The current subsidy for FEHBP premiums encourages selection of the most expensive and least efficient FEHBP options available by providing the largest dollar subsidy to those individuals selecting the most expensive plans (i.e., 70% of a very high-cost premium).
What should be done is calculate 70% of the current-year average cost of the family plans actually selected in the prior year and of the current-year average cost of the single plans actually selected in the prior year.
Then, apply that 70% average family plan dollar amount to each employee's current selection of a family plan no matter what that particular plan costs and, similarly, apply that 70% average single plan cost to each employee's current selection of a single plan, again regardless of what that particular plan costs.
This will reward employees who choose a plan with a more efficient, cost-saving model. For example, those selecting high-deductible plans likely would end up paying no premium or even having an extra contribution made to their HSA for that year.
Those selecting the more expensive Cadillac plans likely would end up paying more than 50% of the cost of that highly inefficient coverage.
Over time, this will encourage an increasingly large share of employees to choose the more efficient and less costly plans, which will do 3 things:
(1) slow the cost of medical care itself by making employees more cost-conscious when it comes to medical decisions and to selection of providers, (2) encourage insurance providers to keep finding more efficient models for financing health care & (3) slow the rate of FEHBP cost increase the Federal Government pays each year since, although it will still pay an average of 70% each year, that amount will be based on the current costs of those plans actually selected in the prior year, which will be strongly influenced by which plans offered employees the best deals. There would be no incentive to go high-cost.
This would be a win-win situation.