Hearing on Federal Employees Health Benefits Program (FEHBP) Premiums

5/18/2007

Senate Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia

Chairman Akaka, Ranking Member Voinovich and distinguished Members of the Subcommittee, my name is Colleen Kelley and I am the National President of the National Treasury Employees Union (NTEU). NTEU represents some l50,000 federal employees in 30 federal agencies and departments. I appreciate the opportunity today to present testimony on the growth of health care premiums for current and retired federal employees. Your oversight of the Federal Employees Health Benefits Plan (FEHBP) is critical to keeping premiums affordable and services plentiful for the 8 million current and retired federal employees it serves.

Like all Americans, federal employees and retirees continue to face ever increasing health costs. The ranking member pointed out that spending on health care in the United States reached $1.9 trillion in 2004- almost 16.5 percent of the nation’s gross domestic product (GDP). According to the Government Accountability Office (GAO) even though the rate of growth in premiums has recently slowed, premiums are still rising. While the 2007 average premium increase for enrollees in FEHBP is approximately 2.3 percent, it was only a few short years ago that the federal workforce saw double digit premium increases. In 2002, for instance the overall increase was nearly 13 percent and the enrollee portion of the premiums was even more. Had the Office of Personnel Management (OPM) not dipped into reserve funds for the current year, federal participants would have realized premium increases of nearly 7 percent.

NTEU supports aggressive measures to keep costs down for federal enrollees without cutting benefits. While the program, on balance, offers valuable coverage and accessibility for millions of participants which we fully support, action in the three following areas will help keep the program affordable for federal employees, retirees and their dependents in the future.

First, the Medicare drug subsidy. On January 27, 2007, I wrote to Director Linda Springer, director of the Office of Personnel Management (OPM) expressing concern about OPM’s decision not to apply for the Medicare drug subsidy to which it is entitled under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. (PL 108-173). As an employer, OPM is eligible to apply for the drug subsidy which was enacted to discourage employers from discontinuing their prescription drug coverage when Medicare Part D law became effective.

Given GAO’s earlier findings of December 2006, which demonstrated that premiums would have been lower if OPM had received the Medicare drug subsidy, OPM’s reluctance to apply for it was questionable. According to GAO the subsidy would have lowered the average 2006 FEHBP premium in by 2.6 percent had OPM received the subsidy. Some of the individual health plans that serve a high number of retirees could have realized a slowdown in premium growth by as much as 3.5 to 4 percent. These savings could have been passed on to keep the enrollee portion of the premium down.

Given GAO’s current May 18th findings (GAO-07-873T) that the cost of prescription drugs contributed to premium growth for the years 2000 through 2007, it is NTEU’s position that OPM should certainly apply for the subsidy in the future. According to the National Association of Active and Retired Federal Employees (NARFE), the agency could have left more than $1 billion on the table by forgoing the subsidy. NTEU finds this unacceptable and would support legislative measures to require OPM to apply for the subsidy.

Second, negotiating drug prices. The second area that NTEU believes could be helpful on containing FEHBP costs is for a thorough investigation to take place on the issue of drug price negotiations. It is our understanding that OPM negotiates with carriers for the best overall health care package, but the carriers negotiate individually for the best drug prices. Given GAO’s finding (GAO-07-141), that prescription drug costs contribute to higher premiums, it is imperative that every avenue be pursued to keep drug costs affordable.

In the late 1990s, NTEU was part of a coalition that sought to examine alternate drug pricing arrangements. In fact, the union backed an OPM proposed pilot project in which the Special Agents Benefit Association (SAMBA), an employee organization that participated in FEHBP, participate in a plan to buy drugs off of the Federal Supply Schedule similar to federal agencies such as the Defense Department and the Veterans Administration.

Unfortunately, the pilot project was cancelled because drug companies refused to participate. It is our position that these types of creative arrangements should be encouraged by Congress. Given the skyrocking costs of drugs and the aging population, I would encourage the subcommittee to reopen the drug pricing discussion including similar pilots in an effort to save FEHBP costs.

Third, premium cost shares. As you know, bipartisan legislation has been introduced in the House by Representatives Steny Hoyer of Maryland and Frank Wolf of Virginia to increase the federal government’s share of the FEHBP premium. Currently the federal government pays a weighted average of 72 percent of the premium for its employees and retirees. However, as GAO pointed out, this is an average, and enrollee preimium contributions can be higher than 28 percent for plans with premiums significantly higher than the average FEHBP plan. In its testimony, GAO cited a plan in which the 2006 monthly premium was $642, compared with the average premium of $415. Because the government’s share is $299 (72 percent of $415), the enrollee premium contribution for this particular plan was $343, or about 53% of the plan’s premium.

It is time Congress update the federal contribution for FEHBP. Federal employees are paying a constantly increasing share of their paycheck for health care premiums for their families, often at the same time their coverage has declined. Unlike the private sector, or even state and local government employees, whose employers pay a greater share of the premium cost, the federal government’s share continues to remain at 72 percent. For 2006, health insurance premiums increased an average of 6.4 percent.

The Hoyer-Wolf legislation takes an important step forward and NTEU would support similar legislation in the Senate. I urge the subcommittee to examine increasing the federal share of FEHBP as a step providing more affordable health care premiums to federal employees.

Finally, I want to thank the subcommittee for holding a very important hearing that will help the federal government maintain a viable and affordable health insurance program for our 8 million deserving federal employees, retirees and their families.