The Office of Personnel Management (OPM) has provided more information about the 2023 FEHB premiums and why they are increasing so much next year. OPM shared the information in its Federal Benefits Open Season Highlights document for 2023.
As federal employees and retirees likely know by now, the 2023 FEHB premiums are rising next year. In fact, the increase is the largest in over a decade. The overall average 2023 FEHB premium increase is 7.2%, and the employees’ share of FEHB premiums is increasing by 8.7% next year.
The government’s contribution will increase by 6.6% on average in 2023. That may look on the surface like federal employees and retirees are getting shafted, but keep in mind that the federal government pays for about 70% of the total cost of providing health insurance while federal employees pay the other 30%.
The federal government’s share that it pays for the FEHB premiums is set by law. According to OPM, the formula is known as the “Fair Share” formula because it is designed to maintain a consistent level of contributions by the government, as a percentage of total program costs, regardless of which health plan enrollees choose.
Average Annual FEHB Premium Increases
According to OPM, these are the average total annual FEHB premium increases since 2009:
|Year||Average Increase (%)|
What is Driving the 2023 FEHB Premium Increases?
According to OPM, the COVID-19 pandemic introduced a great deal of volatility in setting rates within the health insurance industry. Treating and testing COVID-19 patients cost the FEHB program about $2 billion in 2021 with 3-4% of claims being for COVID treatments and testing. OPM said that the 2021 claims experience is used to develop 2023 rates because 2022 claims experience is not yet available. Similarly, 2022 claims experience will be used to develop 2024 rates, etc.
OPM further added that the biggest contributing factors to 2023 FEHB premium increases reported by FEHB insurance carriers are higher than expected utilization in outpatient services and facilities, an increase in the utilization of professional services, and increased utilization and unit cost in specialty drugs.
Bottom line: more costs = higher premiums.
How Do the 2023 FEHB Premium Increases Compare With Other Industries?
OPM defended the 2023 FEHB premium increases, explaining that they are in line with what other health plans offered by similarly sized employers are experiencing for next year. OPM provided these details as examples:
- On July 12, 2022, CalPERS Board of Administration announced rate and plan changes for 2023 that include an average 6.75% overall premium increase. CalPERS is the largest purchaser of public employee health benefits in California, and the second largest public purchaser in the nation after the federal government. CalPERS serves more than 1.5 million members and their families in their health program and is similar in structure to the FEHB Program as both active employees and annuitants have access to the same plan choice, benefits, and premiums.
- The Business Group on Health (BGH) survey of large employers found that companies expect a 6.5% increase on average in their 2023 health insurance plan premiums and costs.
- Aon estimates that health costs could increase by approximately 6.5% to more than $13,800 per employee in 2023. Medical claims decreased in volume during the early COVID-19 pandemic, however, claims have returned to more typical levels and Aon expects inflation to impact costs in the coming year(s). In Summer 2022, Aon estimated that in addition to inflation, new technologies, catastrophic claims, and an increasing share of specialty drugs will drive cost.
- According to the Kaiser Family Foundation individual marketplace premiums are set to rise about 10 percent, with most rate increases falling between about 5% and 14%.
The Kaiser Family Foundation (KFF) also reports that the average family premium has increased 47% since 2011 and 22% since 2016 based on 2021 data and that the average premium for single coverage has grown 20% since 2016. For large firms (200 or more workers), KFF states that average family premiums have risen 22% since 2016.