Rising FEHBP premiums cause alarm

klunney@govexec.com

The rapid rise in health care premiums for the Federal Employees Health Benefits Program (FEHBP), the largest employer-sponsored health insurance plan in the nation, must be stemmed, lawmakers said Tuesday.

FEHBP provides coverage for some nine million federal employees, retirees and their families. Premiums rose an average of 9.3 percent for the year 2000. 1999 saw an increase of 9.5 percent.

"Even though it is an excellent program, the FEHBP, like all health care plans today, faces serious challenges. Premiums have risen dramatically over the past three years, and another substantial increase seems imminent for 2001," said House Civil Service Subcommittee Chairman Joe Scarborough, R-Fla., at a hearing he presided over Tuesday.

Although witness testimony touched on many issues within the FEHBP-including medical savings accounts, patient safety, and mental health and substance abuse treatment benefits-the hearing focused primarily on the rising cost of prescription drug coverage.

William E. Flynn, III, associate director for retirement and insurance at the Office of Personnel Management testified that one out of every four dollars spent on the FEHBP program goes toward the cost of prescription drugs. He noted that prescription drugs have become more expensive industry-wide.

"It is the fastest growing component of the heath care equation today," Flynn said.

Flynn said the rise in prescription drug costs can be attributed partly to an increase in the number of older beneficiaries covered by FEHBP and, more broadly, to medical inflation. One-half of federal government employees fall between the ages of 45 and 60.

Stephen V. Gammarino, senior vice president of the BlueCross BlueShield Association, said his company tried to offset increasing drug costs by increasing certain copayments and by refusing to waive others. However, he acknowledged that as prescription drug costs continue to increase, additional cost-saving measures will need to be introduced.

BlueCross BlueShield jointly underwrites and delivers the Governmentwide Service Benefit Plan, the largest plan within the FEHBP.

"This year, we are exploring additional changes that further encourage the use of generic drugs. We believe that these changes will result in increased savings. We are also exploring other administrative changes to the delivery of our pharmacy benefits to reduce drug costs and trends," Gammarino said.

Under a two-year pilot program with the Department of Veterans Affairs, OPM will allow the Special Agents Mutual Benefit Association (SAMBA) access to the Federal Supply Schedule (FSS) for prescription drugs. SAMBA health insurance plans are only available at a few select agencies, including the FBI and the IRS. FSS lists goods and services for purchase at government mandated discounts; for prescription drugs, there is a statutory discount of 24 percent.

If the pilot program is successful, a similar schedule providing FEHBP carriers with discounts could be established.

Scott V. Nystrom, an adjunct scholar at George Mason University's Mercatus Center said providing access to the FSS for FEHBP prescription drug purchases is likely to lead to higher prices for certain prescription drugs for non-FEHBP purchasers, including federal agencies like Veterans Affairs and the Defense Department as well as other private sector employer health insurance carriers.

Bobby L. Harnage, president of the American Federation of Government Employees, and Colleen M. Kelley, president of the National Treasury Employees Union, praised OPM for the SAMBA pilot program, but also urged the agency to further its efforts to negotiate discount rates and to include federal workers in the health care dialogue.

"OPM should look around for a new partner to work with to sustain a minimum-cost, efficient, accessible and comprehensive health insurance program for federal workers. That partner should be federal workers themselves," said Harnage.

Flynn credited the unions with pushing the idea of premium conversion plans for federal employees. Effective October 1, 2000, these plans allow employees to pay health insurance premiums with pre-tax dollars.

Kelley said the premium conversion plans "will help reduce the out-of-pocket cost of health insurance for federal employees."

A premium increase of 8.7 percent is expected in fiscal 2001.

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