Lawmakers question government contribution to health premiums

The government pays an adequate share of federal employees' health care premiums, the head of the Office of Personnel Management said Thursday in response to concerned lawmakers.

The Federal Employees Health Benefits Program already is competitive with health insurance programs offered in the private sector, OPM Director Linda Springer testified before the House Oversight and Government Reform Subcommittee on the Federal Workforce. But some lawmakers and representatives from federal employee unions remained unconvinced.

The government pays 72 percent of the average premium across all plans participating in FEHBP, but no more than 75 percent of any single plan's premium. That share was set in a 1997 budget law and has not been adjusted since, even though premiums have risen. According to Colleen Kelley, president of the National Treasury Employees Union, premiums have grown 50 percent since 2001.

"It strikes me that the government has rested on its laurels, said 'Premiums will go up, and be satisfied with it,' " said Del. Eleanor Holmes Norton, D-D.C.

According to a December 2006 Government Accountability Office study, the rate of premium increase has declined in recent years, in part because OPM used supplemental funding to hold the increase at 1.8 percent last year. Springer estimated that premiums would have risen just more than 6 percent last year if she hadn't used reserve funds. That would still have been lower than the 12.9 percent high mark in premium increases reached in 2002, and lower than premium hikes in a range of other public and private plans GAO examined.

Norton argued that the government may still need to contribute more to attract employees from the private sector. But Springer said private sector employers were lowering their contributions to health plans.

"We have to figure out what is the right level of cost and what's the right place to invest," Springer said. "We do not see that this is a barrier to retaining or hiring people. The satisfaction level with benefits has gone up. All I can say is that we think this is still positioned properly."

Springer cited what she views as a different shortfall within the federal benefits package, however -- the lack of a short-term disability insurance benefit. Such a benefit would allow employees who have short-term needs, such as maternity leave, to fulfill them without having to "patch together" various forms of annual, sick, advance or donated leave, she said.

Meanwhile, labor union and employee group representatives suggested additional improvements to FEHBP.

Kelley recommended that Congress mandate a thorough investigation into drug price negotiations. While OPM negotiates with carriers for the best overall health care package, carriers negotiate individually for the best drug prices. "We would be happy to work with your committee to reopen the drug pricing discussion, perhaps find a creative way to bring down premiums," Kelley said.

J. David Cox, national secretary-treasurer for the American Federation of Government Employees, and Margaret Baptiste, president of the National Active and Retired Federal Employees Association, said FEHBP carriers should be required to purchase prescription drugs at the discounted prices the government has negotiated for purchase from the General Services Administration's Federal Supply Schedule. The FSS is used by the Defense and Veterans Affairs departments to negotiate drug prices for veterans and military personnel.

"It simply makes no sense for the federal government to pay one set of discounted prices for the prescription drugs it purchases for use in veterans [and military] hospitals . . . and other drastically high prices when it pays for prescription drugs for its 8 million employees, retirees and dependents," Cox said. "Why should taxpayers finance this inequity?"

Subcommittee members cited a report released by GAO 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.

OPM has argued that 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, the government would be subsidizing itself unnecessarily, Springer argued.

But lawmakers and group representatives argued that accepting the subsidy would have reduced the overall cost of federal employee health plans, and the savings could have been passed on to participants.

Subcommittee Chairman Danny Davis, D-Ill., said the panel will conduct more hearings on benefits. "The federal government must keep current in the types of benefits it offers employees if it is to attract and maintain a quality workforce," Davis said.