President pushes $3.4 billion in federal health care savings

President Bush's 2007 budget proposes saving $3.4 billion on federal employee health care over 10 years by offering more consumer-directed health plans, administration officials said.

The request would allow Blue Cross Blue Shield of America's Federal Employee Program to offer a consumer-directed plan and provide incentives for prudent health care decisions. The insurer is presently limited by law to offering a maximum of two health plans.

Consumer-directed plans, which already are offered to federal employees by a number of other smaller providers, include health savings accounts that participants can use to cover medical costs, or spend on personal needs. They have high deductibles, further encouraging conservative health care spending, and lower annual premiums.

Blue Cross Blue Shield's federal program has 4.5 million enrollees. Offering a consumer-directed option to that many participants could significantly expand the use of such plans. The Government Accountability Office reported that by March 2005, only 7,500 individuals were covered by consumer-directed plans.

Employee groups have balked at the new plans, arguing that younger, healthier employees will migrate to them and drive up costs for the rest of employees.

"It is no accident that health care policy experts believe the competition and choice available in the FEHBP makes it the best employer-sponsored health insurance system in the nation," said Charles Fallis, president of the National Active and Retired Federal Employees Association. "It would be a shame if the current market forces in the program were undermined by stacking the deck in favor of one particular type of plan."

Indeed, GAO issued a report in January that found that enrollees in consumer-directed plans "were generally younger, earned higher federal salaries and were more likely to select individual rather than family plans."

The Office of Personnel Management, which administers the FEHB program, said this change would increase choice, which is good for employees.

"People's right to select any plan they want is not changed," said Nancy Kichak, OPM's associate director for strategic human resources policy. "We feel that this is a good selection; it's not reducing people's options."

What's more, Kichak said, GAO's report was based on findings that were too preliminary. The first consumer-directed plans were offered in January 2005.

"Every time we offer new options in the program . . . it is a fact that the people who tend to move are your younger, healthier people," Kichak said. "So it's not high-deductible plans that are causing this, it's the new product and the people who like new products."

The $3.4 billion in savings would be realized only if employees chose to sign up for the new plan, and if Blue Cross Blue Shield offered the option starting in 2007.

A spokeswoman said the health insurer has not yet decided what it will do if this proposal goes into effect. She said Blue Cross Blue Shield is taking a "wait-and-see approach" and watching other insurers.