WASHINGTON – Federal workers will pay an average of 15.4 percent more for health insurance next year, administration officials told shocked legislators Wednesday.
Premium increases will vary by which government-approved insurance plan an employee uses, said William Flynn, associate director of the Office of Personnel Management.
Sixty percent of employees will pay between 5 percent and 20 percent more beginning Jan. 1, Flynn said. Rates will rise more than 20 percent for 23 percent of the federal work force and rates will rise less than 5 percent for the remaining 17 percent.
Flynn said the average bi-weekly bill for family coverage will increase $8.64 and go up $3.32 for individual coverage.
“I’m shocked,” said Rep. John Mica, R-Fla., chairman of the House Government Reform and Oversight subcommittee on civil service. “I think a lot of people will be shocked in January.”
Officials said a major reason for the increase is how the government uses a reserve fund in the Federal Employee Health Benefits Program.
The 350 health plans that provide coverage to government workers through the program are required to keep 2.5 months worth of reserves in a government fund to cover claims.
But many of the plans had excess reserves, which the government used in recent years to cover increasing medical costs. That enabled the government to keep rates down.
The reserve fund is now approaching a level that government officials do not want to dip below, so they have slowed down the rate at which they draw money from the reserve, according to OPM officials.
Another reason for the sharp increase is the dramatic rise in prescription drug costs over the last 12 months, said Stephen Gammarino, vice president of the federal employee program at Blue Cross Blue Shield Association.
Gammarino said the problem is exacerbated by more elderly customers, who are more likely to require prescription drugs. The average age of Blue Cross Blue Shield enrollees is 60.
Legislators also said they were surprised that the rate hikes will cost the government an extra 5.7 percent while employees will pay 15.4 percent more.
OPM officials said the disparity exists because of how the government’s share is calculated.
The government’s share is based on the average rate of six selected health plans. But that average rate is less than the rates charged by the 350 insurers participating in the federal program.
In 1999, a new formula will be used that will take the weighted average of the 350 insurance companies to determine the government contribution.
“This year employees ended up getting hit harder than they should have,” said Beth Moten, legislative director of the American Federation of Government Employees, which represents 600,000 federal workers. “It justifies why the decision was made to move away from the (current) formula.”
At the end of the hearing, Mica called for insurance carriers to suggest actions not requiring legislation that can be used to control costs.