Rising FEHBP premiums cause alarm


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.

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
Close [ x ] More from GovExec

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Forecasting Cloud's Future

    Conversations with Federal, State, and Local Technology Leaders on Cloud-Driven Digital Transformation

  • The Big Data Campaign Trail

    With everyone so focused on security following recent breaches at federal, state and local government and education institutions, there has been little emphasis on the need for better operations. This report breaks down some of the biggest operational challenges in IT management and provides insight into how agencies and leaders can successfully solve some of the biggest lingering government IT issues.

  • Communicating Innovation in Federal Government

    Federal Government spending on ‘obsolete technology’ continues to increase. Supporting the twin pillars of improved digital service delivery for citizens on the one hand, and the increasingly optimized and flexible working practices for federal employees on the other, are neither easy nor inexpensive tasks. This whitepaper explores how federal agencies can leverage the value of existing agency technology assets while offering IT leaders the ability to implement the kind of employee productivity, citizen service improvements and security demanded by federal oversight.

  • IT Transformation Trends: Flash Storage as a Strategic IT Asset

    MIT Technology Review: Flash Storage As a Strategic IT Asset For the first time in decades, IT leaders now consider all-flash storage as a strategic IT asset. IT has become a new operating model that enables self-service with high performance, density and resiliency. It also offers the self-service agility of the public cloud combined with the security, performance, and cost-effectiveness of a private cloud. Download this MIT Technology Review paper to learn more about how all-flash storage is transforming the data center.

  • Ongoing Efforts in Veterans Health Care Modernization

    This report discusses the current state of veterans health care


When you download a report, your information may be shared with the underwriters of that document.