Reg Jones Expert's View

There’s been a lot of talk in the press and on the Hill about how the cost of prescription drugs is set in the Federal Employees Health Benefits program. As you probably know, some of those costs have gone up and could go up again. So, you’re probably wondering how premiums, deductibles and co-pays are arrived at. Well, it’s all part of a process that is repeated each and every year and is currently going on.

Every spring the Office of Personnel Management sends a letter to all the plans in the FEHB program. The letter asks them to submit their benefit and cost proposals for the following calendar year. In it OPM spells out the minimum benefits plans may offer and specifies any changes it wants them to make to the benefits they currently offer. It bases those changes on an evaluation of advances in treatment and technology, what FEHB enrollees have asked for, and what agencies, unions and OPM staff have recommended.

In that same letter, OPM tells the plans what it doesn’t want. Most of these "don’t" are intended to prevent plans from offering benefits designed to attract the healthiest enrollees to their plans while discouraging those who are less healthy.

After the plans respond, only the benefits proposals go to OPM’s contracting officers. Both the benefits proposals and the cost data go to the agency’s actuaries. The reason for keeping the cost information hidden from those who negotiate benefits is to avoid their being influenced by a particular benefit’s cost.

The benefits and costs proposals come together during the final negotiations between OPM and each plan. Because all but the new plans are experience rated, both parties will come armed with the same information about past income and outgo; but they will have different views about what the future will bring. It’s a little like dealing with global warming. Even if you have reliable data about the nation, there’s room for argument about how it might affect a particular region, and even more so about a specific city.

Nevertheless, it’s OPM’s job to negotiate for the enrollees. In doing so, it’s careful to maintain or increase benefits while, at the same time, holding down premium increases. Although some proposed changes will have to be set aside to keep premium costs within bounds, benefits that are essential to enrollee health are never dropped to reduce premium costs.

While deductibles are sometimes raised to moderate a particular plan’s premium increase, co-pays are almost always designed to be gate-keepers. In other words, a co-pay needs to be high enough that you will think twice before using a product or service but not so high that it causes you to skip any needed medical treatment.    

The resulting premium rates typically are announced in mid-September along with a general description of coverage terms, with specifics of each plan made available shortly before the start of the annual open season beginning in early November.