Federal Employees Get a Break on Health Plan Cost Increases

September 17, 2007 (PLANSPONSOR.com) - Health insurance premiums for federal employees and retirees will increase by an average of 2.1% next year, the Office of Personnel Management announced, according to the Washington Post.

Officials said they held down the premium increase by dipping into excess cash reserves of the Federal Employees Health Benefits Program, which provides about $35 billion in health-care benefits annually, according to the news report. The use of the reserves brought down next year’s premium by three percentage points, officials said.

The use of the program’s reserves reduces rate increases next year for national, fee-for-service plans, which are required to set aside money for contingencies; however, the program’s health maintenance organizations do not build up reserves because they operate on fixed-price contracts each year, the officials noted.

The decision gives federal employees their second break in a row on premiums, as this year’s average premium was only 1.6%, the lowest annual increase in the employee program since 1997, the Washington Post said. The increases are substantially lower than those faced by private sector employees.

The average cost of private-sector, employer-provided health insurance rose 6.1% in 2007, according to a survey released this week by the Henry J. Kaiser Family Foundation (See Kaiser: Employer-Sponsored Health Care Premiums Up 6.1% in 2007 ), and a survey from Mercer projects private-sector premiums in 2008 will increase by 6.7%.

The federal program will offer 283 plans next year providing insurance coverage to about eight million civil service and postal workers, retirees, and family members. The government picks up about 70% of premium costs. Next year, individuals will pay an average of $1.58 more per two-week pay period, and families will pay $4.11 more biweekly, officials said, according to the news report.

About 60% of the federal program’s enrollees are in two plans provided by the Blue Cross and Blue Shield Association. Individual enrollees in the Blue Cross standard option will pay $62.15 biweekly, $4.85 more than this year. Families covered by the standard option will pay $145.14 biweekly, or $10.84 more.

The Blue Cross basic option, which requires enrollees to stay in the Blue network, will raise premiums after three years of no rate increases. The enrollee cost will be $39.13 biweekly for individuals, up $1.14, and $91.66 for families, up $2.67.