Healthcare insurance premium increases for the federal government last year were double those absorbed by the private sector, according to a study that appeared in the September/October issue of Health Affairs.
Premiums for federal government employees and retirees increased 7.2% in calendar 1998, according to the study, which was done by the U.S. Office of Personnel Management and KPMG Peat Marwick's Center for Survey Research.
The U.S. Office of Personnel Management projects a 10.2% increase for 1999. The federal government provides insurance to 2.3 million employees and 1.8 million retirees through 285 health plans.
Meanwhile, premiums for private employers increased only 3.3% in 1998. That's half the increase projected by benefits experts.
The study credited the private sector's modest increase to cost-containment measures by hospitals and other healthcare facilities and noted that private-sector employees continue to move into lower-cost managed-care plans.
OPM spokesman Bruce Milhans attributed the higher costs for federal employees to demographics: The average age of a federal employee is slightly over 45, compared with 38 in the private sector. The average age of a federal retiree receiving benefits is 71.
"They're dealing with far more claims than in the private sector," said Jon Gabel, director of KPMG Peat Marwick's Center for Survey Research and co-author of the study.
Blaine Bos, a principal in the Chicago office of benefits consulting firm William M. Mercer, said: "Their costs are not out of line given the population they have to work with. I would also suspect that federal employees by and large (live) in a more urban environment, where supply and demand for physicians drives up prices."
Government benefits packages are also richer than in the private sector, according to Milhans. About 70% of federal employees belong to a fee-for-service plan or its equivalent, with the remainder in managed-care plans. "That would be about the reverse for the private sector," said Milhans, who added that the federal government also mandates more generous coverage for such categories as contraceptives and emergency care.
At the same time, federal employee contributions are nearly 28% of premiums, or an average of $709 this year for a nonmarried employee. A single employee in the private sector in 1997 contributed an average of $372 for coverage last year, according to KPMG data. KPMG has no 1998 out-of-pocket statistics.
The relatively high out-of-pocket costs are driving many federal employees into other plans, Milhans said. More than 175,000 employees switched health plans this year, compared with 122,000 in 1997. Most opted for less-expensive coverage, Milhans observed.
While the federal government's numbers are in stark contrast to the 2.2% average premium increase experienced this year by employees of state and local governments, according to KPMG data, signs of stress are appearing at the state level. Nevada recently announced steep increases-ranging from 24% to 40%-in the premiums and deductibles for its 24,000 state government employees and retirees. New Mexico is mulling the removal of a 3% annual cap on premium increases for its 18,000 retired state employees and their dependents.
And the study concludes that premium increases "could well be higher in 1999," an opinion shared by other experts.
"What we've been seeing is carriers (requesting) 14% increases, with final agreements of around 6%," Bos said.