According to the Washington Post: Federal employee groups favored the subsidy. The U.S. Postal Service wanted the subsidy. But the Bush administration said no.

 … the U.S. Postal Service, petitioned Medicare in 2005 to provide the subsidy but was rejected on the grounds that postal workers are covered by the health benefits program. Postal officials sought the subsidy because it would save the agency about $250 million annually. Agency officials said the subsidy would have helped rein in operating expenses, which are financed through postage rates.

The following is a press release from the National Active and Retired Federal Employees Association (NARFE). At the bottom of this page is a chart of 10 largest FEHBP plans (including Postal Unions):

NARFE WELCOMES GAO REPORT THAT MEDICARE SUBSIDY COULD SIGNIFICANTLY LOWER FEDERAL EMPLOYEE HEALTH BENEFITS PROGRAM (FEHBP) PREMIUMS 

             National Active and Retired Federal Employees Association (NARFE) President Margaret L. Baptiste said that a report released today by the nonpartisan Government Accountability Office (GAO) confirms her association’s belief that Federal Employees Health Benefits Program (FEHBP) premiums were higher than needed because of the Office of Management and Budget’s (OMB) and Office of Personnel Management’s (OPM) decision to forego a subsidy provided under the 2003 Medicare Prescription Drug Act.

            “We already knew that OPM leaves $1 billion on the table every year they fail to apply for this payment,” Baptiste said.  “Today we learned from the GAO report that premium growth in one of the largest FEHBP plans with a high share of elderly enrollees could have been 3.5 to 4 percent lower in 2006 had the subsidy been used.  OMB, which had a role in this decision, and 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. 

            “NARFE commends Senator Daniel Akaka for requesting the GAO report and for announcing that he plans to hold a hearing this spring on use of the subsidy to lower health care costs for federal workers and retirees,” Baptiste added.

            According to Baptiste, the 2003 Medicare law allows employers to receive subsidies of 28 percent of the cost per enrollee for drug coverage on the condition that their prescription drug benefit for Medicare-eligible retirees and survivors is at least as good as the Medicare drug plan. Like most large employer plans, the FEHBP’s drug coverage meets this criterion. NARFE spearheaded the effort that made the federal government eligible for the subsidy, along with other employers – including state and local governments.

            Payments to OPM, unlike those to other employers, would not result in new spending under federal budget rules, since they would not be spent outside the government. Moreover, the subsidy would enable OPM and participating insurance carriers to continue, or even improve, current coverage levels, while containing the amount the federal government, as an employer, and worker and retiree enrollees pay for FEHBP premiums.

            Beyond the estimate on the largest plans, the GAO reported that “the subsidy would have lowered the growth in premiums across all FEHBP plans for 2006 by more than 2 percentage points on average, from 6.4 percent to about 4 percent.” 

            The GAO concluded, “Absent the drug subsidy, FEHBP premiums in the future would likely be more sensitive to drug cost increases than would be premiums of other large plans [state and local government and private employers] that receive the retiree drug subsidy for Medicare beneficiaries.”  The report said that prescription drug costs contributed 34 percent of the increase in total expenditures per enrollee for the five largest FEHBP plans – the single largest cost driver — between 2003 and 2005.

            “We are fortunate that use of excess reserves and the mitigation of some health care costs have resulted in a lower average FEHBP premium increase this year.  But medical expenses can easily jump in the future.  That’s why we hope that OPM, sooner rather than later, will act in the interest of the dedicated federal workers and annuitants by taking advantage of this cost-saving opportunity,” Baptiste concluded.  

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see full GAO Report: Federal Employees Health Benefits Program: Premium Growth Has Recently Slowed, and Varies among Participating Plans