Alan Lopatin, legislative counsel for the National Active and Retired Federal Employees Association, told members of the Senate Homeland Security and Governmental Affairs subcommittee on the federal workforce, that healthier employees tend to be attracted to consumer-directed plans, which offer lower premiums but have high deductibles and include health savings accounts that can be used to cover medical costs or personal needs.
Less healthy employees tend to avoid such plans, because they could end up paying thousands of dollars in out-of-pocket costs, Lopatin said. "This phenomenon, called 'adverse selection,' forces traditional insurance plan carriers to raise premiums, cut benefits or both," he said.
But Nancy Kichak, associate director for strategic human resources policy at the Office of Personnel Management, said for the past five years, rates have increased at a slower pace in the Federal Employees Health Benefits Program largely because of the range of options offered by health savings accounts and other consumer-directed health plans.
Lopatin argued that since enrollment in the HSAs and similar plans remains low -- 0.2 percent of FEHBP participants for 2006 -- they are having a minimal effect on overall rates so far.
The Bush administration's fiscal 2008 budget request promotes enrollment in consumer-directed plans by allowing FEHBP's largest and most popular provider, Blue Cross Blue Shield, the option of offering one. The law that authorized FEHBP stipulates that governmentwide plans offer only two levels of benefits, but the budget request recommends amending the law to enable Blue Cross Blue Shield to offer government-wide HSAs.
Blue Cross Blue Shield's "brand loyalty and considerable marketing resources could significantly increase HSA enrollment in FEHBP if they decided, and were allowed to offer such an option," Lopatin said.
Lawmakers noted growing concerns over health care costs and increasing premiums, which they said outpace cost-of-living adjustments and the annual pay raise for some federal employees and retirees.
Subcommittee members cited a report released by the Government Accountability Office earlier this year that found that the government's decision not to use a Medicare drug subsidy in FEHBP was responsible for an average 2.6 percent higher premium last year.
Kichak said the subsidy was not appropriate for FEHBP because it was intended to encourage employers to provide drug coverage for participants also enrolled in Medicare, which the federal employee program already does. In essence, she said, the government would be subsidizing itself unnecessarily.
But lawmakers argued that while accepting the subsidy would have increased the cost of Medicare, it would have reduced the overall cost of federal employee health plans, and the savings could have been passed on to participants.
"OPM has a good story to tell," said Sen. Daniel Akaka, D-Hawaii, chairman of the subcommittee. "They would have had a better story to tell, and federal workers and retirees would have paid less if OPM had used all of the resources available to them."
Akaka said that from 1998 to 2005, federal health care premiums rose, on average, more than 7 percent per year. And while OPM reduced the average premium growth rate over the last two years, the agency used reserve funds to decrease those rates, he noted.
"What really concerns me is that premiums fell not because OPM negotiated better rates or market forces drove down health care costs, but because they dipped into reserve funds," Akaka said.
Stephen Gammarino, senior vice president of national programs for Blue Cross Blue Shield, said premiums for the plan's basic option have not changed over the past three years. Additionally, the individual's share of the premiums for the plan's standard option actually declined slightly, and the total premium increased by only 1 percent.
Gammarino said the key to keeping premiums low is health information technology and ensuring that participants are given cost and quality information similar to what they would expect before buying most other goods and services.
He added that Blue Cross Blue Shield is working with OPM to develop a program called Care Coordination that uses technology to collect claims data, prescription drug information and information on enrollment forms to identify members who may benefit from the plan's disease or case management programs. OPM and Blue Cross expect that all plans will be under the Care Coordination program by 2008.
"Our objective for this program is to enhance the health care received by those who need it most by strengthening their ability to manage their medical conditions," Gammarino said.