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

Good afternoon! I am here today to deliver several pieces of very good news for federal employees and retirees regarding their benefits.

1. Their average health insurance premium increases will be among the lowest in the country.
2. The federal government will offer its employees and retirees greater choice than almost any employer - 188 choices, including an innovative consumer-driven option offered by the American Postal Workers Union.
3. New, web-based decision-support and information tools will be available to help federal employees and retirees make their choices and to ensure that they get high-quality health care.
4. A new benefit — personal Flexible Spending Accounts (or FSAs) — will be offered to federal employees beginning in July. These accounts can be used both to pay out-of-pocket health care costs and for dependent care with pre-tax dollars, reducing out-of-pocket expenses.

Our strategy is based on four cornerstones.

First, we put the initial challenge out to FEHB carriers to expect very, very tough negotiations last year at this time. When I spoke at their conference in March, I reinforced this message, telling carriers in no uncertain terms that OPM was going to insist that they contain costs and insist that they maintain quality.

I reminded them of President Bush's principles for health care: patient-centered health care, preservation of choice, and excellent quality. I encouraged each plan to be creative and explore all reasonable options consistent with these principles. I am a firm believer in the capacity of the private sector, not government, to marry cutting-edge medical research, technology, and market forces to produce better health care options for federal employees.

This message was repeated in the OPM call letter that went out in April.

The second cornerstone was OPM's outstanding negotiating team, and I want to recognize these "pit bulls" for their role in bringing our strategy to successful conclusion. In June, I restated my direction to staff from last fall — the first time an OPM Director has met personally prior to negotiations. My charge to them was to be tough. I promised to back them up fully, but told them they must negotiate fiercely — harder than they ever had in their careers — to keep insurance affordable, maintain high quality, seek additional options not by mandate but by suggestion, and preserve choice for the retirees and civil servants who work for America. They did a tremendous job, working long and hard over the last several months.

Third, complementing our negotiating strategy, we have maintained a close and ongoing relationship with the OPM Inspector General. He knows that I support 100% his efforts to detect and control fraud and cultivate a culture of accountability within the FEHB.

Finally, to better inform future decisions, we initiated a comprehensive outside audit to review the costs of all mandates over the past decade — federal as well as state mandates affecting HMOs.

All of these initiatives work together, and today I am proud to announce very positive results.

PREMIUM INCREASES BELOW THE NATIONAL AVERAGE

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.

As a basis of comparison, this summer the California Public Employees' Retirement System (CalPERS) announced an average premium increase of 25% for health maintenance organizations and 20% for other plans.

I told our negotiators that increases of this magnitude were simply unacceptable. From OPM's perspective, our first and foremost concern is the civil service. We want our federal workers and retirees enrolled in highly rated plans that deliver quality care in a cost-effective manner. That means keeping insurance affordable.

Thanks to our negotiators' success in squeezing the premium increases down, premiums in the Federal Employees Health Benefits program will rise by an average of 11.1% in 2003. This is more than 2% below last year's 13.3% increase.

Employees in self-only plans will pay an average of $4.45 more per pay period next year; for family plans, the increase is $10.21.

Given the industry trends, our 11.1 % increase is quite remarkable. Indeed, health insurance premium increases for federal employees will be among the lowest in the nation.

OFFERING CHOICE TO FEDERAL EMPLOYEES AND RETIREES

One of the reasons for the FEHB program's favorable comparison with rate increases at the national level is choice. The system operates with a minimal level of micromanagement and is designed to unleash the creativity and the genius of the private sector. Having a choice of plans promotes healthy competition among carriers for subscribers and helps contain costs.

The federal government offers its employees and retirees greater choice than almost any employer — 188 choices in 2003. All enrollees will have at least a dozen fee-for-service options in addition to their local HMOs.

This year, the FEHB has added five new plans and four new options. I am especially excited about an option that will be offered for the first time by the American Postal Workers Union, which reflects exactly the kind of innovative thinking we had in mind when we asked plans to use their creativity and ingenuity to imagine every solution for containing costs and keeping health care affordable.

We refer to this American Postal Workers Union option as a "doughnut" plan. Members have no out-of-pocket costs up to a specified limit. Only then does the deductible kicks in, and they must cover costs until that limit is reached.

This consumer-directed plan will give beneficiaries a greater degree of control over their health-care dollars. It reflects the kind of cutting-edge insurance that has made the FEHB the pace-setter in terms of employer-provided health care.

WEB-BASED TOOLS FOR CONSUMERS

Consistent with the President's call for expanding e-Government, we are making new web-based decision-support and information tools available to help federal employees and retirees make their choices and to ensure that they get high-quality health care.

The FEHB program is designed to let employees and retirees compare benefits, costs, and other features important to them in a health plan. This year, they will have access over the Internet to a brand new plan-comparison tool developed by OPM to help them choose. Retirees also will have access to customized web-based decision-support tools. We also make customer-service and satisfaction records and accreditation ratings available electronically.

I appreciate that, while comparatively small, an 11.1 % average premium increase is significant and means employees and retirees will pay more for their insurance. The government, of course, will pay its share of this increased cost — on average, 72% of the total premium. The choices available through the FEHB program and the new tools we are providing will enable those who feel their plans have increased too steeply to shop around during open season and select the plan that gives the most "bang" for their healthcare dollars. It is how a market-based, consumer-driven system should work.

FLEXIBLE SPENDING ACCOUNTS

In addition, I am pleased to announce a valuable addition to the federal benefits package that will reduce out-of-pocket costs for federal employees — Flexible Spending Accounts or FSAs.

Many other employers already offer their workers this option. It allows employees to establish a personal savings account with pre-tax dollars. It is a logical follow-on to the premium conversion plan the federal government currently offers.

Employees will be able to set up a health care FSA to use for out-of-pocket costs including co-payments and deductibles and for health care expenses not covered by insurance, such as dental services and eye-care. Employees also will be able to set up an account for dependent-care expenses for children and aging parents.

I promised Colleen Kelley of the National Treasury Employees Union that we would make FSAs available as soon as possible. In keeping with this pledge, we expect the first open season to begin in May, and the FSA program to start in July 2003. After that, the FSA sign-up season will be aligned with the FEHB program open season.

CONCLUSION

These efforts are a very important to the big picture.

We owe the men and women who are working so hard for America — who are fighting the war on terrorism, protecting homeland security, and carrying out all of the vital and sustaining work of government — the security of knowing they will be able to afford a high-quality health insurance plan for themselves and their families.

And with the intense competition among employers for the best and the brightest workers, offering the best, most attractive benefits package is critical to the federal government's ability to bring in the high-quality workforce we need to do the important work the American people count on us to perform.

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

And now, I would be happy to answer your questions.