Military Space Systems: DOD's Use of Commercial Satellites to Host Defense Payloads Would Benefit from Centralizing Data

Each year, DOD spends billions of dollars to develop, produce, and field large, complex satellites. For such satellite systems, a single adversary attack or on-orbit failure can result in the loss of billions of dollars of investment and significant loss of vital capabilities. As DOD plans new space systems and addresses an increasingly contested space environment, it has the opportunity to consider different acquisition approaches. One such approach is to integrate a government sensor or payload onto a commercial host satellite.

House Armed Services Committee report 115-200, accompanying a bill for the Fiscal Year 2018 National Defense Authorization Act, included a provision for GAO to review DOD's use of commercially hosted payloads. This report (1) determines the extent to which DOD uses commercially hosted payloads and (2) describes and assesses factors that affect their use.

GAO reviewed DOD policies, documentation, and planning documents, and interviewed a wide range of DOD and civil government officials, and commercial stakeholders.

GAO and others have found that using commercial satellites to host government sensors or communications packages—called payloads—may be one way DOD can achieve on-orbit capability faster and more affordably. Using hosted payloads may also help facilitate a proliferation of payloads on orbit, making it more difficult for an adversary to defeat a capability. Since 2009, DOD has used three commercially hosted payloads, with three more missions planned or underway through 2022 (see figure below).

DOD estimates that it has achieved cost savings of several hundred million dollars from using commercially hosted payloads to date, and expects to realize additional savings and deliver faster capabilities on orbit from planned missions. Cost savings can result from sharing development, launch, and ground system costs with the commercial host company.

Among the factors that affect DOD's use of hosted payloads are

a perception among some DOD officials that matching government payloads to commercial satellites is too difficult; and

limited, fragmented knowledge on how to mitigate various challenges

GAO found that further opportunities to use hosted payloads may emerge as DOD plans new and follow-on space systems in the coming years. However, DOD's knowledge on using hosted payloads is fragmented, in part because programs are not required to share information. In 2011, the Air Force created a Hosted Payload Office to provide expertise and other tools to facilitate matching government payloads with commercial hosts. However, GAO found that DOD programs using hosted payloads are not required and generally do not provide cost and technical data, or lessons learned, to the Hosted Payload Office, or another central office for analysis. Requiring programs that use hosted payloads agency-wide to provide this information to a central location would better position DOD to make informed decisions when considering acquisition approaches for upcoming space system designs.

GAO recommends that DOD require programs using commercially hosted payloads to contribute resulting data to a central location. In implementing this recommendation, DOD should assess whether the Air Force's Hosted Payload Office is the appropriate location to collect and analyze the data. DOD concurred with the recommendation.

Each year, the Department of Defense (DOD) spends billions of dollars to  develop, produce, and field its space systems. These systems provide the  government with critical intelligence information, communication and  navigation methods, weather data, and other capabilities vital to military  and civilian agencies and commercial industry. As satellites have become  more complex, they have required larger investments of money and time  to develop, produce, and launch. Some satellites, which have taken more  than a decade to develop due in part to their size and complexity, contain  technologies that are obsolete by the time they are launched. Additionally,  in recent years, threats to DOD space systems have emerged, including  anti-satellite weapons, communications jamming, and increased  environmental hazards in space, such as orbital debris. A single  adversary attack, on-orbit problem, or launch failure of a DOD satellite  can result in the loss of billions of dollars of investment and a significant  loss of capability.

DOD is currently planning new and follow-on space systems for some of  its major space programs that are in production or have been fielded. As  such, program officials have the opportunity to consider fresh approaches  for acquiring space-based capabilities that may be more cost-effective,  place technologies on orbit more quickly, and potentially offer added  resilience and augmented capabilities to allay emerging threats. Both the  2010 National Space Policy and the 2013 National Space Transportation  Policy call on federal agencies to explore the use of inventive,  nontraditional arrangements for acquiring commercial space services.  One such arrangement is to place a government payload—such as a  sensor or a communications package—on a commercial host satellite. In  addition to launching with the host satellite, the hosted payload uses  available resources from the host satellite, such as power and  communication systems. The hosted payload approach allows both the  government and commercial entity to capitalize on shared development  and launch costs, potentially reducing overall costs for both. The House  Armed Services Committee report 115-200 accompanying a bill for the  National Defense Authorization Act for Fiscal Year 2018 contained a  provision for GAO to review DOD’s use of hosted payloads. This report  (1) determines the extent to which DOD uses commercially hosted  payloads and (2) describes factors that affect DOD’s use of hosted  payloads and assesses how DOD is addressing them.

To determine the extent to which DOD uses commercially hosted  payloads, we reviewed DOD documentation of prior, current, and future  plans to use hosted payloads, including budget documentation and  informational briefings. We analyzed program office planning documents,  including management directives, hosted payload user guides, lessons  learned, and analyses of alternatives study guidance. We also studied  tools used to identify hosted payload opportunities and program contract  documents, including the 2014 Hosted Payload Solutions multiple award  indefinite delivery indefinite quantity vehicle. Because our review focused  on commercially hosted payloads, we did not assess DOD’s efforts to  host its payloads on other government agency satellites. We interviewed  DOD officials from the offices of the Under Secretaries of Defense for  Acquisition and Sustainment, and Policy; the Office of the Secretary of  Defense Cost Assessment and Program Evaluation; DOD’s Chief  Information Officer; Missile Defense Agency; the Navy’s Program  Executive Office for Space Systems and Space and Naval Warfare  Systems Command; and research and development organizations,  including the Defense Advanced Research Projects Agency and Naval  Research Laboratory. Additionally, we conducted interviews with Air  Force personnel from Air Force Space Command, the Space and Missile  Systems Center’s Hosted Payload Office (HPO), and the Space Test  Program.

To describe and assess the factors that affect DOD’s use of commercially  hosted payloads, we examined applicable policies, strategy documents  and briefings, including the 2010 National Space Policy, 2013 National  Space Transportation Policy, and the Air Force’s Space Warfighting  Construct. To understand logistical, technical, and other considerations  for using commercially hosted payloads, we reviewed program  documents on commercially hosted payload arrangements from DOD and  interviewed the organizations listed above. We also interviewed officials  in the Departments of Commerce and Transportation, as well as the  National Aeronautics and Space Administration (NASA). Finally, we  interviewed a broad range of industry stakeholders, including commercial  satellite manufacturers and owner/operators, and industry associations— such as the Satellite Industry Association and the Hosted Payload  Alliance—to understand perspectives on the factors that affect the use of  commercially hosted payloads. We compared DOD efforts to address  factors affecting their use of commercially hosted payloads to criteria  established in our work on strategic sourcing best practices as well as our  work on duplication, overlap, and fragmentation.

We conducted this performance audit from July 2017 to July 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

DOD defines a hosted payload as an instrument or package of  equipment—a sensor or communications package, for example— integrated onto a host satellite, which operates on orbit making use of the  host satellite’s available resources, including size, weight, power, or  communications. A commercially hosted DOD payload is a DOD payload  on a commercial satellite. In general, hosted payloads may be either  experimental or operational. Experimental payloads demonstrate new or  existing technologies on orbit for potential use on future operational space  systems. Operational payloads deliver required capabilities to end users.  Hosted payload arrangements may be unsuitable for some missions. For  example, some payloads may be too large or need too much power for a  host satellite to feasibly accommodate, or may require unique satellite  maneuvers that, if exercised, would negatively affect a host satellite’s  primary mission. Civil government agencies, like NASA and the National  Oceanic and Atmospheric Administration (NOAA), have used or have  plans to use commercially hosted payloads. For more information on the  commercially hosted payloads that civil agencies have used or plan to  use, see appendix I.

Potential Benefits of Using Commercially Hosted Payloads

We and others have identified potential benefits of using commercially  hosted payloads to gain space-based capability, such as:

Cost savings—Commercially hosted payloads may increase  affordability because the government payload owner pays for only a  portion of the satellite development and shared launch and ground  systems costs, rather than for the entire system. Also, smaller, lighter,  and less complex systems may shorten procurement timelines,  reduce research and development investment, and reduce risk in  technology development. Some government agencies have reported  saving hundreds of millions of dollars to date from using innovative  arrangements such as hosted payloads.

Faster on-orbit capability—Because commercial satellites tend to  take less time from concept development to launch than DOD  systems do and have relatively frequent launches, hosting  government payloads on commercial satellites may achieve on-orbit  capability more quickly.

Increased deterrence and resilience—Distributing capabilities  across more satellites increases the number and diversity of potential  targets for an adversary and may make it more difficult for an  adversary to decide which assets to attack, serving as a deterrent.  Additionally, more frequent launches could increase DOD’s ability to  reconstitute its satellite groups—or constellations—more quickly in  case of unexpected losses of on-orbit capabilities. Recent strategic  and policy guidance government-wide and at DOD have stressed the  need for U.S. space systems to be survivable, or resilient, against  intentional and unintentional threats—both types of which have  increased over the past 20 years. Intentional threats can include  purposeful signal jamming, laser dazzling and blinding of satellite  sensors, missiles intended to destroy satellites, and ground system  attacks. Some unintentional threats to satellites are created by the  harsh space environment itself, like extreme temperature fluctuations  and radiation, and the growing number of satellites, used rocket parts,  and other space debris on orbit, which could collide with orbiting  satellites.

Continual technology upgrades and industrial base stability— New technologies may be continually incorporated into space systems  using hosted payloads, which may be uniquely suited for higher rates  of production and launches than traditional DOD satellites. Using  commercial satellites for government payloads could help maintain  the U.S. commercial space industry’s ongoing technology  developments by maintaining stable business and incentivizing new  companies to enter the marketplace. Further, increased production  may be distributed over multiple contractors—including traditionally  lower-tier contractors—to foster more competition.

As we reported in October 2014, hosted payloads are among several  avenues DOD is considering to increase the resilience of its satellites in  the face of growing threats. DOD has been looking at ways to break up  larger satellites into multiple smaller satellites or payloads after decades  of building large, complex satellites to meet its space-based  requirements. The broader concept of breaking up larger satellites into  smaller ones is known as disaggregation. In 2014, we reported that DOD  lacked critical knowledge about the concept of disaggregation, including  how to quantify a broad range of potential effects. At the time, for  example, DOD did not have common measures for resilience, which we  found is a key consideration in making a choice as to whether to continue  with a current system architecture or to change it. Recently, senior DOD  officials have also made public statements that indicate a willingness to  consider innovative acquisition approaches so that acquisition timelines  can be reduced. For example, in a 2016 strategic intent document, the  Commander of Air Force Space Command stated that the Air Force  should seek innovative acquisition approaches that leverage DOD’s  buying power across the industry. Additionally, the Secretary of the Air  Force stated that the Air Force is exploring more affordable and  innovative ways to acquire its satellite communication services through  investments in commercial industry and international partnerships.

Matching Payloads with Commercial Host Satellites

Opportunities to match a DOD payload with a commercial host can arise  in various ways. DOD may first develop a payload and seek to match it  with a commercial host, DOD may work in tandem with a commercial  company to develop a payload to be hosted, or commercial companies— likely the satellite owner, operator, or system integrator—can first identify  upcoming satellite hosting opportunities to DOD. In each scenario, the  DOD program (or payload owner) and the commercial host generally  consider the basic properties of both the payload and host satellite in  attempting to find a match. These properties—including the size, weight,  area, power, and required orbital characteristics of the payload and host  satellite—should be complementary to create an arrangement that is  mutually compatible for each party, according to Aerospace Corporation  recommendations and officials we spoke with. Specifically, these  properties include:

The size of the payload when it is stowed and when it is deployed on  orbit, including the available area on the host satellite;

The available weight and mass distribution the host satellite can

The available power on the host satellite;

The thermal requirements of the payload and corresponding capability  of the host satellite;

The requirements to limit electromagnetic interference—disturbances  that affect electrical circuits on the payload and host satellite;

The available command, telemetry, and mission data rate  requirements of the payload and corresponding capability of the host  satellite;

The compatibility of interfaces between the payload and host satellite;

The pointing accuracy and stability of the host satellite; and

The necessary orbits, including altitude and inclination.

Other considerations when matching a DOD payload with a host satellite  are the compatibility of radio frequency spectrum (spectrum) needs  between the payload and host, and the satellite’s intended orbital  location. Spectrum is a natural resource used to provide essential  government functions and missions ranging from national defense,  weather services, and aviation communication, to commercial services  such as television broadcasting and mobile voice and data  communications. The frequencies, or frequency bands, of spectrum have  different characteristics that make them more or less suitable for specific  purposes, such as the ability to carry data long distances or penetrate  physical obstacles. Each frequency band has a limited capacity to carry  information. This means that multiple users operating at approximately  the same frequency, location, and time have the potential to interfere with  one another. Harmful interference occurs when two communication  signals are either at the same frequencies or close to the same  frequencies in the same vicinity, a situation that can lead to degradation  of a device’s operation or service. As such, a payload or satellite’s  specific placement in any given orbit could potentially interfere with a  neighboring payload or satellite in the same orbit.

In the United States, the National Telecommunications and Information  Administration (NTIA) of the Department of Commerce is responsible for  establishing policy on regulating federal government spectrum use and  assigning spectrum bands to government agencies. The Federal  Communications Commission (FCC) allocates spectrum and assigns  licenses for various consumer and commercial purposes. Additionally, all  government and commercial satellite programs must apply for approval to  operate at a given orbital location using a given band of spectrum  internationally through the International Telecommunication Union (ITU).  The ITU is an agency of the United Nations and coordinates spectrum  standards and regulations.

In 2011, the Air Force created the Space and Missile Systems Center’s  (SMC) Hosted Payload Office (HPO) to provide acquisition architectures  that achieve on-orbit capability more quickly and affordably. The HPO  uses various resources and capabilities to meet its objectives:

Hosted Payload Solutions Contract: In 2014, SMC established the  Hosted Payload Solutions (HOPS) multiple award indefinite delivery  indefinite quantity (IDIQ) vehicle. According to HPO documents,  SMC established the contract—available to all DOD and civil  agencies—to streamline commercially hosted payload arrangements  by selecting a pool of commercial vendors that government payload  owners can use to access space on commercial host satellites.  Programs do not have to use HOPS, however, and may contract with  commercial companies directly. The HOPS vehicle includes 14  vendors across the commercial satellite industry. SMC awarded task  orders for studies to each of the vendors with a contract to gather  information on potential host opportunities, orbits and launch  schedules, cost estimates for hosting fees, and existing host satellite  interfaces.

Feasibility Studies: Using the information it gathered from the 14  vendor studies, the HPO stated that it built a database to provide  information on potential satellite hosts and the suitability of certain  payloads for host opportunities, including cost estimates. The HPO  stated that it can use this information to assess the feasibility of a  hosted payload opportunity for interested SMC space programs. The  HPO also conducts feasibility studies for interested programs based  on publicly available information and from industry requests for  information.

Hosted Payload Interface Design guidelines: The HPO published  hosted payload interface design guidelines to provide technical  recommendations for hosted payload developers. According to HPO  officials, the intent of these guidelines is to reduce integration costs  and improve the host-ability of all hosted payloads.

Hosted Payload Data Interface Unit: The HPO is developing a  secure hosted payload data interface unit to protect payload data from  unauthorized access by the host. Following its release of draft  documentation to industry stakeholders in March 2018, the HPO is  currently integrating National Security Agency requirements into its  request for data interface unit prototype proposals. According to HPO  officials, the office plans to issue a request for prototype proposals in  May 2018, integrate a data interface unit and payload in 2020, and  launch the integrated system in 2022.

Hosted Payload Expertise: The HPO provides general advice and  expertise to programs in the form of hosted payload architectural  studies, input on acquisition planning and strategy documents, and  other research efforts, according to the office.

DOD Has Used Commercially Hosted Payloads Three Times and Three More Missions Are Planned or Underway

Since 2009, DOD has launched three experimental payloads on  commercial host satellites and plans to conduct three more missions  through 2022, as shown in figure 1. DOD estimates that it has achieved  cost savings of several hundred million dollars from these experimental  payloads. According to DOD officials, DOD expects to realize additional  cost savings and be able to place capabilities on orbit more quickly from  several hosted payload efforts that are planned or underway.  Opportunities for additional hosted payload efforts may arise in the near  term amid DOD planning for upcoming and follow-on space systems.

DOD Has Used Commercial Satellites to Host Three Experimental Payloads

Since 2009, DOD has placed experimental payloads—intended to test or  demonstrate an on-orbit capability—for three programs on commercial  host satellites. Several officials within DOD told us that experimental  payloads tend to be smaller, less expensive, and their missions more risk- tolerant than traditional operational DOD payloads. In these ways, they  said experimental payloads are better-suited to hosting arrangements  than operational DOD payloads. The Air Force has not yet used the  HOPS multiple award IDIQ vehicle—which was awarded to facilitate  commercially hosted payload arrangements—to match a government  payload with a commercial host. The HPO told us that, in 2019, NASA  and NOAA will be the first agencies to use the HOPS vehicle to find a  host satellite for two of their payloads. Table 1 describes the three  experimental payloads hosted on commercial satellites to date. For more  information on civilian agencies that use or plan to use commercially  hosted payloads, see appendix I.

Air Force officials told us that using commercial host satellites for their  experimental payloads has saved several hundred million dollars across  these programs and shortened timelines for launching payloads into  space. For example, the HPO estimated that the Air Force saved nearly  $300 million by using a commercial host satellite for its Commercially  Hosted Infrared Payload (CHIRP), as compared to acquiring the same  capability using a dedicated, free-flying satellite. In addition, Air Force  officials estimated that using commercial host satellites for its Responsive  Environmental Assessment Commercially Hosted (REACH) effort saved  the Air Force approximately $230 million. The REACH effort consists of  over 30 payloads hosted on multiple satellites. Further, because of the  commercial host’s launch schedule, the Air Force achieved its on-orbit  capability sooner than if it had acquired free-flying satellites. In April  2013, we found that the Internet Protocol Routing in Space (IRIS)  payload, launched in 2009, was a commercially hosted payload pilot  mission that would provide internet routing onboard the satellite,  eliminating the need for costs associated with certain ground  infrastructure.

DOD Has Three Commercially Hosted Payload Efforts Planned or Underway

DOD and Air Force officials told us they are planning to pursue  commercially hosted payloads for three programs in the coming decade  to achieve cost savings and on-orbit capability more quickly. In each  case, officials said they have identified cost and schedule benefits for  their respective programs. For example, the Missile Defense Agency  (MDA) stated that it expects to save approximately $700 million compared  to the cost of traditional, free-flying satellites by acquiring its Spacebased  Kill Assessment capability as payloads on commercial host satellites, and  expects to achieve on-orbit capability years earlier than if it had acquired  dedicated satellites for these payloads. Additionally, a program official  from the Defense Advanced Research Projects Agency (DARPA) told us  DARPA plans to use a commercially hosted payload for the Phoenix  Payload Orbital Delivery effort to test more affordable ways to access  space. Moreover, Air Force officials told us they expect to save $900  million over free-flying satellites by using two Space Norway satellites to  fly an Enhanced Polar System Recapitalization payload. Space Norway  plans to launch its satellites in 2022, which the Air Force expects will  allow it to meet its need for DOD’s required capability. See table 2 for  additional details on DOD’s planned hosted payloads.

Additional opportunities for commercially hosted payloads may be  forthcoming as DOD develops requirements and designs for new and  follow-on space programs. DOD has been analyzing various alternatives  to explore possible future space system designs and acquisition  strategies for several of its upcoming follow-on programs. In these cases,  the analysis of alternatives (AOA) study guidance, set forth by DOD’s  Office of Cost Assessment and Program Evaluation, included direction for  the studies to consider new approaches for acquiring space capabilities.  For example, AOA guidance directed study teams to include hosted  payloads or other disaggregated designs, and commercial innovations in  technology and acquisition to meet some space mission requirements.  Table 3 provides further details of recently completed and ongoing AOAs  to study new designs—or architectures—for upcoming follow-on satellite  systems.

Logistical and Data Challenges Contribute to Limited Use of Hosted Payloads

Two factors have contributed to DOD’s limited use of commercially  hosted payloads. First, DOD officials identified logistical challenges to  matching government payloads with any given commercial host satellite.  For example, most of the offices we spoke with cited size, weight, and  power constraints, among others, as barriers to using hosted payloads.  Second, while individual DOD offices have realized cost and schedule  benefits, DOD as a whole has limited information on costs and benefits of  hosted payloads. Further, the knowledge it has gathered is fragmented  across the agency—with multiple offices collecting piecemeal information  on the use of hosted payloads. The limited knowledge and data on hosted  payloads that is fragmented across the agency has contributed to  resistance among space acquisition officials to adopting this approach.

DOD Officials Cite Logistical Challenges to Matching Payloads to Hosts

DOD acquisition officials within the Office of the Secretary of Defense told  us matching requirements between government payloads and  commercial satellites is typically too difficult for programs to overcome.  Specifically, they said the cumulative complexity of matching size, weight, power, and spectrum needs; aligning government and commercial timelines; and, addressing concerns over payload control and cybersecurity amounts  to too great a challenge.

DOD’s Hosted Payload Office is developing tools designed to help  address these challenges and DOD offices that have used hosted  payloads have also found ways to overcome them.

Officials from DOD acquisition and policy offices, as well as Air Force and  industry officials we spoke with, cited matching size, weight, and power  between DOD payloads and commercial host satellites as a challenge.  We similarly found in April 2013 that ensuring compatibility between  payloads and host satellites can pose challenges because not all  commercial satellites are big enough or have enough power to support  hosting a payload. Whether a host satellite can accommodate a payload  can depend on the size of the payload. Additionally, according to industry  representatives, the space taken up by the hosted payload affects the  amount of revenue-generating payloads the host may place on its  satellite, such as additional transponders—devices that emit and receive  signals—for the communications services it provides to customers. The  complexity of integrating a government payload onto a commercial host  can also drive the overall cost of the arrangement.

However, officials said these challenges can be mitigated through the use  of various expertise and lessons learned. HPO officials and industry  representatives have proposed several approaches to help match  properties like size, weight, and power between a DOD payload and a  commercial host satellite. The HPO is developing a hosted payload  interface unit that could potentially provide a standard for payload  developers and system integrators to develop and test their systems. One  commercial company proposed an interface unit that would accommodate  a “universal” DOD payload. Additionally, industry experts stated that with  sufficient planning and time for system integration, nearly any payload  can be accommodated on a host satellite.

The HPO issued guidelines in 2017 to assist DOD payload developers in  working toward typical payload requirements and standards for host  satellites in low Earth orbit and geostationary Earth orbit. These  guidelines inform the payload’s electrical power and mechanical designs.  The principal guideline—echoed by the successful CHIRP demonstration  in 2011—is that the hosted payload must “do no harm” to the mission  performance of its host. Also, satellite interfaces can vary from company  to company. Some commercial companies had experience with the  task—and business opportunity—of integrating multiple customers’  payloads onto satellites since at least the 1990s.

Air Force, HPO, and industry officials told us that, ideally, the payload  should use the same spectrum allocation as the commercial host. They  said that this is due in part to the lengthy satellite registration process that  takes place in the United States and through the ITU that must be  undertaken prior to placing a satellite on orbit. Some DOD officials added  that the process for all new satellites from initial filing to ITU approval  takes around 7 years. If a satellite owner registers for one frequency band  of spectrum and later requires a different band, the owner has to begin  the registration process from the beginning—restarting the 7-year  timeline. This can be problematic for DOD payload owners seeking to  match their military communications payload with an already-registered  host satellite—particularly if the host satellite’s spectrum allocation is  incompatible with the DOD payload. HPO and other DOD officials said  that very different spectrum needs between payload and host would  therefore preclude the match.

Moreover, a need for military—as opposed to commercial—spectrum for  communications payloads can introduce additional  complications. Although a process exists for a commercial satellite  owner to license military spectrum for use by a hosted payload,  representatives from DOD’s Chief Information Officer’s (CIO) office could  cite only one instance where this has happened. One possible  explanation stems from a 2012 memorandum from DOD’s CIO that  outlines various preferred processes for a commercial host satellite to  host military communications payloads. Several industry officials we  spoke to said that the various processes outlined in the 2012  memorandum would add to the already-lengthy process of spectrum  registration. Further, the memorandum instructs that contractual terms  between the payload and host satellite owners should restrict all military  spectrum use exclusively to the U.S. military. However, one industry  official told us that international entities do not necessarily recognize U.S.  military spectrum, and commercial companies that obtain licenses  through other countries are permitted to use those frequencies. For  example, a senior official of one commercial company we met with stated  that the company licensed U.S. military spectrum through another North  Atlantic Treaty Organization government after failing to successfully  coordinate an FCC request with DOD and NTIA. DOD and industry  representatives told us that from a business perspective, it makes little  sense for a commercial company to seek hosting opportunities for DOD  payloads that require U.S. military spectrum.

Matching Government and Commercial Development and Acquisition Timelines

Government and industry officials we spoke with said that aligning the  development and acquisition timelines of a government payload and  commercial host satellite is a challenge. The timeline associated with  developing government sensors is generally much longer than that of  commercial satellites, potentially creating difficulties in scheduling and  funding commercially hosted payload arrangements. For example, DOD  satellite systems take, on average, over 7 years to develop and launch a  first vehicle, while commercial satellite programs typically take between 2  and 3 years. DOD payload owners may find it challenging to accelerate  development and acquisition schedules to match those of the commercial  satellite host. Additionally, DOD officials we spoke with said that their  budget and planning processes require funding commitments up to 2  years in advance of actually receiving those funds. This can further  complicate alignment with commercial timelines because the  development of a government sensor would need to be underway well in  advance of a decision to fund a commercially hosted payload approach.  Furthermore, federal law generally prohibits agencies from paying in  advance for a future service or from obligating future appropriations.

However, several DOD and other government agency officials we spoke  with said that it is possible to align government and commercial timelines.  For example, MDA adopted the commercial host’s schedule to ensure its  Spacebased Kill Assessment payload was ready for integration and  launch without delaying the host satellite or worse—missing its own ride  to space. DARPA officials told us they were also able to align DARPA  acquisition and development schedules with the commercial host. The Air  Force’s Enhanced Polar System (EPS) Recapitalization program officials  were able to leverage existing documents such as requirements  documents and acquisition strategies from the predecessor program to  speed up the acquisition process. According to Air Force officials, the  EPS Recapitalization program had a unique opportunity to take  advantage of the availability of a commercial host and had the support of  a high ranking Air Force official that enabled the program to move forward  using a commercially hosted payload approach.

Maintaining Payload Control and Cybersecurity

Some officials cited concerns with combining government and  commercial space missions. For example, officials across DOD told us  they were wary of losing control over a hosted payload should a  commercial company’s needs change. They said that theoretically, a  commercial provider could decide to turn off power to the government’s  payload if the host satellite needed extra power to perform a certain  function. Additionally, DOD space program officials expressed concern  that commercial practices for ensuring the mission success of the payload  may not be up to government standards—that commercial testing and  integration standards may be less robust than those used by traditional  government programs to ensure success, adding risk to the government  payload. Furthermore, officials in one DOD program office expressed a  distrust of commercial host motives in offering to support a government  payload on their satellite, suggesting that a company could be intending  to steal government technologies. However, industry officials we spoke  with said that DOD can generally issue a solicitation that includes  necessary stipulations. For example, including a condition to preserve the  payload’s priority of mission and other terms to protect the government’s  investment may provide some assurance to those officials that perceive  security risks.

Additionally, some officials we spoke to cited cybersecurity concerns.  They cited loss of control over data security as a challenge to using  hosted payloads. Officials told us the data could be vulnerable to  eavesdropping or manipulation as it travels between government ground  systems and the commercially hosted government payload. However,  according to HPO officials, the Air Force overcame this challenge on the  CHIRP mission by procuring a secure interface that provided a data link  between the payload and dedicated transponder and ground terminal. As  mentioned previously, the Hosted Payload Office is developing a hosted  payload data interface unit to mitigate this challenge by securing payload  data communications from the host satellite.

Department-wide Information on Commercially Hosted Payloads Is Limited and Fragmented Across Offices

DOD, at the department-wide level, has limited information on  commercially hosted payloads—mostly due to a lack of experience in  using hosted payloads and complexities associated with them. For  example, acquisition officials in the Office of the Secretary of Defense told  us that DOD needs more data and analysis of the potential costs and  benefits. However, realistic cost modeling for commercially hosted DOD  payloads is unavailable because costs can vary across potential hosts  and DOD has minimal experience using commercial hosts. Similarly, the  HPO performs market research and cost estimates based on data from  commercial companies, but according to one official in the HPO, the costs  tend to vary based on the supply and demand in the commercial satellite  industry. Additionally, HPO officials said their cost savings analyses are  based on only two real-world commercially hosted DOD payloads— CHIRP and REACH. HPO officials told us that with additional  government data they could compare the costs of system architectures  that include free-flier satellites with those that use commercially hosted  payloads. Additionally, some potential benefits of using commercially  hosted payloads, such as resilience, may be difficult to measure. In our  2014 report on disaggregation, we recommended that DOD define key  measures related to disaggregation, including developing metrics to  measure resilience. DOD is in the process of developing standard  metrics for resilience.

DOD’s knowledge of commercially hosted payloads is also fragmented  across the agency. Several DOD offices are independently conducting  activities related to commercially hosted payloads, such as pursuing  commercially hosted payload arrangements, developing lessons learned,  and determining demand for commercial hosts. For example, MDA  officials told us they have developed cost and technical data and lessons  learned based on MDA’s Spacebased Kill Assessment payload— launched earlier this year—but have not shared it across the agency. On  the other hand, the Space Test Program, also housed within the Air  Force’s SMC develops lessons learned on its payloads, which are  government payloads on government host satellites and officials there  told us they provide lessons learned to the HPO. In October 2017,  SMC’s Launch Office sent a request for data on hosted payloads to DOD  agencies, research laboratories, and universities, but the HPO was not an  active participant in this request. Independent efforts within DOD to  collect and analyze cost, schedule, and performance results from hosted  payloads can create fragmentation in DOD’s knowledge base and can  increase the risk of duplicative efforts within DOD.

DOD does not collect or consolidate agency-wide knowledge on  commercially hosted payloads and has no plans to do so. Agency officials  stated that DOD does not require programs outside of SMC to consult the  HPO when seeking commercially hosted payload arrangements. The Air  Force established the HPO to facilitate commercially hosted payloads,  however, the 2011 Program Management Directive that established the  HPO states that the HPO will coordinate with SMC directorates for  detailed implementation of hosted payloads but does not address  coordination with agencies or directorates outside of SMC. According to  an HPO official, programs are not required to use HPO expertise or tools  as they pursue using hosted payloads. Further, this official stated that  programs are not required to provide any data or lessons learned to the  HPO, or any other central point within DOD, following the pursuit or  completion of a hosted payload arrangement. The 2011 Program  Management Directive directs the HPO to provide lessons learned to  SMC directorates but does not direct SMC offices to share information— such as costs, technical data and lessons learned on completed  commercially hosted payload efforts—with the HPO. An HPO official  indicated that the HPO obtains data through informal communication with  those programs using hosted payloads that are willing to share data.

We found that limitations and fragmentation of data and knowledge are  contributing to resistance within DOD to using hosted payloads. Several  DOD acquisition and program officials we spoke with who did not have  experience with hosted payloads generally stated that the potential risks  to using hosted payloads outweighed the benefits, and that there was  little evidence-based analysis to prove otherwise. They were not aware of  existing tools that could assist them in making decisions even though the  HPO has been developing these tools and has made efforts to share  them within SMC. DOD acquisition and program officials consistently  cited a preference for maintaining the acquisition status quo over  introducing any perceived added risk to their programs. At the same time,  however, officials who have used hosted payloads were able to overcome  logistical and technical challenges and realize cost savings. However,  according to an HPO official, there is currently no requirement in place to  facilitate sharing their approaches to doing so. We have reported in the  past that DOD’s culture has generally been resistant to changes in space  acquisition approaches and that fragmented responsibilities for  acquisitions have made it very difficult to coordinate and deliver  interdependent systems.

Moreover, our past studies of commercial strategic sourcing best  practices have found that that leading companies centralize procurement  decisions by aligning, prioritizing, and integrating procurement functions  within the organization. Establishing the Hosted Payload Office is one  step in this direction, but the office is organized under the Advanced  Systems and Development Directorate—a research and development  organization—under SMC. Moreover, the 2011 directive that established  the HPO does not address coordination or responsibilities for agencies or  directorates beyond SMC. Consolidating knowledge is important because  it allows organizations to share information and data upon which to  develop consistent procurement tactics, such as ways to overcome  challenges in matching a government payload with a commercial host. As  we found in our work on commercial strategic sourcing best practices,  organizations that struggled with fragmented information in the past  overcame this challenge in part by consolidating their data on costs and  spending. While hosted payload acquisitions are not a typical service  acquisition, successful organizations have found that these techniques  work for highly specialized technical services for which few suppliers  exist.

As DOD considers new architectures and acquisition approaches,  commercially hosted payloads have the potential to play a role in  delivering needed capabilities on orbit more quickly and at a more  affordable cost than traditional DOD space acquisitions. Placing DOD  payloads on commercial satellites might also be an effective method by  which to increase resiliency. However, DOD’s experience and the data  collected so far are limited in informing decisions on the use of these  payloads. DOD would benefit from leveraging the knowledge and  information gained from each hosted payload experience. Centralized  collection and assessment of agency-wide data would help enable DOD  to mitigate the logistical challenges inherent in matching payloads to  hosts, and better position DOD to make reasoned, evidence-based  decisions on whether a hosted payload would be a viable solution to meet  warfighter needs. Without such knowledge, and a way for interested  programs to leverage it, DOD may not be fully informed about using  hosted payloads and may risk missing opportunities to rapidly and  affordably address emerging threats in space.

The Secretary of Defense should require programs using hosted  payloads to provide cost and technical data, and lessons learned to a  central office. In implementing this recommendation, DOD should  consider whether the Hosted Payload Office is the most appropriate office  to centralize agency-wide knowledge. (Recommendation 1)

We provided a draft of this report to the Department of Commerce, NASA,  and DOD for comment. The Department of Commerce provided technical  comments, which we incorporated as appropriate. NASA did not have  comments on our draft report. In its written comments, DOD concurred  with our recommendation and stated that SMC had initiated a major  reorganization since we drafted our report and that under the new  organizational construct, the Hosted Payload Office had changed and  may not be the appropriate office for centralizing DOD-wide hosted  payload knowledge. DOD’s comments are reproduced in appendix II.  DOD also provided technical comments which we incorporated as  appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of Commerce, the Secretary of Defense, the  Administrator of NASA, and other interested parties. In addition, the  report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or by email at chaplainc@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this report. GAO staff who made key  contributions to this report are listed in appendix III.

Appendix I: Civil and Other Agency Commercially Hosted Payloads

As shown in table 4, civil and other government agencies use  commercially hosted payloads to enhance navigation systems, monitor  environmental pollution, conduct scientific missions, and improve search  and rescue systems. Officials from all of the agencies we spoke with cited  cost savings and the ability to leverage existing commercial schedules  and technologies among the reasons they use commercial host satellites.

Appendix II: Comments from the Department of Defense

Appendix III: GAO Contact and Staff Acknowledgments

Cristina T. Chaplain (202) 512-4841 or chaplainc@gao.gov.

In addition to the contact named above, Rich Horiuchi (Assistant  Director), Erin Cohen (Analyst in Charge), Claire Buck, Jon Felbinger,  Stephanie Gustafson, Matthew Metz, Sylvia Schatz, and Roxanna Sun  made key contributions to this report.

The Department of Defense spends billions of dollars a year on satellites that provide critical communications, reconnaissance, and other capabilities.

We found that DOD may be able to save money and add capabilities faster by paying private companies to host government sensors or other equipment on their satellites. DOD estimates it has already saved hundreds of millions of dollars from this cost-sharing approach.

We recommended that DOD gather data in a central location from its programs that use these commercially hosted payloads. Assessing this data could help DOD make reasoned, evidence-based decisions on future host satellite use.


Health Insurance Exchanges: Changes in Benchmark Plans and Premiums and Effects of Automatic Re-enrollment on Consumers' Costs

During open enrollment, eligible returning consumers may re-enroll in their existing health insurance exchange plan or choose a different plan. Those who do not actively enroll in a plan may be automatically reenrolled into a plan. According to the Department of Health and Human Services, automatic re-enrollment is intended to help ensure consumers' continuity in coverage. However, some have questioned whether automatic reenrollment could have unintended financial consequences for consumers.

GAO was asked to review automatic reenrollment and benchmark plans. GAO examined 1) the extent to which plans identified as benchmark plans remained the same plans from year to year, and how premiums for benchmark plans changed; 2) the proportion of exchange consumers who were automatically re-enrolled into the same or similar plans, and how these proportions compared to those for consumers who actively re-enrolled, and 3) the extent to which consumers' financial responsibility for premiums changed for those who were automatically re-enrolled compared to those who actively re-enrolled.

GAO reviewed relevant guidance and analyzed county-based data from the Centers for Medicare & Medicaid Services (CMS) for the 37 states that used the federal information platform, healthcare.gov, from 2015 through 2017. GAO also interviewed CMS and ASPE officials and analyzed information from ASPE on reenrollment from 2015 to 2016.

Through the exchanges established under the Patient Protection and Affordable Care Act, consumers can directly compare and select among health plans based on a variety of factors, including premiums. Most consumers who purchase health plans through the exchanges receive tax credits to help them pay for their premiums. The value of a consumer's premium tax credit is based, in part, on the premium for the benchmark plan, which is the second lowest cost option available in the consumer's local area within the exchange's silver metal tier (one of four metal tiers that indicate the value of plans). Because plan premiums and plan availability can change over time, the benchmark plan in each local market can also change over time. GAO analyzed changes in benchmark plans and premiums from 2015 through 2017 and found:

In most of the nearly 2,600 counties included in the analysis, the plans identified as benchmark plans, and the premiums for these plans, changed from year to year. For example, in 85 percent of counties, the 2015 benchmark plans were not benchmark plans in either 2016 or 2017.

Gross benchmark premiums (exclusive of tax credits) increased from year to year, and increases were higher from 2016 to 2017 than they were from 2015 to 2016.

Premium tax credits would limit the costs of increasing premiums for most consumers, though some consumers, including those not eligible for premium tax credits, would have incurred more or all of the higher premium costs.

During the annual open enrollment period, consumers who do not make an active plan selection are automatically reenrolled into their existing plan or, if that plan is no longer available, they are generally re-enrolled into a similar plan if one has been identified. GAO analyzed information from the Office of the Assistant Secretary for Planning and Evaluation (ASPE) for consumers enrolled in both 2015 and 2016 and found:

About 30 percent of consumers were automatically re-enrolled in 2016, while the remaining 70 percent chose to actively re-enroll.

Median net monthly premiums—what consumers paid after premium tax credits—increased less from 2015 to 2016 for those who actively enrolled ($5) than for those who were automatically reenrolled ($22), although there was variation. Our findings are consistent with other work by ASPE that suggests that consumers consider possible cost savings when deciding to switch plans.

The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.

Since 2014, millions of consumers have purchased individual market  health insurance plans through the health insurance exchanges—or  marketplaces—established under the Patient Protection and Affordable  Care Act (PPACA). These consumers purchase health insurance for a  variety of reasons, including being self-employed or a small business  owner, or because their own employer does not offer insurance. Through  the exchanges, consumers can directly compare and select among health  plans based on a variety of factors, such as premiums and provider  networks. PPACA also established requirements for the benefits that  must be covered by health plans—referred to as essential health benefits—and required issuers to market their plans according to defined  categories (or metal tiers) that indicate the extent to which the plans  would be expected to cover the costs of consumers’ medical care.

Each year, there is an open enrollment period during which new  consumers may enroll for coverage and consumers who are already  enrolled in an exchange plan may re-enroll into that plan or choose a  different plan. Eligible consumers who do not make an active  re-enrollment selection are to be automatically re-enrolled in their existing  plan if it remains available. If that plan is no longer available, they are  generally automatically re-enrolled in a similar plan if one was identified,  or the consumers would have to actively re-enroll if a similar plan was not  identified. We refer to the similar plans into which automatic re-enrollees  were enrolled if their original plan was no longer available to them as a  “similar crosswalked plan” throughout this report. According to guidance  from the Department of Health and Human Services’ (HHS) Centers for  Medicare & Medicaid Services (CMS), the automatic re-enrollment  process was established to help ensure continuity in coverage. This  process can help ensure that continuity, but because the exchanges are  dynamic and plan availability and premiums can change from year to  year, some have questioned whether it could have unintended financial  consequences for consumers.

PPACA includes a variety of provisions related to the exchanges that  could impact what consumers pay for their health insurance. For  example, most consumers purchasing health insurance through the  exchanges are eligible for premium tax credits that can reduce their  out-of-pocket payments for premiums. The amount of this credit is based  on the consumer’s household income relative to the cost of premiums for  the second lowest cost silver plan available to the consumer—referred to  as a benchmark plan—even if the consumer chooses to enroll in a  different plan. A consumer who is eligible for the tax credit and enrolled  in a benchmark plan is responsible for paying a premium amount that is  limited to a certain percentage of his or her income, and the tax credit  generally covers the rest of the premium. If, however, the consumer  enrolls in a plan with a higher premium than the benchmark plan  premium, then the tax credit does not increase and the consumer must  make up the difference. In contrast, if the consumer enrolls in an eligible  plan with a lower premium than the benchmark plan premium, the tax  credit generally does not decrease and the consumer’s payments would  be lower than if enrolled in the benchmark plan. Because plan premiums  and plan availability can change over time, the benchmark plan in each  local market can also change from year to year. Therefore, a consumer  enrolled in a benchmark plan in one year who is re-enrolled, either  actively or automatically, into the same plan the following year may find  that it is no longer the benchmark plan, and so may have to pay a lower  or higher share of income on premiums. Consumers who actively  re-enrolled in an exchange plan may have considered the financial  implications of remaining in the same plan or switching to a new plan.  Consumers who were automatically re-enrolled in an exchange plan,  however, may not have taken those considerations into account.

You asked us to examine various aspects of automatic re-enrollment and  the potential implications for consumers. We examined:  1.  the extent to which plans identified as benchmark plans remained the  same plans or changed to different plans from year to year and how  premiums for those plans changed;  2.  the proportion of 2015 exchange consumers who were automatically  re-enrolled in the same or similar crosswalked plans, and how those  proportions compared to those for consumers who re-enrolled  actively; and   3.  the extent to which consumers’ financial responsibility for premiums  changed for those who were automatically re-enrolled compared to  those who actively re-enrolled.

To examine the extent to which plans identified as benchmark plans  remained the same plans or changed to different plans from year to year,  and how premiums for those plans changed, we reviewed relevant  guidance and analyzed data maintained by CMS. These data included  information about the qualified health plans and premiums available for  individual market consumers in 2,598 counties in the 37 states that used  the federal platform from 2015 through 2017. Specifically, we analyzed  data from CMS’s Qualified Health Plan Landscape files and Plan  Attributes Public Use files to determine the plans and gross premiums  (exclusive of any premium tax credits) offered to consumers through the  exchanges during each year and to identify the likely benchmark plans by  county and year. We also analyzed data from CMS’s Plan ID Crosswalk  Public Use files for the 2015 to 2016 and 2016 to 2017 transitions to map  health plan and premium changes across years. For our analyses, we  selected six consumer categories that represented a broad range of  nonsmoking consumers who have shopped for individual market health  insurance each year. They included individuals, aged 21; individuals,  aged 27; couples, aged 30, with no children; individuals, aged 40, with  one child; couples, aged 50, with 2 children; and individuals, aged 60.  The premium amounts and supporting plan information in each data  source used were self-reported by each issuer, and CMS required each  issuer to comply with a data validation and attestation process.

To determine the proportion of 2015 exchange consumers who were  automatically re-enrolled in the same or similar crosswalked plans, how  those proportions compared to those for consumers who actively  re-enrolled, and the extent to which consumers’ financial responsibility for  premiums changed for those who were automatically re-enrolled  compared to those who actively re-enrolled, we examined analyses  conducted by HHS’s Office of the Assistant Secretary for Planning and  Evaluation (ASPE). Specifically, we examined analyses conducted as  part of ASPE’s previously issued work on 2015 and 2016 enrollment data  from CMS’s Multidimensional Insurance Data Analytics System (MIDAS),  as well as new analyses that built upon that work. At our request and in  accordance with specifications we provided, ASPE conducted additional  analyses and provided information on the percentages of consumers who  were automatically and actively re-enrolled in the same plans, similar  crosswalked plans, or other plans during the 2015 to 2016 transition and  the net change in monthly premiums, after the premium tax credit for  these consumers. This information was based on plan selections for  consumers enrolled in both 2015 and 2016 through exchanges using the  federal platform for enrollment and eligibility as of February 1, 2016—the  day after open enrollment for health insurance in 2016 ended.

To assess the reliability of the data on benchmark plans and premiums,  we conducted a series of manual and electronic tests to identify missing  data and other anomalies. These analyses were informed by our review  of relevant documentation and interviews with knowledgeable officials  from CMS. To assess the reliability of the data obtained from ASPE on  re-enrollment during the 2015 to 2016 transition, we conducted a series of  logic tests, including comparisons to ASPE’s previously published data.  We also reviewed relevant documentation and interviewed  knowledgeable officials from ASPE and CMS. Using these methods, we  determined that the data were sufficiently reliable for the purposes of our  reporting objectives.

We conducted this performance audit from August 2016 to November  2017, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

There are several aspects of individual market plans sold through the  exchanges for consumers to consider when selecting a plan, including:  (1) metal tiers; (2) premium variation and plan availability; (3) covered  benefits; and (4) premium tax credits. Current exchange consumers who  are eligible for continued health insurance and do not actively select and  enroll in a health plan for the subsequent year may be automatically  re-enrolled in the same or a similar crosswalked plan.

Considerations for Selecting and Enrolling in Individual Market Health Plans through the Exchanges

Plans sold through exchanges are offered at one of four levels of  coverage, or metal tiers—bronze, silver, gold, and platinum—that reflect  the out-of-pocket costs that may be incurred by a consumer. The four  metal tiers correspond to the plan’s actuarial value—a measure of the  relative generosity of a plan’s benefits that is expressed as a percentage  of the covered medical expenses expected to be paid, on average, by the  issuer for a standard population and set of allowed charges for in-network  providers. The actuarial values of these metal tiers are as follows:  bronze (60 percent), silver (70 percent), gold (80 percent), and platinum  (90 percent). If an issuer sells a plan on an exchange, it must offer at  least one plan at the silver level and one plan at the gold level. Issuers  are not required to offer bronze or platinum plans.

Premium Variation and Plan Availability  As we have previously reported, the range of premiums for health plans  offered through the exchanges can vary widely across counties and  states, and the number and type of plans available in the health insurance  exchanges vary from year to year. Issuers can add new plans and  adjust or discontinue existing plans from year to year, or they can extend  or restrict the locations in which plans are offered. As a result, the options  available to consumers can change from year to year.

PPACA requires that health insurance plans offered through the  exchanges be certified as qualified health plans, meaning that they must  provide essential health benefits, comply with cost sharing limits, and  meet certain other requirements. Essential health benefits include items  and services within ten categories. Some health insurance plans offered  through the exchanges include benefits above and beyond the minimum  requirements. For these plans, only the percentage of the plan premium  that covers the essential health benefits is considered when determining  the consumer’s benchmark plan.

Certain consumers purchasing health insurance through the exchanges  are eligible for and receive premium tax credits that may reduce their  out-of-pocket costs for premiums. To be eligible for premium tax credits,  individuals and families must generally have a household income of at  least 100, but no more than 400, percent of the federal poverty level  (FPL).

Consumers who are eligible for premium tax credits and enrolled in the  benchmark plan are responsible for paying premiums that are generally  limited to a percentage of household income, such that individuals and  families with lower household incomes contribute a smaller portion of their  income toward the health plan premium than individuals and families with  higher incomes, and premium tax credits may be applied to only the  portion of the premium that covers essential health benefits. For example,  in 2016, the percentage of household income that consumers who were  eligible for premium tax credits and who lived in the United States were  expected to pay toward the portion of their premiums for their benchmark  plan that covered essential health benefits was 2.03 percent for those at  100 percent of the FPL, 8.18 percent for those at 250 percent of FPL, and  9.66 percent for those at 400 percent of FPL. A consumer’s required  contribution to the premium is the amount of that benchmark plan  premium that is not covered by the premium tax credit. (See table 1.)

Although consumers’ premium tax credit amounts are determined in part  based on the cost of premiums for their local benchmark plan, the credit  can also be applied towards the premiums for other eligible exchange  plans. However, the premium tax credit available to consumers does not  increase if they enroll in exchange plans with higher premiums than the  local benchmark plan. In such cases, consumers are responsible not only  for their required contribution but also for the difference in premiums.  Similarly, if a consumer chooses to enroll in an exchange plan with lower  premiums than the local benchmark plan premium, then the consumer’s  premium tax credit would also generally remain the same, so the  consumer would pay less for that plan. The tax credit cannot, however,  exceed the total value of the premium. Because most consumers  enrolling in exchange plans are eligible for premium tax credits, most  consumers’ out-of-pocket premium costs are lower than the advertised  cost of premiums. (See table 2.)

Process for Automatically Re-enrolling Consumers into Exchange Plans

Re-enrollment in an exchange plan may occur through either an active  choice by a consumer or through automatic re-enrollment by the  exchange. Eligible returning consumers may enroll in a health insurance  plan through the exchange each year during an open enrollment period.  Federally facilitated exchanges automatically re-enroll eligible exchange  consumers for the next year, unless their health insurance is terminated  or the consumer makes an active plan selection. Through automatic  re-enrollment a consumer is re-enrolled in the same plan for the next year  if that plan remains available to him or her; if the same plan is no longer  available (e.g., because the issuer decided to discontinue a particular  plan or to stop offering the plan in certain locations), then the consumer is  generally re-enrolled in a similar crosswalked plan. The criteria HHS  established for identifying appropriate similar crosswalked plans have  changed over time, but the similar crosswalked plan is typically the same  metal tier level as the original plan. During the 2015 to 2016 transition,  all similar crosswalked plans were plans offered by the same issuer as  the original plan. If that issuer no longer offered an exchange plan, there  was generally no crosswalked plan and automatic re-enrollment was not  an option. Starting with the 2016 to 2017 transition, if the original issuer  did not offer a similar plan, then automatic re-enrollment could be into a  health plan offered by a different issuer, with plan similarity determined  using established criteria.

Both issuers and exchanges have had roles in informing consumers  about the enrollment process. For example, prior to the start of the 2015  and 2016 open enrollment periods, both the exchange and health plan  issuer were to provide current exchange consumers with general  information about the upcoming enrollment period, including key dates and information regarding eligibility for re-enrollment. In addition, some  consumers were also to receive special notices from the exchange that  provided more detailed information regarding their application status,  eligibility for enrollment and affordability programs, and potential effects  on enrollment if they had not updated information about their income or  eligibility or reviewed their re-enrollment options with the exchange prior  to the end of the open enrollment period. Consumers who were  automatically re-enrolled by an exchange were to receive an additional  notice with updated information about their re-enrollment status.  According to CMS officials, automatically re-enrolled consumers were  provided with information about their new premium amount and any new  advance premium tax credit amounts in a message confirming their  enrollment.

From 2015 to 2017, Most Plans Identified as Benchmark Plans Changed and Benchmark Plan Premiums Generally Increased

In most of the nearly 2,600 counties included in our analysis, the plan that  we identified as the benchmark plan changed from 2015 to 2017. For  example, in 85 percent of the counties included in our analysis, the 2015  benchmark plans were not benchmark plans in either 2016 or 2017, the  other 2 years we studied. The benchmark plan was the same plan in all 3  years in only 3 percent of counties. (See table 3.)

In addition, benchmark plan premiums were more likely to increase than  decrease from year to year, and increases were higher from 2016 to 2017  than they were from 2015 to 2016. Among all the counties in our analysis,  the median change in monthly premiums for the benchmark plans was an  increase of 11 percent from 2015 to 2016, and 28 percent 2016 to 2017.  As shown in figure 1, the gross premiums for benchmark plans increased  by more than 55 percent from 2016 to 2017 in 12.4 percent of the  counties in our analysis but did not increase by more than 55 percent in  any counties from 2015 to 2016. In contrast, although not particularly  common, relatively stable or even decreasing premiums from year to year  were more likely from 2015 to 2016 than from 2016 to 2017. Appendix I  provides examples of median benchmark plan premiums for 2015, 2016,  and 2017 for select groups of consumers. Because premium tax credits  limit eligible consumers’ payments for benchmark plan premiums to a  percentage of their income, an increase in premiums may not increase  their financial responsibility. Instead, for eligible consumers, the amount  of the tax credit would increase. According to HHS, most exchange  consumers have been eligible for these tax credits; those who were not  eligible for tax credits would not have this protection from premium  increases. The premium increases for consumers who were not eligible  for premium tax credits, or for those who were eligible but who chose  plans that had higher premiums than their benchmark plan premiums,  could have had a more substantial financial impact, because premium tax  credits would not have offset, or fully offset, the higher premiums.

Although gross premiums for benchmark plans were likely to increase  from 2015 to 2016 and from 2016 to 2017, we found that in many  counties, the implications for automatically re-enrolled consumers were  modest because net premiums—after accounting for tax credits for those  eligible for those credits—were limited. We compared the 2016 premiums  for plans that had been benchmark plans in 2015 to the 2016 benchmark  plan premiums, and we compared the 2017 premiums for plans that had  been benchmark plans in 2016 to the 2017 benchmark plan premiums.   To focus this analysis on the potential effects for those who were  automatically re-enrolled, we limited our comparisons to plans that were  available in both years, or plans for which a similar crosswalked plan had  been identified for the second year. For this analysis, we excluded plans  that were benchmark plans in one year and were also benchmark plans,  or were crosswalked to a benchmark plan, in the following year. We  found that in many counties, the new premiums for plans that had been  (but were no longer) benchmark plans differed only modestly from the  new benchmark plan premiums. For example, in 60 percent or more of  the counties in our analysis, the premium for the previous benchmark  plan was within plus or minus about 7.5 percent of the new benchmark  plan premium. This finding indicates that automatic re-enrollment from a  benchmark plan into a plan that was not a benchmark plan did not  necessarily result in substantially higher premiums compared to the  premiums for the new benchmark plans, and the same would be true for  consumers who actively chose their same or similar crosswalked plan.

While modest premium differences were not uncommon in either year,  figure 2 also shows that some differences were substantial. (See fig. 2.)  Although consumers who were eligible for premium tax credits were  somewhat insulated from large differences in premiums, if they were  automatically re-enrolled in a plan with a premium that was higher than  their benchmark plan premium, no matter how great the difference, they  would have been be required to pay a larger share of their incomes on  those premiums. And, as already noted, the premium differences for  consumers who were not eligible for premium tax credits, or for those who  were eligible but who chose plans that had higher premiums than their  benchmark plan, could have had a more substantial financial impact  because premium tax credits would not have offset, or fully offset, the  higher premiums.

Thirty Percent of Consumers Who Re-enrolled in 2016 Were Automatically Re-enrolled, and the Remaining Consumers Actively Re-enrolled, Generally into Different Plans

Among consumers who were enrolled in plans through the federal  platform in both 2015 and 2016, 30 percent (about 1.7 million consumers)  were automatically re-enrolled. Of those consumers who were  automatically re-enrolled, 71 percent were re-enrolled in their same plan  and 29 percent were re-enrolled in a similar crosswalked plan, because  their 2015 plan had been discontinued or was no longer offered in the  consumer’s local area. These data do not indicate whether these  consumers explored their options for switching plans and made an active  decision not to change plans.

The remaining 70 percent of consumers who enrolled in exchange plans  through the federal platform in both 2015 and 2016 (more than 3.9 million  consumers) actively re-enrolled in 2016. Of these consumers, 39 percent  chose the same plan in which they had been enrolled in 2015 or the  similar crosswalked plan to which they would have been automatically  re-enrolled. The majority of consumers who re-enrolled actively, 61  percent, switched to a plan that was neither their 2015 plan nor the similar  crosswalked plan. (See fig. 3.) Of those consumers who actively switched  plans, more than half (54 percent) would have been automatically  re-enrolled in their same plan if they had not actively switched plans,  indicating that plan discontinuation was not the only factor involved in  consumers’ decisions to change plans.

Consumers’ Financial Responsibility for Premiums Generally Increased Less with Active Re-enrollment than with Automatic Re-enrollment

Consumers’ median net monthly premiums (after premium tax credits)  generally increased less from 2015 to 2016 for those who actively  re-enrolled ($5) than for those who were automatically re-enrolled ($22).  As shown in table 4, consumers who actively re-enrolled had a lower  median increase in their net monthly premiums than consumers who were  automatically re-enrolled for both the same and similar crosswalked  plans. Moreover, table 4 also shows that consumers who re-enrolled  actively, and who switched plans from 2015 to 2016, enrolled in plans  with median monthly net premiums that increased the least overall—a  median net increase of $1 compared to $13 per month for those who  enrolled in the same plan. In addition, the table shows that enrollment in a  similar crosswalked plan did not generally result in a higher median net  premium than enrollment in the same plan: whether enrollment was active  or automatic, consumers’ median net monthly premiums increased less  for those who enrolled in a similar crosswalked plan than for those who  enrolled in the same plan. Changes in net monthly premiums varied  around these medians, however, with some consumers facing large  increases or, in some cases, large decreases in their net monthly  premiums. Large increases or decreases in net monthly premiums could  result from changes to eligibility for tax credits, selections of plans of  different metal levels, or other circumstances.

Our findings are consistent with other work by ASPE that suggested that  consumers consider possible cost savings when deciding to switch plans.  For example, ASPE found that average net monthly premium for the 61  percent of consumers who actively switched plans in 2016 was $132,  which represented an average savings of $42 per month compared to  what they would have paid if they stayed in their same or similar  crosswalked plans. This work also found that the net monthly premiums  of consumers who actively chose to remain in their same or similar  crosswalked plans in 2016 were, on average, only $10 more than those  for consumers who actively switched plans. In addition, ASPE found  that consumers’ plan selections indicated sensitivity to net premiums. For  example, ASPE found that consumers were much more likely to switch  plans when the net premium of their 2015 plan increased than when the  gross premium of their 2015 plan increased, but the net premium did   not.

We provided a draft of this report to HHS for review and comment.  HHS  provided technical comments, which we incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Acting Secretary of  Health and Human Services and other interested parties. In addition, the  report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or dickenj@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix II.

Appendix I: Median Benchmark Plan Premiums for Select Groups of Consumers, 2015 through 2017

Benchmark plan premiums generally increased from 2015 through 2017.  Table 5 shows the median monthly gross benchmark plan premiums  (exclusive of any applicable premium tax credits) for select consumer  groups.

Appendix II: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Gerardine Brennan, Assistant  Director; Kristen Joan Anderson, Analyst-in-Charge; Todd Anderson; and  LaKendra Beard made key contributions to this report. Also contributing  were Muriel Brown; Daniel Lee; Laurie Pachter; and Emily Wilson.

Under the Affordable Care Act, people purchasing insurance through an exchange can re-enroll each year. If they don't select a plan, they're automatically re-enrolled in their existing plan or a similar one, if available. In 2016, 30% of re-enrollments were automatic.

We examined whether automatic re-enrollment could have unintended financial consequences for consumers. We found that, from 2015 to 2016, the median monthly premium increase for those who were automatically re-enrolled, after tax credits, was $22; for those who actively re-enrolled, the increase was $5, partly because they may have switched to less expensive plans.