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News Release

Tuesday, March 30, 2004
Contact: Michael Orenstein
Tel: 202-606-2402

OPM Director James Promises "Tough Negotiations" with Health Insurance Carriers in Effort to Cut Premiums; Says Expanded PBM Oversight and Transparency Will Ensure Savings Are Passed to FEHB Enrollees

James says OPM is nearing end of review on the addition of health savings accounts to menu of federal benefits

Washington, D.C. -- U.S. Office of Personnel Management Director Kay Coles James wants health insurance premiums to come down for federal employees and retirees, and she said as much to insurance carriers attending today's opening of the agency's annual Federal Employees Health Benefits Program Carrier Conference.

Acknowledging the complexity of the health-care environment and that many of the cost drivers within the Federal Employees Health Benefits (FEHB) Program are "outside both your control and ours," James nonetheless challenged carriers to do more, saying there are "delicate balances and trade-offs that go into the process."

"I will not be satisfied until we see actual declines instead of increases," said James. "I want to challenge you to work with us to keep the FEHB Program, with more than eight million participants, an enviable national model that ensures high-quality care, promotes consumer choice and spurs innovation."

James credited the flexible spending account (FSA) program, which she approved in 2002 for federal employees, for offsetting premium increases and saving money for health-care users. FSAs pay the qualifying, non-covered medical costs of employee health plans. More than 120,000 federal employees have opened a tax-free FSA since the benefit made its formal debut in January 2003. Employees also may open a separate tax-free dependent-care FSA to pay for the care of children or qualifying parents.

James also said OPM will expand its oversight of widely used Pharmacy Benefits Managers (PBM), discount suppliers of prescription drugs to FEHB enrollees, and propose an amendment to PBM contracts to ensure greater transparency on discounts, rebates and prescription channeling.

With enrollees obtaining medicines totaling $6 billion through PBMs last year, James said the expanded role and transparency are necessary to let OPM's Inspector General "perform independent audits" to ensure that "price discounts from suppliers and manufacturers are passed on to FEHB enrollees and the government."

James also acknowledged that OPM is reviewing the role and availability of health savings accounts (HSA) through the FEHB Program, but said that concerns raised by federal retirees and unions about the structure of the program require additional study before a decision is made.

"I assure you we are working toward resolution just a fast as we possibly can," said James, adding an announcement may soon be made. "It's more important to have the right answer than the fast answer on something this critical to the FEHB Program and all its participant plans and enrollees."

Should HSAs become an option within the FEHB Program, James promised OPM would launch an "aggressive education campaign" to fully explain the benefit to eligible federal employees and retirees.

"The more consumers understand the true cost of health care and the more opportunities we create to allow them the opportunity to use their judgment, the better," said James.

Health savings accounts let individuals build tax-free cash reserves to pay for current medical services and products, encourage wise health-care spending by permitting annual roll-overs of unused account monies to build an emergency medical fund, and provide coverage of true catastrophic events. In December 2003, President George Bush signed the Medicare Prescription Drug, Improvement, and Modernization Act, making HSAs available to the public, including federal employees.

James cited a study by the National Bureau of Economic Research which found that five of 10 workers, age 20 today and who immediately opened an HSA, would accumulate at least $250,000 by the age of 60, even after accounting for 40 years of medical expenses. Nine of those 10 employees would accumulate at least $100,000.

Addressing concerns that the availability of HSAs might prove detrimental to parts of the FEHB Program, James said "traditional coverage will continue to be available" in the program. "We are expanding choice, not restricting it."

To participate in an HSA program, individuals must be under the age of 65 and be enrolled in a high-deductible health plan.

"We will work diligently to make certain that any rollout of the HSAs is well-executed and well-coordinated," said James.

This year's Federal Employees Health Benefits Program Carrier Conference, co-sponsored by America's Health Insurance Plans, also provided a platform for James to announce the unveiling of a Healthier Feds web site ( that will give federal employees access to common-sense information about healthy lifestyles.

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OPM leads and serves the Federal Government in enterprise human resources management by delivering policies and services to achieve a trusted, effective civilian workforce. By Empowering Excellence in Government through Great People, we provide leadership and support to U.S. agencies on issues including human resources policy and oversight, background investigations, federal employee benefits, retirement services, guidance on labor-management relations, and programs to improve workforce performance. For more information, visit or follow OPM on Twitter, Facebook, or LinkedIn.

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