Why are FEHBP costs up?

Average annual subscriber premiums for the Federal Employees Health Benefits Program (FEHBP) rose $132 in 1998 and will increase by $88 in 1999, a much higher increase than has been experienced by health care customers in the private sector. Unfortunately, no one seems able to come up with a satisfactory explanation for this trend.

The House Government Reform and Oversight Subcommittee on Civil Service recently held hearings to examine the causes of the increases in next year's FEHBP health care premiums. Subcommittee chairman John Mica (R-Fla.) said premiums have "dramatically increased" for the second straight year, and average premiums in 1999 will be about 20 percent higher than in 1997. (During this time, the consumer price index for all goods and services has been averaging about 2 percent a year.) Mica pointed out that the steep increases in health care premiums will "devastate federal retirees who will see their cost of living adjustments, on average, nearly wiped out."

The Office of Personnel Management has tried to present these premium increases in the most favorable light, but subscribers will pay total premium cost increases of about $1 billion over two years. One couldn't fault OPM, which oversees the FEHBP, for the increases if the same thing were happening in the private sector. But in 1998 FEHBP premium increases averaged 8.5 percent, while private-sector employers encountered only a 3.3 percent increase, according to the journal Health Affairs.

Testimony by William Flynn, OPM's associate director for retirement and insurance, was disappointing. For example, he acknowledged that the average enrollee's actual costs increased by 12.5 percent in 1998, but he pointed out that the figure was less than the 15.4 percent increase projected by OPM. This, he would like us to believe, is good news.

Flynn and others tried to blame the increase on the rising cost of prescription drugs. He said 20 percent of FEHBP premiums go toward drug benefits, but he did not say whether these drugs are keeping people out of the hospital. Prescription drugs are expensive, but they prevent serious complications and should reduce overall health care costs, not increase them.

Flynn also said the study predicted a 22 percent cost increase for prescription drugs in 1999. That is quite out of line with what drug companies are quoting and what has been reported in the press.

Stephen Gammarino, a vice president with the Blue Cross and Blue Shield Association, testified that prescription drug costs represent 30 percent of total benefits costs in the Blue Cross plan and described the increase in drug costs as alarming. Yet in 1999, enrollees can get a 90-day supply of any medicine for $12— the same as in 1998. If drug costs are rising alarmingly, why isn't Blue Cross charging more?

Gammarino also said that drug costs are "understandable and justified" because there are many "older" people in the plan. "In many instances, prescription drugs have become effective alternatives to hospital admissions and surgery," he added. So, are prescription drugs the problem or the solution?

A vice president of Merck-Medco, the company that handles Blue Cross' mail-order prescription drug program, pointed out that the average enrollee in the Blue Cross plan is getting older, and older people use more prescription drugs. It seems to me that the plan is not doing what is needed to attract younger enrollees.

So what is the real reason for the disproportionate increase in FEHBP premiums? It couldn't possibly be faulty OPM oversight, could it?

-- Bureaucratus is a retired federal employee who contributes regularly to Federal Computer Week.

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