Health insurance costs for federal employees have been going up more than 10% a year since 1998. That is a problem for many people and especially for retirees. Retirees’ income has been going up slowly as the rate of inflation has been very low.
Obviously, health insurance going up at 11% or more each year and a COLA increase of 2% or so a year is going to eventually create a situation where some employees at the lower end of the pay scale are paying more for health insurance than they receive in income.
The “good news” announced by the Office of Personnel Management is that the increase in insurance rates for 2005 will be 7.9 percent. And, no question that an increase in the single digits is much better than the double digit increases of the past few years.
This is better than the “positive news for federal employees and retirees” announced by OPM last year when insurance rates went up an average of 11%. (We can apparently infer that “good news” is better than “positive news.”)
Federal retirees, who often need their health benefits more than younger Federal employees, are feeling the squeeze for a couple of reasons. Their cost of living increase has been about 3%. Retirees obviously don’t get raises in the form of within-grade increases or grade increases. And, while current Federal employees are able to pay their health benefits out of pre-tax income, retirees are not able to do that. This translates to higher costs and less pay each year.
The current tax code allows active Federal employees to pay for health benefits out of pre-tax income. In real terms, this saves the average Federal employee more than $400 per year by lowering taxable income by the amount of an employee’s health care premium. This “premium conversion plan” is not available to retired Federal employees.
It isn’t definite yet but the cost of living increase (COLA) for retirees is expected to be in the neighborhood of 2.5% for 2005.
General schedule employees are on track to get a 3.5% pay increase for 2005.
Those in the Federal Employees Health Benefit Plan who elect individual coverage will pay an average of $4.32 more biweekly next year, and those with family coverage will pay an average of $9.99 more biweekly.
To give credit to OPM, last year the agency announced it was going to be in “tough negotiations” with health insurance providers.
So, while employees and retirees are unlikely to be estatic about another rate increase, the increase is actually much less than many private sector employees are experiencing again this year.