Federal health premiums rising at same rate as private sector plans

Federal health insurance premiums are rising at roughly the same rate as those included in large insurance plans offered at companies, according to a new report from the General Accounting Office.

From 1991 to 2002, Federal Employees Health Benefits Program (FEHBP) premiums have increased an average of 6 percent a year, a rate that is in line with other large health plans, the report (GAO-03-236) said. On average, premiums for the federal health plan grew less than other large purchasers during the first half of this period, but rose in the second half.

Premiums for health plans serving companies with more than 5,000 employees rose at an average annual rate of 6.4 percent over the same period, GAO calculated, based on the results from a Kaiser Family Foundation/Health Research and Education Trust survey. California Public Employees' Retirement System (CalPERS) premiums rose by an average of 5.9 percent a year.

The Senate Committee on Governmental Affairs and Subcommittee on International Security, Proliferation and Federal Services commissioned the report, to make sure that the Office of Personnel Management, which administers the FEHBP, is doing an adequate job negotiating with FEHBP insurance providers to keep premiums in check.

Unlike many large health insurance programs in the private sector, the FEHBP, which provides coverage for about 9 million federal employees, retirees and their families, OPM contracts with all insurance plans willing to meet minimum standards, to broaden the selection of plans available. OPM relies on competition among plans within FEHBP to keep premiums under control, the report said. In addition, OPM meets annually with representatives from each plan within the federal health insurance program to negotiate premiums and suggest cost-containment strategies.

FEHBP premiums have seen double-digit growth for the past three years. Premiums rose by 13.3 percent in 2002 and by 11.1 percent in 2003. The increase was 2 percentage points lower for 2003 than 2002 because some FEHBP enrollees accepted minor benefit reductions or switched over to less expensive plans, the GAO said.

OPM has attributed the premium growth to escalating prescription drug costs, which health plans pass on to beneficiaries. In FEHBP's three largest plans, claims rose because of a combination of the higher drug costs and patients using more hospital outpatient care. These two factors accounted for about 70 percent of increased claims expenditures from 1998 to 2000, GAO said.

OPM generally agreed with the report.