Pay & Benefits Watch Pay & Benefits WatchPay & Benefits Watch
Key developments in the world of federal employee benefits: health, pay, and much more.

Eyeing health benefits, premiums

Some readers were upset when they heard that Office of Management and Budget Director Mitch Daniels said next year's federal pay raise would be 3.6 percent instead of 4.6 percent because of "additional relief coming from a lower charge for health benefits." In citing that "additional relief," Daniels was referring to the October 2000 "premium conversion," when the Clinton administration took advantage of a provision in the tax code that allows employers to deduct health insurance premiums from employees' paychecks before taxes are withheld. The average federal worker has been taking home $434 more per year because of this practice. At the time of the premium conversion, however, many federal workers saw the change as a way to offset the skyrocketing health insurance premiums they have been paying in recent years. Federal Employees Health Benefits Program premiums increased an average of 8.5 percent in 1998, 9.5 percent in 1999, 9.3 percent in 2000 and 10.5 percent in 2001. "Don't know where the director for OMB has been, but the civilian workforce medical coverage payments have gone up," one reader wrote in. Unfortunately for federal workers, their health insurance premiums will probably continue to shoot up, just as health insurance premiums in the private sector have recently. In December, William M. Mercer Inc. issued a survey predicting that employer-sponsored health insurance premiums this year will rise an average of 11 percent, with 13 percent of employers seeing increases of 20 percent or more. Employers attribute the rising health insurance premiums to a number of factors, including higher costs for prescriptions drugs, hospital visits and doctor visits, according to a 2000 study by the Kaiser Family Foundation. Recognizing the trends in health care costs, the Office of Personnel Management has tentatively estimated it will need an 8 percent budget increase in fiscal 2002 to pay the government's share of health insurance premiums. The government typically pays 72 percent of premiums, with employees paying the other 28 percent. OPM won't know what the actual increase in premiums for 2002 will be until later this year, after negotiations with insurance carriers are completed. OPM is trying to complete negotiations by Aug. 17. During an open season in the fall, employees will compare the premiums and benefits offered by the more than 200 plans in the FEHBP and decide whether to keep their existing insurance plan or switch to a new one. In a letter to insurance companies last week, Abby Block, who directs OPM's insurance programs, said officials would work with insurance companies to figure out ways to keep premiums down. Block said the Bush administration may also consider some legislative changes to the FEHBP that could help make health insurance more affordable. But those potential changes would probably not get through Congress and into regulations in time to have an impact on premiums in 2002. "For 2002, we expect to fine tune in a few areas and continue to make progress in several others," Block said in an April 10 letter, which signals the start of the annual premiums and benefits negotiation period between FEHBP carriers and OPM. In the area of benefits, the most significant proposal for 2002 affects contraceptive coverage. In his 2002 budget proposal, President Bush proposed the deletion of mandatory contraceptive coverage in the FEHBP. Current law requires all federal employee health plans to pay for five types of birth control approved by the Food and Drug Administration, including: the pill, Norplant, Depo-Provera, the intrauterine device, and the diaphragm. OPM officials say most health insurance plans would probably still continue to cover the contraceptives, even if Congress approves the change. But Rep. Jim Moran, D-Va., vowed to fight the change, contending that the contraceptive requirement is necessary to make sure that women have a good set of options for birth control. The OPM letter also:
  • Urged health insurance carriers to make sure that people can get the mental health services they need. Some outside groups are worried that the manner in which the FEHBP rule mandating mental health coverage is written could allow insurers to curtail needed services. "We continue to affirm our original intent that all members will receive medically necessary services in their approved treatment plans," Block said.
  • Encouraged carriers to improve patient safety.
  • Asked non-accredited insurance providers to explain how they will become accredited.
  • Warned insurance carriers that an increasing number of FEHBP enrollees are complaining that they are paying more out of their own pockets for out-of-network care when they are unable to use network providers. "We encourage you to seek ways to increase the level of awareness of the issue and provide appropriate assistance to members who seek the services of network providers for their needs," Block said.
  • Encouraged carriers to consider covering alternative health care methods such as chiropractic, acupuncture and biofeedback services for pain management and other treatments.
TSP Link In last week's column, the initially published link to the Thrift Savings Plan's fact sheet on TSP contributions was wrong. The correct link is:

Brian Friel is founder of One Nation Analytics, an independent research, analytics and consulting firm for the federal market.

Close [ x ] More from GovExec

Thank you for subscribing to newsletters from
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.