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Rates hikes slow down for federal benefits


WASHINGTON—In yet another sign that once-soaring health insurance premium increases are easing, Bush administration officials say premiums for health plans covering federal employees and retirees will rise by an average of 1.8% in 2007, the smallest increase in more than a decade.

Next year's estimated average 1.8% rise for the Federal Employees Health Benefits Program--the nation's largest such program, with more than 8 million participants--compares with an average 6.4% rise this year, 7.4% in 2005 and 9.5% in 2004.

The Office of Personnel Management, the federal agency that administers the health benefits program, last week said the exceptionally low increase is due to much lower than expected utilization of services.

That, in turn, resulted in excess program reserves, which can be drawn on to partially offset what would have been higher premium increases next year.

Next year, in fact, more than 60% of FEHBP enrollees will not see any premium increases. "That is amazing. It is a terrific result as far as rates," said OPM Director Linda Springer.

The small increase in rates for the federal program mirrors the slowing of health care inflation in the nonfederal sector. Last year, for example, group health care costs rose by an average of 6.1%, down from 7.5% in 2004 and 10.1% in 2003, according to annual surveys by Mercer Health & Benefits L.L.C. in New York.

The FEHBP, though, usually has smaller cost increases as a result of its huge size.

"This is a very large program. Because the program's carriers have such a large book of business, they can negotiate very good terms with health care providers," said Cara Jareb, a consultant with Watson Wyatt Worldwide in Arlington, Va.

Next year, 284 health care plans will be available through the FEHBP, though only a small percentage of plans are offered in all parts of the United States.

The most significant benefit change for next year will be the addition of a comprehensive dental benefit. However, employees and retirees will have to pay the full premium for the coverage. Employees, though, will be able to pay premiums through pretax contributions.

In all, the federal government, on average, pays 71% of premium costs.