Health insurance premiums for 8 million federal employees and retirees will rise an average of 7.9 percent next year, a lower increase after four years of double-digit hikes, the government announced yesterday.
"This is indeed good news," said Kay Coles James, director of the Office of Personnel Management. The Federal Employees Health Benefit Program covers 1.3 million people in the District, Maryland and Virginia.
The report is also encouraging for private employers, where premiums have generally showed the same trend in recent years, though often at a somewhat higher rate.
A survey by the Kaiser Family Foundation released last week put the average premium increase for private employers this year at 11.2 percent, a fourth year of double-digit increases, but a drop from last year. An earlier study by Mercer Human Resource Consulting found that employers estimate health care costs would rise almost 13 percent on average next year if they make no changes in their health plans, and would go up 9.6 percent after changing benefits and negotiating with or switching medical providers and insurers.
Despite the latest dip in the rate of increase, health care costs are running at more than five times both the rate of inflation and the rate at which workers' pay is rising.
The pressure caused by these rising costs will depress wages, affect hiring decisions and encourage outsourcing, Kaiser Foundation President Drew E. Altman said last week. He said the number of uninsured will continue to rise, as well, while the cost shouldered by workers who have insurance will also climb, through higher premiums, deductibles and co-pays.
President Bush and Sen. John F. Kerry, his Democratic challenger, have traded jabs about the soaring costs of the government's Medicare program for the elderly, where premiums are set to rise by 17.5 percent, the largest increase in 15 years.
In some years, the federal employees' health program has served as a bellwether for health care cost trends, in part because it provides a standard benefits package and forces insurance companies to compete on price to attract enrollees. Under the program, administered by OPM, the government pays for about 70 percent of total premium costs.
Paul B. Ginsburg, president of the nonpartisan Center for Studying Health System Change, said the 7.9 percent premium increase "is very good news for federal employees and for the federal budget. It is also an indication of some informed expectation that cost trends are going to continue to decline for at least another year."
For next year, FEHBP will offer 249 options, including Blue Cross and Blue Shield and 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.
An employee with the standard option family coverage under Blue Cross will pay $5.18 more every two weeks, bringing the biweekly cost to $118.06. Standard coverage for an individual will rise by $1.81, to $50.71 biweekly.
OPM officials said the federal program was 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.
The government also may be getting a break because of shifting demographic patterns in the program. New hires for government jobs are slightly younger than current employees. Substantial numbers of retirees have transferred from FEHBP to take advantage of less expensive, and sometimes free, coverage through the military's Tricare program. These and other factors have contributed to an increase in employees signing up for individual coverage, which is less expensive than family coverage.
In calculating what the premium should be, officials said they also projected that more workers and retirees will shop for the best values in FEHBP. For example, in the 2004 plan year, OPM announced a 10.6 percent average premium increase. But the actual average increase declined to 9.5 percent after enrollees took advantage of the best deals during the "open season" when they are allowed to make changes to their coverage, OPM officials said.
One device endorsed by the administration and included in next year's FEHBP offerings is the health savings account. With an HSA, a participant buys a high-deductible insurance plan and then makes a tax-deductible contribution to a savings-investment account. This account is used for routine medical costs, tax-free, while the high-deductible plan covers serious ailments.
Unlike the better-known health care spending accounts, deposits in a health savings account can be rolled over if not spent and allowed to compound over the years.