Report Questions Government’s Refusal of Medicare Subsidies
Groups that represent federal employees and retirees and the Office of Personnel Management have begun a "pull-and-tug" over whether the federal government should receive subsidies paid to employers under the 2003 Medicare law, the Washington Post reports (Barr, Washington Post, 1/24). Under the law, the federal government provides tax-free subsidies to employers equal to 28% of annual prescription drug costs for retirees, provided that employers offer coverage equal to the prescription drug benefit to retirees who are eligible for Medicare (American Health Line, 1/28/05).
OPM decided that the federal government, as an employer, should not receive the subsidies. OPM said that the subsidies are designed to encourage employers to continue to offer prescription drug coverage to retirees, which the federal government does and will continue to do in the future.
However, a recent Government Accountability Office report found that acceptance of the subsidies likely would reduce premiums in the Federal Employees Health Benefits Program. According to the report, acceptance of the subsidies would have reduced premiums in FEHBP by 2.6 percentage points in 2006.
As result, premiums in FEHBP in 2006 would have increased by 4%, rather than by 6.4%, the report found.
The National Active and Retired Federal Employees Association added that acceptance of the subsidies would have saved OPM $1 billion annually.
Margaret Baptiste, president of NARFE, said that OPM "should explain to federal workers, retirees and survivor annuitants, who often struggle to pay their steadily increasing premiums, why the federal government failed to do what a multitude of other employers have done to reduce this burden."
Sen. Daniel Akaka (D-Hawaii) -- chair of the Senate Homeland Security and Governmental Affairs Subcommittee on Oversight of Government Management, the Federal Workforce and the District of Columbia -- said that he plans to hold a hearing on the GAO report in the spring. In a statement, Akaka said, "I will take a closer look at how OPM decisions affect health care premiums. Although OPM did a good job in keeping premium increases down in 2006, the GAO report clearly shows that if OPM had applied for and used the subsidy, premium growth would be reduced by 2.6%" (Barr, Washington Post, 1/24).