Federal Health Benefits Program

GAO does not believe it would be prudent for the financial management of the Federal Employees Health Benefits Program (FEHBP) to implement the proposal once made by the Office of Personnel Management (OPM) to pool and reduce the experience-rated plan options' combined contingency and special reserves. Although the proposed changes could yield a onetime reduction in the calendar-year premiums paid by government agencies and enrollees, they could also jeopardize the ability of FEHBP's combined contingency and special reserves to (1) cover the experience-rated plan options' unexpected costs; (2) stabilize premium and health benefits; and (3) minimize the possibility of a financial loss for plan sponsors, underwriters, enrollees, and the federal government. GAO is concerned that a reserve balance equal to one-months' benefits and administrative expenses might not always be adequate to cover unexpected costs. Because past balances have often fluctuated by large amounts in relation to reserve goals and targets, OPM could find it hard to maintain the balance at or above the proposed level. Thus, if the balance continued to fluctuate as much after the combined reserve balance was reduced, FEHBP's financial soundness and stability could be endangered.

GAO found that: (1) the total combined reserve balance fluctuated widely; (2) at various times the reserve balance was at levels that the Office of Personnel Management (OPM) considered to be excessive or dangerously low; (3) the balance at the end of 4 of the 6 years evaluated was less than the proposed reduced goal of 1 month of benefits and administrative expenses; (4) it was questionable whether a reduced goal would ensure that FEHBP reserves would always be adequate to cover unexpected expenses; (5) the weighted average of the nine options' actual balances in 1987 was 1.6-months' expenses below the weighted average of the targets used in setting the options' premiums; and (6) plan sponsors were generally opposed to pooling and reducing the reserves because it would adversely affect individual plans and enrollees and could be detrimental to the program.