A slew of health maintenance organizations dropped out of the Federal Employees Health Benefits Program in 1999 and 2000 because of low enrollment and other factors that cut into the HMOs' profits, the General Accounting Office said in a new report.
After the number of HMOs offering health insurance to federal employees and retirees declined from 476 in 1996 to 277 in 2000, the House panel that oversees the health insurance program asked GAO to investigate.
GAO found that the number one reason HMOs dropped federal enrollees was because of low enrollment. Of the 62 HMOs that dropped out of the federal program in 2000, 26 had fewer than 300 enrollees.
"Plan enrollment is one of the most critical components of a plan's overall profitability," GAO said in the report, "Federal Employees' Health Program: Reasons Why HMOs Withdrew in 1999 and 2000" (GGD-00-100).
Low enrollment also increased HMO managers' concerns that their companies were taking on too much financial risk. HMOs worried that costs would outweigh premiums. For example, the premature birth of triplets to an enrollee in a small HMO could be enough to throw its profitability off, GAO said.
HMOs also withdrew from the federal program because they couldn't offer competitive premiums and because of mergers and consolidations in the health insurance industry.
Fewer HMOs blamed the Office of Personnel Management for their inability to compete in the federal program. Twenty HMOs that left the federal program in 1999 and 2000 said burdensome administrative requirements were a factor in their decision to drop out. Eleven cited benefits requirements as a reason for leaving.
Like administrative requirements, "OPM officials believed that even when mentioned, federal mandates to provide specific benefits were rarely the primary reason for a plan's withdrawal from" the program, GAO said.
While the federal health program has been cited as a model for Medicare reform, federal employees saw their health insurance premiums increase an average of 9.3 percent in 2000, following increases of 9.5 percent in 1999 and 7.2 percent in 1998.
Republican members of the House Government Reform Civil Service Subcommittee have complained that mandates-such as required coverage of mental health services and provisions of President Clinton's Patients' Bill of Rights-have pushed premiums up and pushed HMOs out of the federal program, which covers 9 million federal employees, retirees and their families.
But GAO's report backs up OPM's conclusions that market forces, rather than mandates, are the main causes of HMOs' withdrawals.
"Our observations and conclusions are seconded by health plan trade groups and research organizations in this GAO report," OPM Director Janice R. Lachance said.