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FEDERAL DIARY

Assessing health-care costs

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Joe Davidson
Tuesday, October 5, 2010

The good news is that the price federal employees and retirees will pay for their health insurance next year won't go up as much as premiums did this year.

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The bad news is that the 7.2 percent increase for 2011 is much greater than inflation or any pay increase or cost of living adjustment they might get.

The other news is that employee organizations say premiums in the Federal Employee Health Benefits Program could be lower if the Office of Personnel Management would stop refusing a subsidy.

"FEHBP premiums could have been lowered if it were not for the Administration's decision to decline a payment available to other public and private employers who provide drug coverage as generous as Medicare's," National Active and Retired Federal Employees Association President Margaret L. Baptiste said in a news release Friday. "Once again, this year, the Administration left $1 billion on the table - a subsidy available to and accessed by private employers in the marketplace, which could be used to lower worker and annuitant premium costs."

The subsidy was created in 2003 to encourage employers - including Uncle Sam - to keep their retiree prescription drug coverage even though a new Medicare prescription program had been created.

Sounds good at first blush, but federal organizations should be careful what they ask for.

Given the current climate in which Republicans are pushing for caps on federal employment and pay, drawing attention to a strong compensation package by saying it should be further subsidized could backfire. That may be one reason other employee organizations are not making a big issue out of the subsidy.

The Bush and Obama administrations have rejected past calls for OPM to accept the money. In response to several organizations that asked OPM Director John Berry about the subsidy last year, he wrote that federal employees could do without the subsidy "because there is no plan to eliminate drug coverage for Federal retirees."

Furthermore, he wrote, "applying for the subsidy is administratively costly and burdensome, lowering the net return for applicant organizations by approximately 20%."

But NARFE points to a 2006 Government Accountability Office study that said the subsidy could lower premiums.

"Officials from two large plans with higher-than-average shares of retirees stated that the subsidy would have lowered their plans' premium growth - officials from one plan claimed by at least 3.5 to 4 percentage points for their plan," GAO reported. "We estimated that the subsidy would have lowered the growth in premiums across all FEHBP plans for 2006 by more than 2 percentage points on average, from 6.4 percent to about 4 percent."

In the context of health insurance prices leaping faster and higher than other products and a health insurance system that still can't control costs, federal employees get a relatively good deal even without the subsidy.


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