Federal Employees' Health Program:

Reasons Why HMOs Withdrew in 1999 and 2000

GGD-00-100: Published: May 2, 2000. Publicly Released: May 12, 2000.

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Pursuant to a congressional request, GAO provided information on the withdrawal of health maintenance organizations (HMO) from the Federal Employees' Health Benefits Program (FEHBP), focusing on: (1) changes in the number of HMOs participating in FEHBP from plan years 1994 to 2000; (2) reasons why HMOs withdrew from FEHBP in plan years 1999 and 2000; and (3) FEHBP enrollment experiences for HMOs that withdrew from the program in 2000.

GAO noted that: (1) for plan years 1999 and 2000, 136 HMOs withdrew from FEHBP; (2) while a limited number of new plans entered FEHBP in 1999 and 2000, the withdrawals, combined with plans that either merged, consolidated service areas, or left service areas reduced the number of HMOs participating in FEHBP from 476 in 1996 to 277 HMOs in 2000; (3) the growth or decline in the number of HMOs participating in FEHBP was not always the result of plans entering or withdrawing from the program; (4) some HMOs added new service areas, while others split their existing service areas; (5) in other cases, HMOs merged, consolidated service areas, or left service areas; (6) in any event, about 64,000 of the 4.1 million FEHBP enrollees were affected by HMOs' decisions to withdraw in 2000; (7) according to Office of Personnel Management (OPM) officials and representatives from HMOs that left FEHBP, the factors most frequently cited for HMO withdrawals from the program in plan years 1999 and 2000 were insufficient enrollments, unpredictable plan utilization/excessive risk, and noncompetitive premium rates; (8) in addition to citing these as the major factors influencing plans' decisions to withdraw, these officials and representatives noted that oftentimes it was a combination of these factors, rather than a single factor, that caused a plan's withdrawal; (9) other factors that plan representatives cited for withdrawing from FEHBP included mergers, federal mandates to provide selected benefits, OPM's administrative requirements, and saturated market areas; (10) however, plan representatives and others with whom GAO spoke generally agreed that mandates and administrative requirements would not have been major factors contributing to a plan's decision to withdraw; (11) an official from the Employee Benefit Research Institute told GAO that recent plan withdrawals from FEHBP represented a market correction in that plans with low FEHBP enrollments in areas dominated by large plans concluded that they could not compete effectively and therefore withdrew; (12) OPM plan enrollment information showed that 46 of the 62 HMOs that withdrew from FEHBP in 2000 actually increased enrollments between 1998 and 1999, 12 plans lost enrollment between 1998 and 1999, and 4 plans only had enrollment data for 1 year; (13) from 1998 to 1999, of the 46 HMOs that increased enrollments, these increases numbered less than 100 enrollees for 26 of these HMOs; and (14) in addition, of the 62 plans that withdrew in 2000, 26 had fewer than 300 enrollees.

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