After the Office of Personnel Management announced last month that health care premiums for federal employees and retirees were jumping 7.4 percent on average, many feds complained OPM could do more to contain the increases.

They may be right.

Some experts point to recent successes other plans have had in holding down increases, in part by using tactics OPM has not used or used only sparingly. They are:

• Encouraging and incentivizing enrollees to take better care of themselves through wellness programs, using preventive care, and better managing chronic conditions such as diabetes.

• Saving money on prescription drugs by pushing enrollees to use generic drugs instead of more expensive brand-name drugs whenever possible.

• Discouraging enrollees from getting excessive imaging scans, tests, emergency room visits or other treatments that are not necessary.

"All those initiatives are important, because they get to the key drivers of why some of our basic medical costs are so expensive," said Colleen Murphy, president of Asparity Decision Solutions, which operates PlanSmartChoice, a Web site that allows federal employees to compare health insurance options.

A healthier workforce

The Midwest Business Group on Health (MBGH), a nonprofit business coalition of public- and private-sector organizations largely in and around Illinois that banded together to get group rates on health insurance, began in 2006 to work with its members to encourage enrollees to take better care of themselves. One result was that expensive emergency health care costs dropped.

For example, MBGH has helped some of its members adopt a diabetes management program where co-payments for supplies and drugs are waived when diabetics regularly meet with "diabetes educators" and learn strategies for properly controlling their condition so it would not worsen and require more costly care.

"Wellness is a big part of it," MBGH President Larry Boress said. "You don't want people to get any worse. If you can keep people who are pre-diabetic from becoming diabetic, or keep people from getting other conditions, you can hold down costs."

Boress said that even though employers who waive co-pays have to cover a greater cost of diabetes drugs and supplies, employers save about $1,500 annually on each participant because they are in the hospital less and don't require as much medical care.

"If you can get them to understand and manage their own condition, people will own their disease," Boress said. "It keeps them healthier, keeps them at work, and reduces cost."

Frank Johnson, Maine's executive director of employee health and benefits, said a similar program in Maine has yielded similar benefits. Maine has just begun health management programs for enrollees suffering from asthma and congestive heart failure.

MBGH's buying group does not pool risk between participating businesses, so individual businesses are responsible for their own premiums. The result is that businesses have more incentive to adopt more wellness programs to encourage their employees to adopt healthier lifestyles and require less health care, bringing down their premiums.

Those factors — as well as a tough negotiating strategy and the departure of a few high-risk businesses — means employers in the MBGH buying group will see their average premium climb by 1.5 percent in 2010, far below the 7.4 percent increase announced by OPM. Those figures reflect both the employer- and employee-paid shares of the premium.

The California Public Employees' Retirement System, or CalPERS, health plan did something similar. In 2007, it started waiving co-payments for preventive care office visits to encourage members to get regular health screenings and immunizations. CalPERS officials said that was just one of several health care changes adopted that helped it shrink its premium increases since 2007. In 2010, the average premium increase in CalPERS is 2.9 percent.

The federal government is starting to move in that direction, but slowly. But that may change. Office of Personnel Management Director John Berry has said he wants to improve the health and wellness of federal employees, in part to cut down on health care costs. And Office of Management and Budget Director Peter Orszag in June told agencies to include plans for improving employee wellness programs in their 2011 budget submissions.

And BlueCross BlueShield, by far the most popular health plan option in the Federal Employees Health Benefits Program (FEHBP), next year will waive co-payments on annual physical exams for adult members who complete a health assessment. BlueCross also will begin a new weight management program called Jump 4 Health that provides four free nutritional counseling visits for overweight children.

Walt Francis, a consultant who writes the annual Checkbook health care guide for federal employees, is skeptical that wellness programs and preventive care will result in cost reductions.

"This wellness stuff sounds wonderful," Francis said. "We all want people to go to the gym. But it's not going to save anything."

Francis pointed to an August study from Congressional Budget Office Director Douglas Elmendorf that found that preventive care and wellness efforts do not bring down health care costs and, in the case of preventive care, actually increase the cost of health care by getting more people to go to the doctor.

Controlling prescription drug costs

MBGH's Boress said that convincing enrollees to use generic drugs instead of brand-name drugs is "the low-hanging fruit for saving costs."

"Generics are nothing more than brand drugs that aren't advertised and are off-patent," Boress said. "Therapeutically, they are equivalent … but at dramatically different prices."

Boress said the Midwest group encourages participating employers to press their employees to use generic drugs.

CalPERS also educates enrollees on the price differences between brand-name and generic drugs, and lets enrollees buy a three-month supply of generic drugs by mail at a discounted price.

BlueCross is gradually ratcheting up incentives for FEHBP enrollees to use generic drugs. In 2009, the BlueCross standard option waived the first four co-payments for people who order generic drugs by mail. And in 2010, BlueCross standard will also waive all co-payments for members who switch from brand-name to generic drugs purchased in retail stores.

Francis said he thinks the government is already leading the way on encouraging the use of generic drugs.

"Nobody does it better than federal employee plans," Francis said.

But one lawmaker, Rep. Stephen Lynch, D-Mass, said he thinks OPM could do far better in lowering prescription drug prices for FEHBP enrollees by purchasing them from Federal Supply Schedule contracts. Those contracts offer deep discounts on a wide variety of products and services by using the government's bulk purchasing power as negotiating leverage.

The government now gets its drugs from pharmacy benefit managers (PBMs), which are companies that negotiate prescription drug prices with pharmaceutical companies on behalf of insurance providers in FEHBP. Because they are not considered subcontractors, OPM has little oversight of them and cannot ensure that any rebates they receive from pharmaceutical companies — which amount to as much as 50 percent of the drugs' retail price — are passed along to health plan enrollees when they sell drugs to the government.

Lynch said he is drafting legislation that would classify PBMs as subcontractors. Prescription drug costs make up nearly 30 percent of FEHBP premiums, according to OPM.

CalPERS has already taken this step. In 2006, it began requiring its PBM, a company called Medco Health Solutions, to disclose pharmacy manufacturer discounts and rebates it receives as a way to increase transparency and lower costs.

Reduce tests and scans

Experts say another way to reduce health care expenses is to encourage people to be smarter about where and how they get their health care.

"Our use of high-tech medical procedures — particularly imaging, CAT [computed topography] scans, MRIs [magnetic resonance imaging scans] — is much higher in this country than anywhere else in the world on a per capita basis," said Andrew Webber, president of the National Business Coalition on Health. "We need tougher criteria on when those are used."

Webber said that too often in the United States, people will demand expensive scans and treatments for something like back pain, for example, before they've tried less-expensive treatments that could easily solve the problem.

CalPERS said that in 2008, it adjusted its co-payment structure to encourage people to seek out "the right care at the right place" — for example, going to an urgent care facility instead of a hospital's emergency room, unless an ER is absolutely needed.

Francis said he thinks the government should get tougher and make enrollees pay more when they go for treatments that aren't absolutely necessary.

He said he thinks the government made a mistake in 2000 when it adopted premium conversion — allowing employees to pay for health benefits with pretax dollars — about a decade ago. This ended up making health care cheaper for employees, but encouraged them to get more expensive and possibly unnecessary treatments — driving up utilization and premiums.

"If you want to incentivize people to be frugal, premium conversion is a disaster," Francis said. "Subsidies are bloating costs in FEHBP. Until it was adopted, FEHBP outperformed [all other plans]. Since then, they've been in the middle of the pack."