Competitive Bidding in the Federal Employees Health Benefit Plan

How does the structure of the Federal Employee Health Benefits Program (FEHBP) influence the bidding strategies adopted by fee-for-service (FFS) and managed care plans? Researchers studied behavioral questions concerning premiums and the generosity and scope of services offered (identified throughout the proposal as the actuarial value of the plan). In addition, they studied aspects of consumer behavior, including the price sensitivity of FEHBP enrollees to variations in premiums and the actuarial values of health plans; FEHBP enrollees’ willingness to pay to select FFS plans rather than managed care plans; the extent to which higher risk enrollees are drawn to plans with higher actuarial values; and the influence of published reports of patient satisfaction on plan selection. Finally, the researchers developed a series of policy simulations allowing them to examine alternative methods of setting the federal government’s maximum dollar contribution. The objective of this project was to identify lessons from the FEHBP, often held up as a model of how health insurance purchasing should be organized throughout the market, which can inform policymakers decisions regarding regulation and legislation affecting the private health insurance market.