Discussion of "risk pools" and "call letters" from the Office of Personnel Management (OPM) doesn’t sound very exciting. And, in most years, the issuing of an OPM call letter doesn’t generate much press publicity in the federal community.
This year may be different though.
With controversy surrounding health care, there are clearly changes on the way for Americans and how they receive and pay for health care. Some of these changes will ultimately impact federal workers and civil service retirees. As everyone knows, our health care system is complex and probably going to get even more complex. As federal employees and retirees, we are not going to be exempt from this complexity.
A "call letter" from the Office of Personnel Management is a letter from OPM to insurance companies asking for benefit and rate proposals for the Federal Employees Health Benefits (FEHB) Program. The letter from OPM was sent out last week.
Federal Employees and Medicare, Part B
One provision in the letter should interest those who are under the FEHB in retirement or those who plan on carrying their federal health insurance into retirement. The ability to use your federal employee health insurance is a significant benefit. Many companies do not provide this option. But, as a retired federal employee, you can keep your federal employee insurance after you retire and about 70% of the premium is still paid for by the federal government. (See John Grobe’s article on Medicare and Federal Retirees: Part B or Not Part B?)
This year’s call letter states: "We are encouraging the development of pilot programs that improve the value of coverage for annuitants through improved benefits coordination between FEHB and Medicare Part B. At present, plans effectively waive their cost sharing requirements for enrollees with Medicare Part B, which means Medicare/FEHB members typically receive first dollar (100%) coverage for many services."
The proposed project would test a voluntary "sub-option" within the FEHBP that would pay all or part of a Medicare Part B (as appropriate) for Medicare-eligible federal annuitants.
The National Active and Retired Federal Employees Association (NARFE) says that this is a good move. In a press release, the organization wrote that "If proven feasible, the Medicare sub-option could save some federal annuitants money and help to contain costs in FEHBP for workers, retirees and survivors."
OPM says that "The health plan would pay for the Medicare Part B premiums and provide Medicare gap benefits. The Medicare/FEHB enrollee would not bear the cost of the Medicare Part B premiums but would continue to pay the health plan’s normal out-of-pocket cost sharing. That means benefits would be essentially the same as those for non-Medicare enrollees."
Risk Pools and the FEHB
The underlying concern of the OPM proposal is that people who are older often get sick and use health care services more than younger people do.
There is a lot more risk for an insurance company by having older people who are insured. Under the FEHB, an older, retired federal employee does not pay any more than a young, healthy, newly-hired federal employee who may have an active federal career of 25 years or more. With baby boomers getting older, and large numbers of federal employees projected to retire in the next few years, medical expenses are certain to go up and the corresponding risk for insurance companies is also going to go up dramatically.
If people who were insured under the FEHB paid insurance premiums based on the relative risk for the insurance company, older employees would pay higher premiums. In effect, older employees would be put into a separate "risk pool" because of their age and the statistical probability they are a greater risk for having to use medical services. But, under the FEHB, this is not done and, says OPM, "We do not support splitting risk pools for annuitants and active employees and believe that these pilots can demonstrate ways of stemming cost growth through strengthened benefits coordination."
The Bottom Line
We will not know the details of the sub-option discussed in the OPM call letter until closer to the open season for health benefits plans opens up. It could prove to be a good option for many federal retirees.
Federal retirees and those who are close to retirement will want to pay close attention. Having a separate insurance policy, such as that offered by the FEHB, can be a big benefit over using Medicare if doctors should decide not to participate in the Medicare program. Medicare payments for doctors are a yearly source of discussion and there are always predictions that many doctors will drop out of the program. As one expert noted, "It’s inherently an unstable situation even though every year Congress steps in and keeps it from collapsing. It can’t be good for the system to have this kind of last-minute staving-off of disaster.
There is no indication in the OPM call letter or in the NARFE defense of the new proposal that federal retirees would be required to go into the Medicare program, as many companies as many companies do for their retirees, instead of having a private insurance plan available. In fact, NARFE stresses the voluntary nature of the new OPM proposal.
It would be naive to assume the sub-option now being discussed by OPM could never lead in the direction of withdrawing a private insurance option for federal retirees although the political pressure from NARFE and federal employee unions would almost certainly highlight such an issue if it surfaces in future years.
While many of us routinely renew our existing health benefits plans each year without much thought or concern, federal employees and retirees would be well advised to closely study your health insurance options when they become available for 2011. It appears that the options available may change and deciding which option is best for you may be more complex than in previous years.