Medicare subsidy could have softened rise in health premiums

The government's decision not to use a Medicare drug subsidy in the federal employee health plan was responsible for an average 2.6 percent higher premium last year, according to a report released Monday by the Government Accountability Office.

GAO found (GAO-07-141) that premium hikes in 2006 -- the first year the subsidy was available -- would have been softened for the Federal Employees Health Benefits Program with the subsidy. But this would have had a one-time effect, auditors found.

About 8 million federal employees, retirees and their families use the FEHBP, making it the largest employer-sponsored health insurance plan in the country. When the Office of Personnel Management, which runs the plan, opted not to apply for the new Medicare subsidy, federal employee advocacy groups were critical.

"OPM has left more than $2 billion on the table by forgoing this payment for the last two years," Charles Fallis, former president of the National Active and Retired Federal Employees Association, said in September.

But OPM officials told GAO interviewers that the subsidy was not appropriate for the FEHBP because its intent was to encourage employers to provide drug coverage for participants also enrolled in Medicare, which the FEHBP already does. In essence, they said, the government would be subsidizing itself unnecessarily. Of course, some of that subsidy would have trickled down to enrollees as well, who pay about 25 percent of premiums.

The GAO report included findings from interviews with officials from two larger, unnamed FEHBP plans that have high numbers of older participants. These officials said the subsidy would have lowered their premium growth by about 3.5 or 4 percent in 2006.