FEHB and Inflation
Are the premiums under the Federal Employee Health Benefits (FEHB) program going up faster than inflation and faster than pay raises?
Readers commenting on FedSmith articles often remark their health insurance expenses are going up yearly and that their income is not keeping up with these increases. If true, the cost of health insurance will be consuming more of their annual income. Federal employees do not pay all of the cost of their health insurance.
While it may vary, the government generally contributes 72% of all plans’ weighted average premiums, not exceeding 75% of the premium for any one plan (calculated separately for individual and family coverage).
Comparing Increases in Income to FEHB Premium Increases
To see if the argument is valid, this article compares the amount of the increase from 2010 – 2023 in four different categories—including the increasing cost of health insurance. Keep in mind current federal employees’ income often goes up more than the amount of the annual raise. This chart only takes the actual annual pay raise into account.
|Year||Pay Raise %||COLA %||Annual Inflation||Average FEHB |
Winners and Losers in Income Gains
The chart shows an increase of 67.93% in average FEHB premiums from 2010-2023. That is by far the largest increase in the four categories. Those readers that say their pay gains are not keeping up with expenses—and not keeping up with the increase in health insurance premiums—are generally correct.
Note that while the chart contains information on a COLA and the rate of inflation for 2023, these figures are educated guesses. They are probably close to what the actual data will reveal, but the 2023 data is an approximation.
The lowest income increases were for current federal employees—at least based on the annual federal pay raise. Their total increase was 22.9%, less than the total annual COLA increases (36.21%) and less than the official inflation rate (37.71%) for these 13 years.
Why the big increase in health insurance premiums? Here is a quote from an earlier FedSmith article:
According to OPM, over the last decade, the overall average increase for premiums under the FEHB program has risen 4% per year. 2023 will be the biggest average annual increase in the last 10 years. Inflation has certainly been a factor, although a growing list of requirements from the government that insurance companies must adhere to in order to provide services adds to costs as well.Enhanced Gender Affirming Care Will Be Available In 2023 FEHB Plans | FedSmith.com
When new coverage requirements are added to the program, health insurance costs increase. Adding obesity treatments, sex-change medical coverage, gender dysphoria, etc. can be expensive. While adding new benefits may meet the political objectives of an administration in power and will be popular for those using the expanded coverage, all FEHB participants pay for the increased costs.
These issues are not limited to one administration. Back in 2011, for example, 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.
Average Increase of 4.5% for FEHB Over 13 Years
Adding insult to injury, average plan premiums are always an average. This means premiums go up by more than average in about half the plans. Over the past 13 years, health insurance premiums under FEHB have gone up an average of 4.5%. That means that for about half of those in the program, the premiums have gone up more than that. It also means that many participants in the FEHB are trying to save money by switching to a plan that may provide fewer benefits.
In 2016, as one example, when the premiums went up 6.4% (on average) there was a dramatic difference in the monthly cost to an employee. The most expensive monthly charge for an employee in that year was $2,517.89. At the other end of the spectrum, the cheapest monthly cost was $32.29. Of course, to use the $32.29 plan, it was available in Guam, and the coverage will be substantially different than the ones in Kansas or Missouri for $2,517.89 per month.
There was something similar in 2023. While choosing a plan based on premium alone is not a good idea, it is an expense that can impact your budget. Consider the Humana Health Plan High (9F) case available in Illinois. The plan premium went up 34.2% in one year. This meant that “self-only” enrollees in that plan would pay an extra $6,510 in one year for that health insurance premium.
The data do not reveal how many employees switched plans to pay less for the insurance and, in return, may have received insurance that provided less coverage.