the subsidy and used it 
to offset premium growth, the subsidy would have lowered the 2006 
premium growth by 2.6 percentage points from 6.4 percent to about 4 
percent.[Footnote 15] The reduction in premium growth would have been a 
onetime reduction for 2006.[Footnote 16] Absent the drug subsidy, FEHBP 
premiums in the future would likely be more sensitive to drug cost 
increases than would be premiums of other large plans that received the 
retiree drug subsidy for Medicare beneficiaries. 

OPM officials explained that there was no need to apply for the subsidy 
because the intent of the subsidy was to encourage employers to 
continue offering prescription drug coverage to Medicare-eligible 
enrollees, and FEHBP plans were already doing so. The potential effect 
of the subsidy on premium growth would also have been uncertain because 
the statute did not require employers to use the subsidy to mitigate 
premium growth. 

Changes in the Cost and Utilization of Services and Enrollee 
Demographics Accounted for Differing Premium Growth Among FEHBP Plans: 

Officials we interviewed from most of the FEHBP plans with higher-than- 
average premium growth in 2006 cited increases in the actual cost and 
utilization of services and high shares of elderly enrollees and early 
retirees as key drivers of premium growth. Our analysis of financial 
data provided by six of these plans showed that the average increase in 
total expenditures per enrollee from 2003 through 2005 was about 40 
percent--compared with the average of 25 percent for five large FEHBP 
plans that represented about two-thirds of total FEHBP enrollment. From 
2001 through 2005, the average age of enrollees across all eight plans 
with higher-than-average premium growth increased by 2.7 years-- 
compared with an average increase of 0.5 years across all FEHBP plans. 

Officials we interviewed from most of the FEHBP plans with lower-than- 
average premium growth in 2006 cited adjustments for previously 
overestimated projections of cost growth and benefit changes that 
resulted in less generous coverage for prescription drugs as factors 
that limited premium growth. Our analysis of financial data provided by 
two plans showed that per-enrollee expenditures for prescription drugs 
increased by 3 percent for one plan and 13 percent for the other from 
2003 through 2005--compared with 30 percent for the average of the five 
large FEHBP plans. Also, from 2001 through 2005, the average age of 
enrollees across all six of these plans decreased by 0.5 years-- 
compared with an average increase of 0.5 years across all FEHBP plans. 

Mr. Chairman, this concludes my prepared remarks. I would be happy to 
answer any questions that you or other Members of the subcommittee may 
have. 

Contacts and Acknowledgements: 

For future contacts regarding this testimony, please contact John E. 
Dicken at (202) 512-7119 or dickenj@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this testimony. Randy Dirosa, Assistant Director; Iola 
D'Souza; and Timothy Walker made key contributions to this testimony. 

FOOTNOTES 

[1] GAO-07-141 (Washington, D.C.: Dec. 22, 2006). 

[2] As of January 1, 2006, employers offering prescription drug 
coverage to Medicare-eligible retirees enrolled in their plans could 
apply for a tax-exempt government subsidy. See Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, 
117 Stat. 2066, 2125 (2003). OPM has chosen not to apply for the 
subsidy. 

[3] GAO previously reported on federal employees' health insurance 
premium trends through 2003. See GAO, Federal Employees' Health Plans: 
Premium Growth and OPM's Role in Negotiating Benefits, GAO-03-236 
(Washington, D.C.: Dec. 31, 2002). 

[4] Pursuant to 5 U.S.C. § 8909. 

[5] Kaiser/HRET has conducted surveys of employer-sponsored health 
benefits since 1999. These surveys capture data from employers ranging 
in size from 3 to 300,000 or more workers. KPMG Peat Marwick conducted 
the surveys before 1999. We analyzed premium growth trends for CalPERS 
from 1994 through 2007. We analyzed premium growth trends for Kaiser/ 
HRET surveyed employers from 1994 through 2006, because the Kaiser/HRET 
survey data available when we prepared our December 2006 report did not 
include growth rates for 2007. 

[6] Premium rates for each year are prospectively set by individual 
FEHBP plans based on their projections of growth for various factors. 
OPM calculates the average premium growth across all FEHBP plans and 
estimates the composite projected growth in each of these factors 
across all FEHBP plans based on the plans' projections. Actual growth 
for each factor may differ from these projections. 

[7] OPM was not able to provide these data for all FEHBP plans for 
2005. These 5 plans accounted for about 90 percent of fee-for-service 
enrollment and about 67 percent of total FEHBP enrollment. 

[8] The Balanced Budget Act of 1997 established the government's 
current share of the premiums beginning in the 1999 contract year. Pub. 
L. No. 105-33, §7002, 111 Stat. 251, 662 (amending 5 U.S.C. §8906). OPM 
determines separate averages for individual plans and for family plans. 
Although the average enrollee premium contribution is 28 percent of the 
average premium for all plans, enrollee premium contributions can be 
higher than 28 percent for plans with premiums significantly higher 
than the average FEHBP plan. For example, the 2006 monthly premium for 
a particular FEHBP plan was $642, compared with the average premium of 
$415. Because the government's share is $299 (72 percent of $415), the 
enrollee premium contribution for this particular plan was $343 ($642 
minus $299), or about 53 percent of the plan's premium. 

[9] 5 U.S.C. §8902. 

[10] OPM can terminate a plan's contract at the end of the contract 
term if fewer than 300 federal employees and retirees were enrolled 
during the two preceding contract terms. In addition, if a plan fails 
to meet minimum standards, OPM can withdraw its approval after giving 
the plan notice and providing an opportunity for a hearing. 

[11] 5 U.S.C.§8909. Reserves may also be credited with any unused 
portions of funds set aside for OPM's administrative expenses and 
income from investment of the reserves. In the case of FFS plans, 
reserves may also be credited with portions of excess premiums that may 
remain after claims and the plan's administrative costs and other 
financial obligations have been met. These excess premiums may not be 
transferred into reserve accounts for most HMO plans. 

[12] For more information on Medicare Part D, see GAO, Retiree Health 
Benefits: Options for Employment-Based Prescription Drug Benefits under 
the Medicare Modernization Act, GAO-05-205 (Washington, D.C.: Feb. 14, 
2005). 

[13] In general, according to the Centers for Medicare & Medicaid 
Services, actuarial equivalence measures whether the expected amount of 
paid claims under the employers' prescription drug coverage is at least 
equal to the expected amount of paid claims under the standard 
prescription drug coverage under Medicare Part D. The conference 
committee report for the legislation authorizing this subsidy indicated 
a belief by the committee that the subsidy would help employers retain 
and enhance their prescription drug coverage in the face of increasing 
pressure to drop or scale back such coverage. H.R. Conf. Rep. No. 108- 
391, at 484 (2003). 

[14] OPM officials said that reserves had a larger effect in mitigating 
average premium growth for 2007 for FFS plans compared with HMO plans, 
because FFS plans had larger accumulated reserves upon which they could 
draw. According to OPM officials, increases in the actual cost and 
utilization of services in 2006 were lower than projected for that 
year, and therefore the projected withdrawals from reserves were not 
made in 2006. Because of the resulting higher reserve balances, plans 
and OPM projected even larger reserve withdrawals for 2007. 

[15] We used the nationwide average subsidy estimated by the Centers 
for Medicare & Medicaid Services to be about $670 per Medicare-eligible 
retiree. The actual subsidy for Medicare-eligible retirees in FEHBP may 
have varied from this average. Officials from CalPERS stated that the 
subsidy, which they had received but had not decided how to use as of 
August 2006, amounted to 13 to 17 percent of the total premium for 
Medicare-eligible enrollees in 2006. They stated that the subsidy would 
have a greater effect on premiums for CalPERS enrollees because, unlike 
FEHBP, CalPERS offers separate plans for employed enrollees and 
retirees (including Medicare beneficiaries), and the subsidy would thus 
be applied exclusively to premiums for retirees. 

[16] Continued use of the subsidy in subsequent years would affect 
actual FEHBP premiums but not their rate of increase. 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site (www.gao.gov). Each weekday, GAO posts 
newly released reports, testimony, and correspondence on its Web site. 
To have GAO e-mail you a list of newly posted products every afternoon, 
go to www.gao.gov and select "Subscribe to Updates." 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office 441 G Street NW, Room LM 
Washington, D.C. 20548: 

To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202) 
512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 U.S. 
Government Accountability Office, 441 G Street NW, Room 7125 
Washington, D.C. 20548: 

Public Affairs: 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 
U.S. Government Accountability Office, 441 G Street NW, Room 7149 
Washington, D.C. 20548: