Government Contractors

Criteria Needed for Allowable Employee Health Care Costs Gao ID: HRD-88-27 May 12, 1988

GAO evaluated government efforts to ensure that contractors' health care costs under negotiated contracts were reasonable, focusing on: (1) health care costs of selected government contractors compared to those of other manufacturing industries and the government work force; (2) the primary reasons for cost differences; and (3) the adequacy of federal internal controls over allowable compensation costs.

GAO found that: (1) government health care costs under negotiated contracts were high because contractors required less cost-sharing from their employees compared with employees in the manufacturing industries; (2) only 1 of the 10 largest government contractors it reviewed required its employees to share in the cost of their health insurance premiums; (3) the government lacked adequate internal controls to ensure that reimbursements to contractors were reasonable; (4) 1986 revisions to the Federal Acquisition Regulation (FAR) did not specify the criteria for assessing the reasonableness of contractor compensation; and (5) during a 5-year period, the government reimbursed its 10 largest contractors about $4.5 billion for their employee health care costs.

Recommendations

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