U.S. Office of Personnel Management - Ensuring the Federal Government has an effective civilian workforce

FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM

Press Briefing September 17, 2002

Questions and Answers

COST ACCOUNTING STANDARDS

Why did you waive the Cost Accounting Standards (CAS)?

• Applying CAS to the FEHB Program would add cost but no value. By taking decisive action now, I have avoided the unnecessary disruption of health benefits enrollment for millions of Federal employees, retirees and their families. CAS was exempted in OPM appropriations for FYs 2000, 2001, and 2002. The exemption was dropped from OPM’s ’03 appropriations bill when the House approved an amendment introduced by Rep. Dennis Kucinich, but it remains in the current Senate bill. BC/BS stated it would withdraw from FEHB if CAS applies. Legislative resolution of the CAS issue would be too late for a timely open season.

What is the problem with applying CAS to FEHB insurance contracts?

• CAS requirements as structured do not easily transfer to insurance industry accounting practices, so their application would be costly, cumbersome, but above all, unnecessary.

Why did BC/BS threaten to pull out of the Program?

• I believe BC/BS will make its own statement on this issue today.

What did BCBS tell OPM?

• The BC/BS national plan is underwritten by 42 local BC/BS plans. In many of these local plan areas, the federal plan is a very small percentage of their total insurance business, less than 1%. Because the Federal program is fully integrated with their other lines of business and does not operate as a discrete product line, BC/BS says that it would not be cost-effective to make the necessary accounting changes since they would affect their entire book of business; therefore, they would leave the federal plan.

How many are enrolled in BC/BS?

• BC/BS has more than 50% of FEHB members. It has over 4 million covered employees, retirees and dependents. Including their separate experience-rated HMOs, about 5 million people would be affected.

What authority do you have to waive CAS?

• The Defense Authorization Act of 2000 gave agencies the authority to waive CAS. As the Director of OPM, I exercised this authority.

Isn't CAS needed to protect FEHB from scandals like Enron and WorldCom?

• The FEHB Program has statutory, regulatory and contractual requirements that already provide adequate financial safeguards.

• The OPM Inspector General concurs with me in this opinion.

Is your waiver of CAS for one year?

• No, the agency waiver will be ongoing.

Are there any other actions you plan to take?

• Yes, even though FEHB is already adequately safeguarded, I plan to propose an additional regulation that would impose further financial requirements on our contractors that are consistent with CAS principles, but that use practices consistent with insurance company operations.

FLEXIBLE SPENDING ACCOUNTS

Why is the Federal Government offering flexible spending accounts (FSA)?

• Private and other public employers already offer FSAs. If the federal government is going to attract the talent it will need for the future, we must keep our benefits programs on the cutting edge. So, I have directed OPM staff to take steps to offer FSAs.

When will FSAs be available?

• Beginning mid-2003.

Who will be eligible for FSAs?

• All Executive Branch agencies, as well as non-executive branch agencies that choose to participate. When we offered premium conversion in 2000, almost all agencies that did not already have a program in place under independent compensation authority chose to adopt it for their employees. The U.S. Postal Service, the Judiciary, and some bank regulatory agencies already offer FSAs to their employees.

How much will this new Government program cost?

• Like OPM's Long Term Care Program, no government funds will be used to finance this program. The program will be financed solely by participants. OPM intends to contract with a vendor that has the resources to be financially responsible for funding start-up costs and ongoing maintenance.

What does this program have to do with FedFlex?

• FedFlex is a cafeteria benefits plan under Section 125 of the Internal Revenue Code. In October 2000, OPM implemented pre-tax premium conversion benefits for the Federal Executive Branch. The Federal Flexible Benefits Plan (FedFlex) allows an employee to allot on a pre-tax basis from his or her pay the amount of his or her share of premium paid for participation in the Federal Employee Health Benefits (FEHB) Program. OPM is now enhancing FedFlex to implement health care and dependent care FSAs.

What will FSAs do for Federal employees?

• FSAs will increase disposable income because the funds are not subject to Federal income and FICA taxes nor most state and local income taxes. FSAs will allow employees to make pretax salary contributions to pay for qualified medical expenses that are not reimbursed by any other source, and to pay dependent care expenses.

What are some concerns about FSAs that employees should know?

• Employees must carefully consider how much money to put into a FSA. If the money is not used within the plan year (January 1-December 31), it is forfeited. The President supports a $500 rollover provision, but it will require a legislative change to make it effective.

Will FSAs help strengthen the Government’s competitiveness in the employment market?

• Yes. The Federal Government provides service to the American people largely through the quality of employees it hires to carry out public work. Employee benefits are an important part of the compensation package and employers compete for talent by making benefits attractive and valuable. Most employers, including most state and local governments, offer FSAs to their employees. Offering FSAs will help make the Federal Government a more competitive employer.

APWU HEALTH PLAN

• OPM accepted a Consumer-Driven Healthcare proposal from the APWU Health Plan. APWU will introduce a new Standard Option using Definity Health, a leader in consumer-driven healthcare. The APWU Plan will feature up-front money in the form of a personal care account. Members will be able to use their accounts to pay for both traditional health services and some additional procedures, such as dental and vision, that are often not covered or covered minimally by traditional plans. When funds in the personal care account are exhausted, there is a deductible that must be met before traditional health insurance coverage becomes effective.

PREMIUM INCREASE

What are the FEHB trends for next year?

• The overall weighted average FEHB premium increase will be 11.1 percent which is below national projections. Premiums for Health Maintenance Organizations will increase an average 13.6 percent, while Fee-for-Service plans will see an average increase of 10.5 percent.

• Nationwide, premiums for health insurance have been rising for several years. Aggressive actions on the part of the US Office of Personnel Management have helped hold the line on costs while maintaining quality.

• "Choice" is one of the factors that has helped to constrain cost increases because the FEHB Program is a strong competitive market.

What accounts for the FEHB premium increase?

• There are a number of reasons for the premium changes. In general, FEHB rates reflect changes in the health care marketplace and those costs are continuing to increase. The FEHB Program uses private market competition and consumer choice to provide comprehensive benefits at an affordable cost to enrollees and the Government. In addition, we take firm negotiation positions with health carriers to keep cost increases as reasonable as possible.

How do FEHB premium changes compare to the private sector?

• The FEHB premium increase compares favorably with national trends such as the rates of the California Public Employees Retirement System (CalPERS), the second-largest purchaser of health benefits after the FEHB, which will rise about 25 percent (Sacramento Bee, April 17, 2002). CalPERS announced that its basic rates would increase 22.1% for PERSCare and 18.9% for PERS Choice.  Medicare rates will increase 5.9 percent for PERSCare and 5.1 percent for PERS Choice. The increase will be 25.1 percent for HMOs. Using FEHB's distribution, that would be 18.7% on average.

What other trends have been reported?

• Employers face another year of double-digit increases -- 12.7 percent in 2002. (Washington Post, September 6, 2002.)

• Trends are up over last year. The Kaiser Family Foundation and the Health Research and Educational Trust recently announced the results of their annual survey of employers and reported premiums rose an average 12.7 percent in 2002 (Washington Post, September 6, 2002).

• Nationwide, studies project that insurance premiums will climb by 13 percent in 2002 and HMO rates could increase by as much as 20 percent (Washington Post, July 9, 2002).

• Rates of the Milliman USA’s annual HMO inter-company rate survey indicates average increases of 17 percent for the nation. The higher costs could lead many employers to offer fewer health plans, reduce what they cover, or shift more costs to employees (New York Times, April 18, 2002).

• Among those predicting 20-to-25 percent hikes for 2003 are HMOs recently surveyed by the benefits consultant Hewitt Associates. (Medicine & Health Perspectives, June 17, 2002) "Preliminary 2003 HMO rates are averaging upward of 20 percent," said Hewitt in a June 4 release. According to preliminary estimates from Mercer Human Resource Consulting, companies will probably face average increase of 12 to 15 percent in 2003, compared with a projected increase of 12.7 percent this year. The New York Times article "Hard Decisions for Employers as Costs Soar in Health Care" (April 18, 2002), the steep increases could lead many employers to shift a greater proportion of health care costs to their workers and we’re going to see a huge spike in the number of uninsured

• What are the Contributors to the Premium Increase?

Factor	Government	Enrollee	Total	Change
Average 2002 Biweekly Premium	$159.39	$68.20	$227.59
Increased Drug Costs	$5.72	$2.24	$7.96	3.5%
Utilization, Technology & Medical Inflation	$13.23	$5.18	$18.41	8.1%
Demographics (Age, Sex, etc.)	$1.63	$0.64	$2.27	1.0%
Benefit Changes	($0.98)	($0.38)	($1.36)	-0.6%
Enrollee Choice (Plan Movement)	($1.96)	($0.77)	($2.73)	-1.2%
Other (Reserves, Financing, etc.)	$0.49	$0.19	$0.68	0.3%
Average 2003 Biweekly Premium	$177.52	$75.30	$252.82
Average Biweekly Change	$18.13	$7.10	$25.23	11.1%

Rx costs have been a contributing factor for the past several years. How do you see RX trends this year?

• Rx costs represent about 3.5% of the increase this year. This is down from 4.9% last year.

How much more will enrollees have to pay?

• 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 premiums.

What were the FEHB premium increases for the past four years?

• In 2002, the FEHB Program average premium increase was 13.3 percent. In 2001, it was 10.5 percent; in 2000, 9.3 percent; and in 1999, 9.5 percent.

NARFE and others were concerned that Medicare enrollees might be affected by benefit changes for 2003. Has this happened?

• There were no benefit changes this year that negatively affected that group and a couple of health plans have made changes that are positive for Medicare enrollees. They are Mail Handlers and National Association of Letter Carriers.

When do the new health benefits premiums go into effect?

• The new health benefits premiums go into effect in January 2003.

GENERAL FEHB PROGRAM QUESTIONS AND ANSWERS

How many plans will participate in the program next year?

• For January 2003, FEHB participants will have over 188 health plan choices from which to select coverage that best meets their needs. The FEHB Program annually provides over $24 billion in health care benefits.

How many are enrolled in the Program?

• 8.6 million (almost nine million) Federal employees, retirees and family members participate in the Program. Approximately 85 percent of federal employees choose to participate in the FEHB Program.

What are the FEHB Open Season dates this year?

• The Open Season will run from November 11 through December 9 this year. Eligible federal employees and retirees can exercise their choice of health plans. They can stay with their current health plan or choose a new one. Their choice will be effective their first pay period in January.

How does OPM inform FEHB Program participants about Open Season?

• OPM produces a "Guide to FEHB Plans" each year prior to Open Season that lists the health plans and provides summary information on benefits, rates, and health plan quality. The Guide includes results of consumer satisfaction surveys and information on health plan accreditation. OPM also ensures that each participating health plan produces a brochure that describes the benefits and rates it will offer next year. Open Season information is also available on OPM's website www.opm.gov/insure.

How many health plans are terminating this year?

• Eleven Health Maintenance Organizations have informed us that they will not participate in the FEHB Program after December 31, 2002..

How will participants know if their health plan is terminating?

• They will know from two sources. First, we produce a pre-Open Season Letter for all agency benefit officers that includes details about the upcoming Open Season, including the names of plans terminating from the FEHB Program. Second, all terminating plans are required to mail a notice to their members advising them of their decision to withdraw from the program. Also, because of the transitional care provision in the Patient’s Bill of Rights, enrollees with chronic or disabling conditions, or in the second or third trimester of pregnancy, may be able to continue seeing their specialist even after the plan’s termination date.

How many new health plans were added to the FEHB Program this year?

• Four health plans were added to the FEHB Program this year. They are:

• Health Plan Southeast – FL (code RK)

• J M H Health Plan – FL (code J8)

• Humana Health Plans – PR (code ZJ)

• New West Health Plan – MT (code NV)

• Two plans are adding new service areas:

• AvMed Health Plan/South Florida (code ML)
• Univera Healthcare (code KQ)

• Six plans are adding new Standard Options.

• Humana – TX (code UR)
• Humana – IL (code 75)
• Health Plan of the Upper Valley – OH (code U4)
• HealthSpring – TN (code 6K)
• HIP of New York – NY (code 51)
• APWU – Nationwide (code 47)