The Office of Personnel Management (OPM) patted itself on the back when it announced an average rate hike of 3.7 percent for health insurance coverage next year in the Federal Employees Health Benefits Program (FEHBP).
“For the third year in a row, OPM has kept the average premium increases . . . under 4 percent, continuing our commitment to provide federal employees, annuitants and their families with the best possible coverage options,” said Elaine Kaplan, then the acting OPM director. “The FEHB Program delivers competitive rates and benefits through an efficiently run program to attract and retain top-talent in the federal service.”
But the law of averages means some increases will be more than 3.7 percent. Sometimes a lot more. When that happens, we hear from feds who want to know why the premiums for their plans are going up so much more than others.
During Open Season, which runs through Dec. 9, federal employees and retirees can change insurance plans. Nationally, there are 256 health plans, including 28 in the Washington area, covering 8.2 million workers, annuitants and relatives.
We asked Walton Francis, the FEHBP guru who is chief author of Checkbook’s annual “Guide to Health Plans for Federal Employees,” to explain variations in rate increases. He warned against judging plans on premiums alone.
A good plan with an annual premium of $1,000 could go up 20 percent and “still be a best buy,” he said, if all the other, but inferior, plans “started at $2,000 and had no increase at all or even a small premium decrease.”
Francis repeatedly tells retirees and employees to do their homework when deciding which plan to buy. “Open Season is an easy way for most federal employees to give themselves a pay raise,” he said. “Better buys will often save a family $2,000 a year or more in costs.”
Here is an edited transcript of his remarks:
Francis: Let me say first that rate increases are all over the map. Many plans went up only a few dollars, and a few decreased. Each plan and plan option has to cover the costs of the persons who enroll in it.
Every employee can use Open Season to dodge huge rate increases in particular plan options. That is the whole purpose of Open Season. Rather than complain, people in plans that cost more than average or that go up more than average should get their you know what in gear and enroll in a plan that will cost less.
What is the reason for the higher rate hikes in some plans? Are they worth it?
The issue is not the reason or whether they are “worth it.” The issue is what plans offer the lowest costs in the coming year. The reason, of course, is that each plan has to cover the costs of the persons who enroll in it. Plans that have a disproportionate number of older and higher-cost enrollees must raise their premiums higher than plans that have younger and lower-cost enrollees. But a plan that attracts mainly higher-cost enrollees is rarely worth its premium costs. Both employees and annuitants should look for plans that are less costly for both premiums and likely out-of-pocket costs, taken together and in total.
What are a few of the plans with lower-than-average rate increases, and how were they able to do that?
Plans with the lowest rate increases include Kaiser standard option (less than $1 per pay period for a self-enrollment) and Samba standard option (no increase at all). Mail Handlers standard option actually decreased. But the issue is not how much premiums change but what are likely total out-of-pocket costs, including both premium and cost-sharing. Some of the very best buys for 2014 had premium increases, and some of the worst buys premium decreases. Our ratings show that Kaiser standard is a great buy but that Mail Handlers standard is not.
There are two major factors that dictate plan performance in cost control. One is the steps the plan takes to reduce unnecessary costs, such as charging far less for generic drug prescriptions. The second is not directly controlled by the plan: the costs of those who enroll as older and sicker patients. But plans vary in how well they control those costs, such as by keeping people out of the hospital. Some plans simply do a better job, even if their patients are on average older and more costly.
Do you think the 3.7 percent average rate increase is reasonable? How does that compare with non-FEHBP plans?
The 3.7 percent increase is in line with comparable private-sector plans. Since it reflects only the costs of health care to those enrolled in the FEHBP and is policed by OPM to avoid waste, it is reasonable. It is slightly higher than average private-sector rate increases, but those rates include companies that force employees into inferior plans. Also, the federal employee workforce is aging, and older persons cost a lot more, on average. The FEHBP performance in controlling premium cost, over its 50 years of existence, far surpasses the records of Medicare and of the private employer market.
Previous columns by Joe Davidson are available at wapo.st/JoeDavidson.