Insurance Refunds

In response to a congressional request, GAO: (1) reviewed the Federal Employees Health Benefits Program (FEHBP) reserves; (2) discussed the Office of Personnel Management's (OPM) proposed method for dividing approximately $1 billion in excess program funds between the government and the enrollees; and (3) proposed a method to distribute each plan's refund equitably.

Enrollees and the government share FEHBP costs through regular premium contributions. The government's contribution is generally fixed regardless of the enrollee's salary or the plan he joins. FEHBP premiums must cover claims and overhead costs and maintain surplus funds, or reserves, as protection against unexpected costs. Due to an extraordinary reserve excess in 1985, 11 plans decided to refund over $1 billion on a pro-rata basis between the government and the enrollees. GAO found that this method would cause inequities because: (1) in some plans, enrollees would overpay for their health care coverage, and the government would receive too much of the refund; and (2) in other plans, enrollees would underpay, and the government would receive too little of the refund. GAO proposed a refund method which would: (1) refund to both enrollees and the government their actual premium overpayments rather than an arbitrary amount; (2) keep the government's contribution consistent for each refund plan; and (3) be consistent with traditional practices of subsidizing premiums.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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