FEHBP Premiums Rise Less Than National Average; OPM James' Call for "Tough" Negotiations Helps Contain Costs
Money-Saving Flexible Spending Accounts to be Offered July 2003

Washington, D.C. - Premiums in the Federal Employees Health Benefits Program will increase by an average 11 percent in 2003.

By coverage type, the average premium increase for fee-for-service plans is 10.5 percent; for Health Maintenance Organizations (HMO), the average increase is 13.6 percent.

Given the overall inflationary health-care environment, the size of the increase is positive news for federal employees and retirees, as it is significantly less than the predicted average rate of increase nationally. Aggressive actions on the part of the U.S. Office of Personnel Management, which administers the FEHB Program, have helped hold the line on costs while maintaining quality.

Studies predict that health care premiums in the United States may climb as much as 20 percent. Despite the smaller average rise in the FEHB Program, OPM Director Kay Coles James recognizes that double digit premium increases are a burden and vows to continue efforts to curb future cost hikes.

During the FEHB Program open season, which runs from November 11 through December 9, enrollees can select a new health plan or stay with their current carrier. Employees and retirees enrolled in the program can review the Open Season guide and health plan brochures at the FEHB Program web site (www.opm.gov/insure).

The FEHB Program is the largest employer-sponsored health insurance program in the nation and covers nearly nine million federal employees, retirees and their dependents.

"Despite its size, the FEHB Program is not immune to the inflationary pressures that have driven up costs in the health-care industry in recent years," said James. She attributes "choice" as part of the reason for the program's favorable comparison with premium increases at the national level. Federal employees and retirees can choose from at least one dozen fee-for-service options, in addition to local health maintenance organizations (HMOs).

"Because our program is designed to let employees and retirees compare benefits, costs and other features important to them in a health plan, they can select one plan from among many and get the most bang for their health-care dollars," said James. "At the same time, having a choice of plans promotes healthy competition among carriers for subscribers and helps contain costs."

Next year, participating plans will offer 188 choices in the FEHB Program. Factors contributing to rising health-care costs throughout the nation are the increased use of prescription drugs, an aging population and advanced medical technology that people want and deserve.

In 2003, FEHB Program enrollees with self-only coverage will pay approximately $4.45 more in premiums per pay period; those with family coverage will pay about $10.21 more per pay period. On average, the government pays 72 percent of FEHB premiums.

During James' first full year as OPM Director, she took aggressive actions to contain FEHB Program costs, maintain quality and keep the program on the cutting edge of employer-provided health benefits. "I met with the FEHB plans and asked for their best ideas to help hold down premiums and promote quality ," said James. "And I encouraged them to explore all reasonable options to constrain premium increases, while maintaining a benefits program that is highly valued by our employees and retirees, as well as attractive to prospective federal employees. One result is an innovative consumer-driven option under the APWU health plan."

Other actions taken by James to enhance the program included personally encouraging FEHB contract negotiators to take "tough" positions with carriers on behalf of enrollees, initiating a comprehensive outside audit to review the "true cost" of mandated services, and working collaboratively with the OPM Inspector General to enhance investigations of fraud and waste in the program. She also took decisive action to resolve carrier concerns that threatened their continued participation in the FEHB Program by exempting them from inappropriate accounting standards and substituting an appropriate regulatory framework.

"We have worked very hard this year to provide health plan choices that maintain competitive benefit packages, yet keep health care affordable," said James. "We will continue on this path."

James also announced that beginning in July 2003, employees can contribute to a personal Flexible Spending Account (FSA), which they can later tap to pay for the uncovered portions of qualified medical costs. FSAs also can pay dependent-care expenses. All employee contributions to FSAs are made from pre-tax earnings, thereby increasing disposable income; there are no government contributions to the program. A Request for Proposal will be issued later this month for a third-party administrator of the program. Information about the FSA program will be updated, as it becomes available. By law, retirees, both federal and non-federal, are not eligible to maintain FSAs.

See related information on this Topic

• September 17, 2002 Transcript of Remarks by the Honorable Kay Coles James
• March 6, 2002 Remarks at FEHBP Carrier Conference
• 2003 FEHB Premiums
• 2003 Health Insurance Increase Comparison Chart        
• FEHB Program Carrier Letter
• Contributors to the Premium Increase
• Cost Accounting Standards (CAS)
• FEHB FAQS
• FEHBP Premiums Rise Less Than National Average
• Health Plan Terminations and Service Area (SA) Withdrawals
• Industry Trends

OPM oversees the federal work force and provides the American public with up-to-date employment information. OPM also supports U.S. agencies with personnel services and policy leadership including staffing tools, guidance on labor-management relations and programs to improve work force performance.