'Tough' on rising premiums?

The director of the Office of Personnel Management, Kay Coles James, recently challenged health care providers to contain costs, maintain quality and keep the federal government's program a model of consumer choice and on the cutting edge of employer-provided health benefits

The director of the Office of Personnel Management, Kay Coles James, recently challenged health care providers to contain costs, maintain quality and keep the federal government's program a model of consumer choice and on the cutting edge of employer-provided health benefits.

James, who was speaking at the Federal Employees Health Benefits Program Carrier Conference, put the providers on notice to expect "very, very tough negotiations from OPM this year."

Although such a speech may give James brownie points with President Bush, I'm wondering whether we're being set up for another huge increase in health benefits costs. Here's why. Federal Employees Health Benefits program carriers enter into contracts with the U.S. government to provide benefits to federal employees at negotiated rates. The program is structured so that if a carrier loses money in one year, health insurance premiums are raised the following year to recoup losses.

Under such a benefit/premium structure, carriers can't lose and feds can't win. If OPM is "tough" in negotiating with carriers, they'll respond by either reducing benefits or raising premiums. OPM can't stop carriers from raising premiums if they can show that it's necessary to charge higher premiums to cover costs. So how can OPM be tough? Carriers have been increasing premiums and reducing benefits for years. What can OPM do about it? Nothing!

For example, feds who are enrolled in the Blue Cross Blue Shield Association plan have seen co-payments for prescription drugs skyrocket from $8 to $35 during the past eight years for a 90-day supply of nongeneric medication. On top of that, insurance premiums have been rising at a rate that greatly exceeds the rate of inflation. During this period, the co-payment for office visits to doctors has increased from $10 to $15.

There also have been subtle changes. For example, if you have a blood test done at a participating provider, you have to pay 10 percent of the cost. It used to be 5 percent. And this benefit is available right away — you don't have to satisfy an annual deductible. But say you have the same blood test done at a hospital. Then you have to satisfy an annual deductible of about $250. If you haven't, you're on the hook for the entire charge. Worse yet, the charge is probably triple what it would be if the blood test was done in your doctor's office because of overhead costs.

Why doesn't Blue Cross refuse to pay for those additional costs? Why doesn't OPM force the carriers to refuse to pay for hospitals' overhead? Because each carrier competes with the other to offer a provider network of physicians, hospitals and other health care providers. If a carrier refused to allow the higher amounts charged by hospitals, the hospitals would refuse to join the network. That would be a disaster for the carriers.

I'm afraid that James' speech was just talk.

Zall is a retired federal employee who since 1987 has written the Bureaucratus column for Federal Computer Week. He can be reached at milt.zall@verizon.net.

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