Federal Employees Need to Make Important Choices Regarding Health Insurance Starting November 8

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The Office of Personnel Management (OPM) recently announced that 2005 Federal Employees Health Benefit Program (FEHBP) plan premiums will increase on average 7.9 percent over rates in 2004. While the somewhat less than expected increase in premium rates for 2005 is welcome news to FEHBP participants (nationally, group health insurance premium rates increased on average about 11 percent during 2004), the increase masks the changes and the increasing number of choices that FEHBP participants are required to make to keep their overall out-of-pocket medical costs down. Federal employees have the opportunity to make changes in their health insurance during the FEHBP open season November 8 - December 13, 2004.

The Office of Personnel Management (OPM) recently announced that for 2005, Federal Employees Health Benefit Program (FEHBP) plan premiums will increase on average 7.9 percent over FEHBP plan premiums in effect during 2004. The 7.9 percent increase is the first time in four years that the average annual plan increase has been below 10 percent.

While the somewhat less than expected increase in premium rates for 2005 is welcome news to FEHBP participants (nationally, group health insurance premium rates increased on average about 11 percent during 2004), the increase masks the changes and the increasing number of choices that FEHBP participants are required to make to keep their overall out-of-pocket medical costs down.

Nationwide, health care costs are rising at a pace that exceeds the rate of growth in wages and inflation. FEHBP participants are also discovering that their co-payments (either a percentage or a flat dollar amount) and plan deductibles are increasing with most FEHBP plans.

Federal employees should, however, count their blessings that they have access to a group health insurance plan such as the FEHBP, which provides a variety of health insurance plans at a very reasonable premium cost to participants. This includes coverage both for employees and for annuitants assuming certain requirements are fulfilled. Nevertheless, before FEHBP participants can consider solutions to their increasing health care costs, it is important for them to understand some of the forces that have caused the upward spiral in their health care costs since the late 1990s. These forces include:

Aging Baby Boomers

The oldest of the post-World War II “baby boomer” generation becomes age 60 within the next two years. Many current federal employees are part of the “baby boomer” generation, which is aging into the years that require the most health care.

Technology Cost

Numerous studies have shown that the United States has the most advanced health care system in the world. Technological changes and additions have included the introduction of new medical equipment, medical procedures, treatment, therapies, and prescription drugs. This technology is expensive; its cost is added back into the total cost of delivering health care and subsequently into the cost of health insurance.

Health Insurance Industry Consolidation

Over the past 10 years, the health care industry has undergone tremendous consolidation. Fewer companies are offering group insurance to businesses, and the number of health insurance companies participating in the FEHBP has decreased in recent years. The result is that it is becoming more difficult for OPM to find and select lower cost FEHBP plan providers.

Legal Costs

The cost of litigation, legal awards, settlements and legal defense costs relative to medical care add to the overall cost of health care benefits.

Prescription Drug Costs

The cost of prescription drugs in this country are increasing annually at a rate exceeding the rate of increase of other medical costs and far exceeding the general inflation rate.

In spite of the increasing medical costs, the federal government continues to pay on average about 72 percent of the total insurance premium cost for FEHBP participants. To help participants pay their average 28 percent of total insurance premiums and other out-of-pocket costs, OPM has instituted a number of voluntary cost and tax saving programs, including:

“Premium Conversion”

Starting in October 2000, FEHBP participants (employees but not annuitants) have had their premium contributions deducted from their salaries on a pre-tax basis, resulting in overall tax savings for employees. However, some employees (particularly those who want to maximize their Social Security retirement benefits) may wish not to participate in premium conversion.

Health Care Flexible Spending Accounts (HCFSA)

An FSA is a tax benefit that allows employees (but not annuitants) to set aside pre-tax monies from their salaries to pay for a variety of eligible medical expenses. HCFSA participants can reduce their taxes while paying for medical expenses (such as co-payments and deductibles) they would have to pay for anyway, resulting in overall tax-savings.

Health Savings Accounts (HSA) and Health

Reimbursement Arrangements (HRA)

Starting in January 2005, FEHBP will allow participants to contribute to an HSA or an HRA. HSA or HRA participation will require enrollment in a High Deductible Health Plan (HDHP). Each month the HDHP will automatically deposit a portion of the HDHP premium into an HSA on a tax-deductible basis. Earnings in an HSA grow tax-free, provided withdrawals are used to pay medical expenses. Unlike the HCFSA, any unused funds in a HSA may be carried over from one year to the next year. Also, even though an annuitant may not contribute to an HSA, any unused HSA funds may be carried forward into retirement in order to pay out-of-pocket medical expenses throughout one’s retirement.

In short, with the changes and savings opportunities in the FEHBP, it is important that participants (both employees and annuitants) be informed and educated about these changes as well as their increasing choices and opportunities. This is especially true today as the cost of health care increases at a pace greater than the annual inflation rate and is expected to continue to do so in the near future.

Federal Employees News Digest, Inc. (http://www.FederalDaily.com) is also providing educational materials and guides to help FEHBP participants better understand their additional choices and savings programs through its publications:

"Health Insurance Guide for Federal Employees"

( http://www.FederalDaily.com/fehbp )

and "Federal Flexible Spending Accounts Guide for Federal Employees"

( http://www.FederalDaily.com/FSA ).

With the FEHBP and FSA open seasons (in which participants need to decide what type of health insurance plans they want and whether or not they want to participate in FSAs for 2005) scheduled to begin November 8, 2004, and continuing through December 13, 2004, these publications can assist employees and annuitants in making their important health care related choices for 2005.

FEDERAL EMPLOYEES NEWS DIGEST, INC. (FEND)

( http://www.FederalDaily.com ), whose federal reporting has helped readers make sense of government issues since 1952, is also the publisher of the weekly Federal Employees News Digest, the monthly Federal Workers' Compensation Update, the annual Federal Employees Almanac, and the free weekly e-mail newsletter, Federal Daily -- as well as the sponsor of a wide range of reports, seminars and audio-conferences to help the federal workforce.

FEND is a private, woman-owned small corporation located in Herndon, Virginia, a suburb of Washington, D.C.

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