Federal benefits experts will say it time and again: rising premiums are not the whole story when it comes to evaluating health insurance.
But for the cost-conscience, which many are after a long period of high inflation, it might be.
For the 8 million federal employees, retirees and dependents who get health insurance from the federal government, premiums beginning Jan. 1, 2024, will increase on average 7.7%, slightly less than they did last year, which saw the biggest spike in a decade.
The Office of Personnel Management, the executive branch agency that oversees the largest employer health plan in the U.S., noted that the main contributors to the 2024 premium increases were due to changes in costs and use of medical services. Other factors include new technology and aging populations.
“In particular, some carriers referred to increases in cost and use of specialty and brand-named drugs, emergency room care, and outpatient care,” said Chris Kawashima, a senior research analyst for the Schwab Center for Financial Research.
Still, even though they vary, plan rates must “reasonably and equitably reflect the cost of the benefits provided” by law, and the government shares in the cost by paying 72% to 75% of the premiums. Compared to similarly sized employers, OPM said FEHB increases this year are on par or slightly less.
“It is important to note that most employers do not offer coverage to their retirees, and those that do generally include those retirees in a separate risk pool,” according to OPM. “The FEHB program covers both annuitants and active employees in the same risk pool.”
A 1998 report from the National Health Policy Forum said that even then, when the program was nearly 40 years old, it has “held up well when compared to other employer programs in its effort to restrain the growth of health insurance premiums.”
Other estimates see employer healthcare costs increasing between 5.4% and 8.5%, in part due to increased use of weight-loss drugs, gene therapies and other expensive procedures, Reuters reported in September.
Still, employees who have faced on-and-off threats of shutdown furloughs and eroded savings thanks to inflation may be struggling to afford rising costs. As a result, employees may find themselves incentivized to shop around for plans with more modest increases during open season.
Consider the range of cost changes: one FEHB premium in Texas decreased 54% while another based in Atlanta went up 22%, said Kevin Moss, a benefits expert with Consumers’ Checkbook. And of the more than 150 plan options available in 2024, eight had no change in their premiums.
“If you look at the history of average enrollee increases, we now have a two-year period that looks much higher than [it did in 2022],” he said. “No one can predict the future in terms of of how this will play out in [subsequent] years. But I think federal employees and annuitants need to prepare to face higher premium increases going forward.”
OPM also relies on competition among plans and shopping around during open season to moderate rate increases. Watchdog reports from 2003 showed that enrollees who switched to less expensive plans actually lowered premium increases 1% each year since 1997.
Additionally, in the months leading up to open season in the fall, OPM negotiates health plan differently depending on whether a plan is fee-for-service or an HMO.
As part of that process, OPM solicits participating plans’ proposed lists of benefits and costs. Then, the office reviews the submissions to determine whether carriers are meeting program expectations or shifting benefits around to attract healthy employees and offload those who have higher demands.
“Because every effort is expended to keep premium increases at a reasonable level, any large changes above the ones flowing directly from the economy are reviewed and adjustments made, where possible, to avoid big jumps in enrollee costs,” said Reg Jones, Federal Times’ retirement expert and former assistant director of OPM.
Once the back-and-forth has reached consensus, actuaries price packages out, he said.
So what can feds do to mitigate cost?
“If you expect to use your insurance more in the upcoming year, then you may want to pay more in monthly premiums to reduce out-of-pocket costs when they occur,” said Kawashima. “If you don’t expect to use your health insurance that much, then you may want to choose a plan with lower premiums.”
At the least, consider whether you’d be able to pay your out-of-pocket maximum without severely compromising your savings. If you can’t, it may be time to shop around, he added.
Open season for 2023 runs from Nov. 13 to Dec. 11.
Molly Weisner is a staff reporter for Federal Times where she covers labor, policy and contracting pertaining to the government workforce. She made previous stops at USA Today and McClatchy as a digital producer, and worked at The New York Times as a copy editor. Molly majored in journalism at the University of North Carolina at Chapel Hill.