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Federal health-care plan costs to rise by most in five years

(Andrew Harrer/Bloomberg)
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The enrollee share of premiums in the health insurance program for federal employees and retirees will rise by 7.4 percent on average in 2016, the largest increase since 2011, the government announced Tuesday.

However, enrollees have an opportunity ahead to switch among plans in search of lower costs and many of those with family coverage could benefit by changing to a new self plus one coverage option.

Overall premium increases in the Federal Employees Health Benefits Program will average 6.4 percent, but because of the way the formula works for setting the employer and enrollee shares, the enrollee share on average is increasing by more.

The increases in enrollee premiums break down to an average of 6.5 percent for self-only coverage and 10.7 percent for self and family coverage. Current family plan enrollees who switch to self plus one will see their premiums rise by 4.9 percent on average, rather than the 10.7 percent increase for sticking with family coverage.

The government pays about 70 percent of the total premium on average. The U.S. Postal Service pays a higher percentage for its employees, although not for its retirees, under terms of union contracts there. The average increases for postal employees work out to be higher by several percentage points.

On average, non-postal enrollees with self-only coverage will pay $5.50 more per biweekly pay period, rising to $89.59; those with family coverage will pay $19.61 more, rising to $203.40, and those who opt for self plus one coverage will pay $192.71, $8.92 more per pay period than the 2015 average for self and family coverage. Retirees pay the same total, only on a monthly basis.

During an open season that this year will run Nov. 9-Dec. 14, employees and retirees may change plans or change levels of enrollment for the following year. Also, employees who are not currently enrolled may join the program, although retirees generally may not newly enroll.

Within the averages, there is much variation among plans, with some even reducing their premiums while others are increasing them by well more than the average. There are about 250 participating plans, the large majority available only regionally. In the Washington, D.C., metropolitan area, there will be 33 choices.

Rates in the largest plan, the Blue Cross and Blue Shield standard option that accounts for two-fifths of all enrollments, will rise by $9.15 per biweekly pay period to $100.18 for non-postal enrollees with self-only coverage, and by $24.93 to $238.24 for family coverage. Those who switch to self plus one will pay $231.31, $18 more per pay period than the 2015 cost of family coverage.

Office of Personnel Management officials said the increases are in line with estimates of upcoming hikes in private-sector employer-sponsored health plans, which are in the 4 to 6 percent range. Increases in another large governmental plan to which the FEHBP is often compared, the one covering California state employees, will range from 7 to 11 percent depending on the coverage chosen.

Increases in the federal program have been in the 4 percent range the last four years, and even with a larger increase for 2016, “we are still in a period of relatively modest increases,” OPM director of health care and insurance John O’Brien said in a conference call with reporters.

However, organizations representing federal employees and retirees decried the increases, pointing out that federal employees are in line for only a 1.3 percent raise in January on average, and that retirees likely will receive no cost of living adjustment, or only a minimal one, due to the overall low rate of inflation.

Rising health-care costs “could even mean reduced take-home pay for some federal employees,” while retirees “are facing an even worse situation,” National Active and Retired Federal Employees Association President Richard G. Thissen said in a statement.

“Federal employees have endured five years of frozen or miniscule pay raises, while retirees aren’t getting a dime of additional support next year. How are they supposed to maintain their standard of living when costs for essential things like health care keep going up?” American Federation of Government Employees President J. David Cox  Jr. said in a statement.

The OPM officials said that benefits will be generally stable, along with out of pocket costs such as co-pays and deductibles. Some plans are adding incentives for enrollees to participate in wellness programs designed to hold down costs — a long-running initiative, along with policies aimed at curtailing the rise in prescription drug costs.

Despite those policies, drug costs were a major driver of the overall premium increases, they said.

“We have had an uptick in drug costs and that has a disproportionate effect on the FEHBP,” O’Brien said, because unlike many other employer-sponsored plans, the federal program provides full coverage to retirees. Prescription drugs account for nearly 27 percent of the total costs in the FEHBP compared to 10 percent for other employer plans on average, he said.

The National Treasury Employees Union cited that increase in calling on Congress to enact long-proposed legislation designed to achieve savings by centralizing prescription drug benefits. “NTEU views prescription drug reforms as an essential way to better control drug spending in FEHBP, which would reduce costs for federal employees and retirees,” NTEU National President Tony Reardon said in a statement.

Adding the self plus one option is one of the most substantial changes in years to the program. Enrollees with only one eligible family member long have argued that they were subsidizing family plan enrollees with multiple covered family members.

Under self plus one, the second person would have to be someone eligible under the longstanding rules for covering family members: spouses and children under age 26, with no age limit for those with a disabling condition occurring before that age. Domestic partners of either gender remain ineligible.

The FEHBP is the largest employer-sponsored health-care program in the country, with 4 million enrollments covering 8.2 million people. Of those enrollments, 2.1 million are family plans, and nearly half of those family enrollees have only one covered family member.

OPM projects that substantial numbers of family plan enrollees will switch to self plus one in the upcoming open season.

In addition, there will be a special opportunity in February for employees in family plans to downgrade to self plus one in case they don’t make such a change in the open season and then wish they had. That period won’t apply to retirees, who can downgrade their enrollment at any time.

However, enrollees should check premiums carefully before electing self plus one, officials said. The total premium costs are capped at the amount for family enrollments. But because of the way the premium sharing formula works, for about 5 percent of enrollees, based on current enrollment patterns, their share for a self plus one enrollment will be higher than that for a family enrollment.

Out of pocket costs are structured the same within a plan regardless of the type of enrollment, they added.

OPM meanwhile announced that premiums in a separate program, the Federal Dental and Vision Insurance Program, premiums will increase on average by 2.2 percent for dental plans and by 3.6 percent for vision plans. That program has no employer contribution toward premiums and has had a self plus one option since it started in 2007.

The open season also will be an opportunity both employees and retirees to enroll or change coverage in those plans, as well as for an employee to have a flexible spending account for 2016.