Why Are Your Health Insurance Premiums Going Up?
by Ralph Smith |
Now that the 2011 federal employee health care premiums have been announced, we have received a number of questions from readers. The most common question is along these lines: “Why are my premiums going up?”
There are additional related questions such as: “If health care insurance is going up, why is my retirement annuity staying the same?” And, another question: “What happened to the $2500 reduction in health care costs per family that we were promised by President Obama during his campaign?”
And, the perennial favorite for many readers: “Why do I have to pay the same premium for health insurance for a couple that I would pay for a family of five people?”
This year, a federal employee who does not work for the Postal Service will pay an average increase of $5.53 per pay period for individual coverage. For those with family coverage (and, yes, the increase includes a “family” of two people) will pay an average increase of $11.45. For Postal Service employees, premiums will cost an extra $6.10 per pay period for individual coverage and $12.73 more per pay period for family plans.
Why Are Your Premiums Going Up?
First, why are your premiums going up? No doubt, there are a number of reasons. Within the federal program, there are more benefits this year. OPM director John Berry said in a press release: “[W]e have eliminated enrollee cost sharing for preventive care services, added incentives for tobacco cessation, and, in accordance with the Affordable Care Act, added coverage for dependents up to age 26. Even with these new benefits, premiums will rise less this year than they did last year.” (See Changes to Your Federal Health Care Plan for more information about adding your adult children to your federal health plan.
These expanded benefits are good news for at least some readers. The bad news is that, even if these expanded benefits are of no value to you, you are going to help pay for the expanded service. The preventive care and adult-child coverage add about 1.7 percent to your increase in premiums for 2011.
Federal insurance plans will provide potential subscribers with
information about the plans that they offer. As an example, here is a
summary of the benefits from one company within the federal program. Be sure to check out the benefits offered by any company you are considering to make sure it is the best match for your needs.
The National Active and Retired Federal Employees Association (NARFE) isn’t thrilled with the increase and points out that the 2011 increase in health insurance could have been smaller. Here is what NARFE wrote:
“…FEHBP premiums could have been lowered if it were not for the Administration’s decision to decline a payment available to other public and private employers who provide drug coverage as generous as Medicare’s.” Once again, this year, the Administration left $1 billion on the table — a subsidy available to and accessed by private employers in the marketplace, which could be used to lower worker and annuitant premium costs. The 2003 Medicare reform law provides such employers a payment as an incentive to retain their retiree drug coverage. A 2007 Government Accountability Office report found that premium growth in one of the largest FEHBP plans with many older enrollees could have been 3.5 to 4 percent lower in 2006 had the payment been accessed. And, it could have reduced overall FEHBP premiums for the year by more than 2 percent.”
So, perhaps, you should consider part of your insurance premium increase to be your contribution to lowering health costs for private sector employees.
Medicare, Part B and the Federal Retiree
In addition, NARFE’s President indicated the organization is unhappy (as are many federal retirees) about how some 300,000 federal retirees who are not eligible to receive Social Security will pay for the 2011 Medicare Part B premium increase and the health insurance rate increase. Most Social Security recipients are “held harmless” from premium increases in years without a COLA. However, federal, state and local government retirees who do not receive Social Security pay the full Part B rate hike, plus an extra amount which subsidies the premium protection most Medicare beneficiaries have in “no COLA” years.
If you are unhappy with the Government Pension Offset or the Windfall Elimination law that impacts federal employees, you can add this as another source of unhappiness. (See Windfall Elimination and Your Retirement Future and The Government Pension Offset for more information.)
Your Financial Picture in 2011
Federal employees are likely to get an average pay raise of 1.4% in 2011. Federal retirees are not likely to get any increase in 2011. Obviously, that means that your expenses are going up and your income will be reduced although for many federal employees, the pay raise will exceed the actual cost of the increase in your health insurance.
For example, if you happen to have the GEHA high benefit self-only plan, your premium will go up $1.78 per pay period for a yearly increase of $46.32. And, if you are a GS 7, Step 5 living in Phoenix, Arizona, your pay for 2011 will probably go up at least $446 or so next year. In effect, you will still come out ahead if you are still working. On the other hand, if you are a federal retiree using the GEHA high benefit family plan for you and your spouse, your rate for 2011 will go up $150.60 per year with no increase in your annuity payment.
If you are wondering why your health insurance is higher but your COLA is not changing, check out What About Your 2011 COLA? Forget About It!.
The index used to calculate a COLA increase does not measure expenses most common for those in retirement.
Congress has been aware of this for some time and the solution to the problem already exists. There is another index that could be used called the CPI-E (Consumer Price Index-Elderly). The use of this
index for calculating your Social Security or federal retirement
annuity has not been authorized and is not likely to be authorized in the near future so your 2011 COLA will not increase. In
fact, using the CPI-E would have an impact on the federal deficit which
is already skyrocketing so much that the government of China is warning
the United States that we cannot keep borrowing so much money.
That is why your health insurance is going up but your federal annuity is not increasing.
Where is the $2500 Per Year Savings We Were Promised?
Federal employees work in a political environment. From comments we see from readers, most do not take campaign promises very seriously other than giving an indication of the underlying philosophy about how a candidate would make decisions if elected.
Candidate Obama said in his campaign: “That’s why my health care plan includes improving information technology, requires coverage for preventive care and pre-existing conditions and lowers health care costs for the typical family by $2,500 a year.”
As you now know, you health insurance premiums are going up and not down in 2011. And, according to the OPM press release, this is apparently good news because health insurance premiums for employees in the private sector who work for large companies are getting bigger increases than federal employees. According to OPM, the increase “predicted for large, employer-sponsored health programs by benefit consultants such as Aon, Milliman, and Price Waterhouse Coopers…between 8.9 percent and 10.5 percent.”
For those who did not read the fine print or listen closely, he may have implied a lower health insurance premium of $2500 a year but did not say that. Candidate Obama apparently hoped that by spending $50 billion over five years on electronic medical records and by improving access to proven disease management programs, we would all end up saving money. He used an optimistic analysis to suggest cost reductions in national health care spending could amount to the equivalent of $2,500 for a family of four. It would be an understatement to conclude that economists were skeptical those savings can be achieved, but even if they are eventually achieved, there was no promise that every dollar would be passed on to consumers in the form of lower premiums.
And, in 2011 at least, we can see that the savings are not immediately apparent.
What About Paying the Same for A Couple as For a Large Family?
Many federal employees and retirees become incensed when they see their annual health insurance for a couple identical to the premium paid by a large family.
For example, if you are single and subscribe to the Blue Cross self only standard plan in 2011, your out-of-pocket cost will be $2246.14. The family plan will cost you $5179.20. In other words, you could purchase a single person plan for two people and save money over the family plan. On the other hand, if you are a single parent and have three children, you are still only going to pay $5179.20–the same rate as a couple that may be very healthy and not present an insurance company with the same risk as a family of our will pose.
In effect, a couple is going to pay considerably more per person than a large family and probably receive fewer benefits.
To those vocal readers who often contend “that isn’t fair,” you have a point–at a minimum the government is not charging everyone the actual cost of providing health insurance. Having said that, there is no obvious movement to change the current system. It is a decision that was made by the federal government a number of years ago to effectively subsidize families and charging more to the people who will not have as many health insurance claims.
We hope you will find our new charts for perusing the 2011 health insurance premiums to be useful in exercising your option during this year’s health benefits open season. Keep in mind you could pay as much as $351.21 every two weeks ($9131.46 per year) or as little as $32.99 every two weeks ($857.74 per year) just under the fee for service plans for non-Postal employees. Also keep in mind, there are reasons for the wide disparity in cost and that the right plan for you may not be the least expensive plan.
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