Traditional, individual health insurance is issued on a personal basis. This means the insurer requires detailed information about the present and past health history of the proposed insured(s). The process of gathering and evaluating this information, and determining a suitable premium, is referred to as underwriting.
In the Federal Employees Health Benefits (FEHB) program the process is sharply different. Simplified, using the “single risk pool” method and their past experience, the actuaries at each approved insurance carrier estimate how much the health expenses for the covered group will be. Then they divide this by the number of insureds, and the result is the single risk, per-person premium.
With FEHB, the health expenses – not health histories – of the entire pool are underwritten. The insurance company is not allowed to deny individual coverage, or charge a different premium, to a pool member; they cannot ask about individual health. Everybody is the same; everybody pays the same, per person. However…
In the 2015 FEHB open season, a new billing option was introduced: self + 1. For the first time, childless couples were billed for just two persons, as opposed to three or more, no limit (“family”). Premiums for these childless couples (or one parent with one child) had to drop, more than just a bit. Right? What could possibly go wrong?
The insurance carriers in FEHB underwrite portions of the pool, according to how many persons are insured for each enrollee. This practice, evaluating a sub-group after underwriting the pool as a whole, is called “segmenting.”
Well, most premiums did, in fact, drop, but not by much. In a few cases, the premiums for self + 1 were – incredibly – higher than family! Except for these outliers, there was no credible explanation. Instead, “it is what it is.”
Segmentation
For single risk pools, HHS has a rule:
HHS Releases Final Rule on Single Risk Pool
June 24, 2013
On Feb. 22, the Department of Health and Human Services (HHS) issued a final rule to implement the Affordable Care Act’s (ACA) single risk pool provisions.
The final rule amends the Nov. 26, 2012, proposed rule. The provisions of the final rule apply to plan years beginning on or after Jan. 1, 2014.
Single Risk Pool
The single risk pool provision prevents insurers from segmenting enrollees into separate rating pools in order to increase premiums at a faster rate for higher-risk individuals more than lower-risk individuals. … Premiums and annual rate changes will be based on the health risk of the entire pool.
Ref: Federal Register / Vol 78, No. 39. Feb 27, 2013.
Despite the above rule, FEHB carriers add a layer of granularity to the underwriting process. They consider the claims experience of the self + 1 cohort separately from self only, setting the self + 1 per person premiums substantially higher. In 13 of 15 cases, the resulting national, fee-for-service premiums for self + 1 are significantly more than double the self only premiums (see below).
FEHB enrollment codes – self only, self + 1, and family – are not to be used as separate rating pools, but they are.
Segmentation Example
John and Mary are single feds with the same FEHB insurance. They each pay $145 monthly. They marry, and change to self + 1, same carrier, same benefits. The only difference is 2 persons insured, rather than one. Instead of doubling to $290, their new premium is $335, 2.3 times higher. Why?
Because their insurer rated the self + 1 group separately (i.e., segmented), increasing their per-person increment. This disproportionately increased the premium for the couple, and for all other couples in the self + 1 group.
It appears the FEHB insurance companies and OPM have erred.
| Ratio of Self + 1 to Self | Self | (not segmented) Self x 2* |
(segmented) Self + 1 |
Enrollment Codes |
|---|---|---|---|---|
| 1.72 : 1 | $188.98 | $377.96 | $325.44 | 383/381 |
| 2.0 : 1 | $143.20 | $286.40 | $ 285.83 | 433/431 |
| > 2.0 | ||||
| 2.15 : 1 | $119.03 | $238.06 | $255.92 | 316/314 |
| 2.15 : 1 | $125.31 | $250.62 | $269.42 | 343/341 |
| 2.16 : 1 | $116.06 | $232.12 | $251.06 | 326/324 |
| 2.16 : 1 | $95.25 | $190.50 | $206.03 | KM3/KM2 |
| 2.20 : 1 | $138.61 | $277.22 | $304.93 | 476/474 |
| 2.21 : 1 | $141.93 | $283.86 | $314.08 | 483/481 |
| 2.28 : 1 | $245.18 | $490.36 | $558.59 | 106/104 |
| 2.30 : 1 | $145.61 | $291.22 | $335.17 | 456/454 |
| 2.33 : 1 | $159.74 | $319.48 | $372.32 | 113/111 Blue Cross basic* |
| 2.34 : 1 | $211.44 | $422.88 | $494.13 | 446/444 |
| 2.34 : 1 | $199.57 | $399.14 | $468.00 | 423/421 |
| 2.37 : 1 | $124.26 | $248.52 | $294.43 | 416/414 |
| 2.45 : 1 | $143.12 | $286.24 | $350.53 | 403/401 |
All the national, fee-for-service FEHB carriers are listed above, with 5 appearing more than once. Premiums are monthly. When a plan has more than one option, the lowest is used. Reference: 2018 Non-Postal FEHB Premiums
* This is the premium without segmentation, i.e., self multiplied by 2.0.
** Blue Cross basic is, by far, the most popular plan/option.
