Health insurance premiums for federal employees and retirees will rise an average of 7.9 percent next year, the Office of Personnel Management announced this afternoon.
The premium increase marks the first single-digit rate announcement since 2000, when premiums in the Federal Employees Health Benefits Program (FEHBP) rose by 9.3 percent, OPM officials said.
The program provides insurance to more than 8 million civil service and postal employees, retirees and their families, including about 1.3 million people in the District, Maryland and Virginia. It is often touted as a model for the nation, drawing praise from conservatives and liberals, in part because it offers choice to consumers while urging plans to compete for premium dollars.
For 2005, FEHBP will offer 249 health insurance options, ranging from Blue Cross and Blue Shield to health maintenance organizations. Premiums for the most popular insurance plan, the Blue Cross standard option, will rise by 6.75 percent, on average, officials said.
OPM officials said they were able to hold down the increase in premiums because of lower medical inflation and because prescription drug costs are rising at a lower rate than in past years.
In calculating what the premium should be, officials said they also projected that more government workers and retirees will shop for the best values in FEHBP and seek out the least expensive plans.
For example, in the 2004 plan year, OPM announced a 10.6 percent average premium increase. But the actual premium increase declined to 9.5 percent after enrollees shopped for the best deals during the "open season" when they are allowed to make changes to their insurance coverage, OPM officials said.
The officials cautioned that premium increases will vary by health plan. They urged government workers to read the materials sent to them about the program during the enrollment season, which begins Nov. 8 and ends on Dec. 13.
As part of this afternoon's announcement, OPM said that FEHBP will offer "health savings accounts" as an insurance option to government employees and retirees next year.
Two nationwide plans, Government Employees Hospital Association (GEHA) and Mail Handlers, will add health savings accounts to the options they offer. Aetna will add health savings accounts to its menu in 38 areas, most of the cities and counties with government installations.
HSAs, as they are called, have emerged as one of President Bush's initiatives to help expand health-care coverage in the nation. Kay Coles James, the OPM director, said that 3.1 million people in FEHBP would be eligible for coverage under HSAs, which were made possible by Congress as part of the 2003 law that expanded Medicare to include prescription drug coverage.
HSAs combine a high-deductible health insurance policy and a tax-exempt savings account, and they are open to people younger than 65. Participants deposit money in the accounts and make tax-free withdrawals to meet their medical expenses. Unused amounts can be rolled over for withdrawal in later years.
In order to make tax-free contributions to an HSA, a person must be enrolled in an insurance plan that has an annual deductible of not less than $1,050 for individual coverage and $2,100 for family coverage.
To ensure that government retirees can enroll in the new insurance option, OPM said the insurance companies will provide a "health reimbursement arrangement" that provides benefits equivalent to an HSA.
Government retirees will be able to use their HSAs to pay for their Medicare premiums, officials said. Earlier this month, the Bush administration announced that Medicare premiums will rise by 17.5 percent, the largest premium increase in that program in 15 years.
HSAs are controversial. The Bush administration typically describes them as a way to encourage Americans to become more careful and knowledgeable about their health-care spending. But opponents say it is just a new way of shifting costs from employers to employees.
The National Association of Retired Federal Employees (NARFE), which has about 400,000 members, contends that HSAs favor people who use little health care and are interested in building up tax-free cash balances. NARFE fears that HSAs will siphon off younger and healthier people and leave traditional federal employee plans with a greater proportion of ailing enrollees. That, in turn, would force those plans to raise their premiums, NARFE says.