Federal employees and retirees are understandably concerned about the continuing double-digit increases in premium rates for health insurance. And, as we have pointed out in articles on this site, the continuing increase in health care costs is even worse for retirees as the percentage differential between the cost of living allowance and the health insurance is substantial.
The average increase in health insurance premiums for 2004 will be 10.6% according to the Office of Personnel Management. This follows an average increase of 11% for 2003. And, according to OPM’s press releases for each of these years, the average increase in the private sector is much higher than that.
From the e-mail we have received from readers, some are skeptical about the OPM statement that the insurance costs are that much higher for private sector workers.
Here is the gist of comments from several readers.
“Every small business that I know of pays for all health insurance costs for its employees. Why shouldn’t the Federal Government do the same for its employees?”
“OPM continues to tout that the double-digit increases for Federal employees are less than people who work for private industry. Who are they kidding? With the size of the federal workforce, we should not be paying these kinds of increases.”
Putting the situation into perspective may make some readers feel better about their health insurance costs. Here are a couple of items from a recent issue of USAToday.
The average health insurance premium for workers jumped 13.9% in 2003. For small companies, the increase was much larger. They went up 15.5% for companies with less than 200 workers and 13.2% for companies with more than 200.
And, while it is certainly true that some small business owners pay 100% of health insurance costs for their employees, most do not. In fact, 35% of small businesses do not offer health insurance to their employees at all. Moreover, the number of companies that offer health insurance to employees is decreasing.
OPM isn’t trying to pull the wool over our eyes. Health insurance costs are soaring for private companies and these companies are struggling to keep up with the problem and remaining profitable.
Small companies are not the only ones facing problems with health insurance. While the Federal Government cannot be compared to any one company because of its size and diversity of its missions and services, the nation’s largest private employer is Wal-Mart with 1.16 million employees. Just because of its size, and its competitive culture, Wal-Mart often dictates what other companies will do.
13% of private sector companies are cutting health insurance benefits and Wal-Mart is no exception. It’s plan doesn’t cover retirees at all and rates for employees have gone up 50% in the past two years. It typically provides catastrophic coverage but employees pay for routine medical services as the company tries to keep costs down.
Most Americans are trying to successfully cope with the problem of soaring health insurance costs. Health insurance benefits for Federal employees are not the very best available. Nevertheless, the Federal program is better than many in the private sector and the program is in many ways a model program for the rest of the country with its diversity of benefits and options available.
We don’t know if OPM has done the best job possible in keeping down the cost of health insurance premiums. It may, for example, be possible to offer employees a cheaper plan that provides only catastrophic coverage with a high deductible. It may also be possible to offer a plan for a couple or for a couple with one child instead of the “one size fits all” approach of the current system.
But it is clear than OPM has not caused the problem–it is dealing with the same problem other employers are dealing with throughout our society. And while the Federal government doesn’t have a profit motive, the massive Federal deficits are eventually going to lead to calls for any cost savings available. Just as with private employers, there will undoubtedly be calls to reduce the cost to the government of the health benefits program. There is little doubt we cannot afford to continue to have double digit increases each year–especially as the baby boomers begin to overwhelm the retirement system and begin overwhelming the health system with the health problems of an aging generation.
While no one knows the ultimate outcome, Federal employees and retirees can probably expect reduced benefits in future health plans just as some private sector companies are currently doing to their plans or, alternatively, they can expect to pay considerably more to maintain current health benefits coverage.