B-219236, JUL 31, 1985

B-219236, JUL 31, 1985

OFFICERS AND EMPLOYEES - HEALTH INSURANCE - BLUE CROSS/BLUE SHIELD - FUNDS DIGEST: WE HAVE BEEN ASKED WHETHER THE PROPOSAL OF THE BLUE CROSS/BLUE SHIELD ASSOCIATION TO REFUND $754 MILLION OF SURPLUS FUNDS FROM THEIR SPECIAL RESERVES DIRECTLY TO ITS ENROLLEES AND TO THE GOVERNMENT IS LEGAL. THE OFFICE OF LEGAL COUNSEL, DEPARTMENT OF JUSTICE HAS ISSUED AN OPINION THAT THE REFUND IS CONTEMPLATED BY 5 U.S.C. 8909(B) BUT MAY NOT BE MADE TO ANNUITANTS. WITH CERTAIN CAVEATS WE CONCUR WITH THAT OPINION. HOWEVER, WE NOTE THAT A REFUND MADE BY ONE OF THE "BIG SIX" (THE SIX CARRIERS WHOSE RATES ARE AVERAGED TO DETERMINE THE GOVERNMENT CONTRIBUTION TO THE PREMIUMS OF ALL PLANS UNDER 5 U.S.C. 8906) WOULD NOT RESULT IN AN ADJUSTMENT OF THE GOVERNMENT CONTRIBUTION AS WOULD AN ADJUSTMENT OF THE PLAN'S RATES. HOWEVER, WE AGREE THAT A REFUND APPEARS TO BE COVERED BY THE PLAIN LANGUAGE OF SECTION 8909(B).

THE HONORABLE TED STEVENS: CHAIRMAN, SUBCOMMITTEE ON CIVIL SERVICE, POST OFFICE AND GENERAL SERVICES COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE

WE HAVE RECEIVED THE REQUEST SUBMITTED JOINTLY BY YOU, REPRESENTATIVE WILLIAM D. FORD, AND REPRESENTATIVE MARY ROSE OAKAR FOR OUR OPINION ON THE LEGALITY OF THE BLUE CROSS AND BLUE SHIELD ASSOCIATION PROPOSAL TO REFUND $754 MILLION TO ITS SUBSCRIBERS AND TO THE FEDERAL GOVERNMENT. WE BELIEVE THAT THE REFUND PROPOSAL AS MODIFIED IS AUTHORIZED BY STATUTE.

THE REFUND IS PROPOSED TO BE MADE FROM SURPLUS FUNDS IN THE ASSOCIATION'S SPECIAL RESERVE. THE SURPLUS AROSE OVER THE PAST SEVERAL YEARS BECAUSE THE RATES CHARGED BY THE ASSOCIATION EXCEEDED THE COST OF THE BENEFITS PROVIDED BY THE ASSOCIATION TO ITS SUBSCRIBERS DURING THE SAME PERIOD. BOTH THE AMOUNT OF THE SURPLUS AND A PROPOSAL TO REFUND CONTRIBUTIONS ARE UNPRECEDENTED IN THE 25-YEAR HISTORY OF THE PROGRAM.

THE OFFICE OF THE LEGAL COUNSEL, DEPARTMENT OF JUSTICE, HAS ISSUED AN OPINION CONCERNING THE LEGALITY OF A MODIFIED REFUND PROPOSAL. UNDER THIS PROPOSAL, THE SURPLUS IN THE SPECIAL RESERVE MAINTAINED BY THE ASSOCIATION WOULD BE TRANSFERRED TO THE ASSOCIATION'S CONTINGENCY RESERVE MAINTAINED BY THE OFFICE OF PERSONNEL MANAGEMENT (OPM). THE GOVERNMENT'S SHARE OF THE REFUND WOULD BE USED TO PAY SOME PORTION OF THE GOVERNMENT CONTRIBUTION REQUIRED BY 5 U.S.C. SEC. 8906 (1982). /1/ IT IS APPARENTLY CONTEMPLATED THAT OPM WOULD TRANSFER AN AMOUNT REPRESENTING THE EMPLOYEE'S SHARE TO THE ASSOCIATION FOR DIRECT DISBURSEMENT TO EMPLOYEES ENROLLED IN THE PLAN AS OF MAY 1, 1985. THE OFFICE OF LEGAL COUNSEL'S OPINION CONCLUDES THAT THE ASSOCIATION'S REFUND PROPOSAL, AS MODIFIED, IS CONSISTENT WITH APPLICABLE STATUTORY AND REGULATORY REQUIREMENTS, EXCEPT THAT REFUNDS TO ANNUITANTS ARE NOT AUTHORIZED.

THE OPINION TURNS ON THE INTERPRETATION OF LANGUAGE SPECIFYING HOW FUNDS IN CONTINGENCY RESERVES MAY BE USED. /2/ IT VIEWS THE LANGUAGE OF THE SECOND CLAUSE, PROVIDING FOR REFUNDS TO "BE APPLIED TO REDUCE THE CONTRIBUTIONS OF EMPLOYEES AND THE GOVERNMENT," AS PERMITTING REFUNDS OF CURRENT CONTRIBUTIONS. HOWEVER, THE OPINION HOLDS THAT BECAUSE THIS CLAUSE DOES NOT SPECIFICALLY MENTION ANNUITANTS, THERE IS NO STATUTORY AUTHORITY PERMITTING REFUNDS TO THAT CLASS OF SUBSCRIBERS. THE CRUX OF THE ARGUMENT IS SUCCINCTLY STATED ON PAGE 12 OF THE OPINION:

"THE STATUTE EXPRESSLY ENUMERATES THREE PERMISSIBLE USES OF THE CONTINGENCY RESERVES: (1) TO DEFRAY FUTURE RATE INCREASES; (2) TO REDUCE THE CONTRIBUTIONS OF EMPLOYEES AND THE GOVERNMENT TO THE PLAN FROM WHICH THE RESERVES ARE DERIVED; AND (3) TO INCREASE BENEFITS PROVIDED BY THE PLAN FROM WHICH THE RESERVES ARE DERIVED. 5 U.S.C. SEC. 8909(B). THE LEGISLATIVE HISTORY OF THIS PROVISION IS SPARSE; IT SUGGESTS THAT A PRIMARY PURPOSE OF THE SPONSORS IN PROVIDING FOR A CONTINGENCY RESERVE WAS TO GUARANTEE A CUSHION SO THAT RATES WOULD NOT INCREASE FOR A PERIOD OF YEARS AFTER PASSAGE OF THE BILL. SEE, E.G., H.R. REP. NO. 957, 86TH CONG. 1ST SESS. 13, REPRINTED IN (1959) U.S. CODE. CONG. & ADMIN. NEWS 2925; S. REP. NO. 468, 86TH CONG., 1ST SESS. 17-18 (1959). NONETHELESS, THE EXPRESS LANGUAGE OF SEC. 8909(B) AUTHORIZES THE USE OF THE CONTINGENCY RESERVES TO 'REDUCE CONTRIBUTIONS,' IN ADDITION TO HOLDING DOWN FUTURE RATES, AND THERE IS NOTHING IN THE LEGISLATIVE HISTORY TO SUGGEST THAT CONGRESS MEANT ANYTHING OTHER THAN WHAT IT SAID."

WE CANNOT TAKE EXCEPTION TO THE BASIC CONCLUSION IN THE OFFICE OF LEGAL COUNSEL OPINION. AS THE OPINION POINTS OUT, THERE IS NOTHING IN THE EXISTING OPM REGULATIONS WHICH WOULD FORECLOSE THE MODIFIED PROPOSAL; /3/ AND WE SEE NO REASON WHY THE EXISTING CONTRACTUAL ARRANGEMENTS COULD NOT BE REVISED TO ACCOMMODATE IT, IF NECESSARY. THUS, THE KEY ISSUE IS WHETHER THE PROPOSAL IS AUTHORIZED BY 5 U.S.C. SECS. 8901 ET SEQ. WE RECOGNIZE THAT THE PROPOSAL CAN BE JUSTIFIED BY THE LITERAL TERMS OF THE STATUTE. SPECIFICALLY, 5 U.S.C. SEC. 8909(B) PROVIDES IN PART THAT REFUNDS MADE BY A PLAN SHALL BE CREDITED TO ITS CONTINGENCY RESERVE, AND, AS NOTED ABOVE, THIS SAME PROVISION AUTHORIZES CONTINGENCY RESERVES TO BE APPLIED TO REDUCE THE CONTRIBUTIONS OF "EMPLOYEES" AND OF THE GOVERNMENT.

FOR THESE REASONS, THE OPINION IS SUPPORTABLE IN CONCLUDING THAT THE MODIFIED PROPOSAL IS AUTHORIZED BY STATUTE. OUR COMMENTS ARE CONFINED TO THE LEGALITY OF THE PROPOSAL. WE HAVE NOT CONSIDERED FULLY THE MERITS OF THIS METHOD OF DEALING WITH THE SURPLUS FUNDS IN QUESTION.

WE HAVE PROVIDED IDENTICAL RESPONSES TO YOUR COREQUESTORS.

/1/ 5 U.S.C. SEC. 8906 SETS THE GOVERNMENT CONTRIBUTION AS 60 PERCENT OF THE AVERAGE SUBSCRIPTION CHARGE OF SIX SPECIFIED PLANS, REFERRED TO AS THE "BIG SIX." IN NO CASE, HOWEVER, CAN THE BIWEEKLY GOVERNMENT CONTRIBUTION EXCEED 75 PERCENT OF A PLAN'S SUBSCRIPTION CHARGE.

/2/ THE RELEVANT PORTION OF SECTION OF 8909(B) PROVIDES:

"THE CONTINGENCY RESERVES MAY BE USED TO DEFRAY INCREASES IN FUTURE RATES, OR MAY BE APPLIED TO REDUCE THE CONTRIBUTIONS OF EMPLOYEES AND THE GOVERNMENT TO, OR TO INCREASE THE BENEFITS PROVIDED BY, THE PLAN FROM WHICH THE RESERVES ARE DERIVED, AS THE OFFICE (OF PERSONNEL MANAGEMENT) FROM TIME TO TIME SHALL DETERMINE."

/3/ AT THE SAME TIME, WE AGREE WITH THE OFFICE OF LEGAL COUNSEL THAT THE REGULATIONS SHOULD BE AMENDED TO PROVIDE SPECIFICALLY FOR SUCH REFUNDS AND MAKE THE SAME OPTION AVAILABLE TO OTHER CARRIERS.