B-219236.2, NOV 26, 1985, OFFICE OF GENERAL COUNSEL

B-219236.2: Nov 26, 1985

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WHEN EMPLOYEE REFUND CHECKS ARE DRAWN ON THE CONTINGENCY RESERVE ACCOUNT. LEGISLATIVE HISTORY SHOWS THAT REFUNDS OF THIS TYPE WERE PLANNED FOR IN THE ORIGINAL STATUTE. ALTHOUGH THEY WERE THOUGHT TO BE UNLIKELY TO OCCUR. THE GOVERNMENT'S SHARE OF THE REBATE WAS TO REMAIN IN THE CONTINGENCY RESERVE. IF THERE WERE NO STATUTORY AUTHORITY TO ACCEPT THE FUNDS IN THE CONTINGENCY RESERVE. THERE IS A STATUTE GOVERNING BOTH THE ACCEPTANCE OF FUNDS AND THEIR PERMISSIBLE USES. 5 U.S.C. HISTORY OF FEHBP FUND AND POTENTIAL REFUNDS THE FEDERAL EMPLOYEE HEALTH BENEFITS PLAN (FEHBP) WAS ESTABLISHED IN 1959. IT IS NOW CODIFIED AT 5 U.S.C. THE CIVIL SERVICE COMMISSION WAS HIGHLY CRITICAL OF THE SENATE PROPOSAL.

B-219236.2, NOV 26, 1985, OFFICE OF GENERAL COUNSEL

OFFICERS AND EMPLOYEES - HEALTH INSURANCE - BLUE CROSS-BLUE SHIELD - FUNDS DIGEST: GAO AND DEPARTMENT OF JUSTICE APPROVED OFFICE OF PERSONNEL MANAGEMENT'S PROPOSAL TO ACCEPT PREMIUM REFUND FROM BLUE CROSS/BLUE SHIELD IN THE FEDERAL EMPLOYEE HEALTH BENEFITS FUND'S CONTINGENCY RESERVE. B-219136, JULY 31, 1985, AND 5 U.S.C. SEC. 8909 (1982). OPM NOW PROPOSES THAT, WHEN EMPLOYEE REFUND CHECKS ARE DRAWN ON THE CONTINGENCY RESERVE ACCOUNT, THE GOVERNMENT'S SHARE OF THE RETURNED PREMIUMS BE DEPOSITED IN THE TREASURY'S GENERAL FUND. THIS PLAN WOULD EFFECT A NET SAVINGS TO THE GOVERNMENT, BUT WOULD ALSO VIOLATE THE CONTINGENCY RESERVE STATUTE, WHICH PERMITS THE RESERVE FUND TO BE USED ONLY TO DEFRAY RATE INCREASES, LOWER PREMIUM CONTRIBUTIONS OR INCREASE BENEFITS. LEGISLATIVE HISTORY SHOWS THAT REFUNDS OF THIS TYPE WERE PLANNED FOR IN THE ORIGINAL STATUTE, ALTHOUGH THEY WERE THOUGHT TO BE UNLIKELY TO OCCUR. DEPOSIT IN THE GENERAL FUND WOULD ALSO VIOLATE 31 U.S.C. SEC. 1532 PROHIBITING TRANSFERS BETWEEN APPROPRIATION ACCOUNTS.

THE HONORABLE WILLIAM D. FORD:

CHAIRMAN, COMMITTEE ON POST OFFICE AND CIVIL SERVICE

HOUSE OF REPRESENTATIVES

YOUR LETTER OF NOVEMBER 20, 1985, ASKED FOR OUR OPINION ON THE OFFICE OF PERSONNEL MANAGEMENT'S (OPM) PROPOSAL TO TRANSFER THE GOVERNMENT'S SHARE BY THE BLUE CROSS/BLUE SHIELD PREMIUM REBATE FROM THE FEDERAL EMPLOYEE HEALTH BENEFITS PLAN (FEHBP) FUND'S CONTINGENCY RESERVE ACCOUNT TO THE GENERAL FUND OF THE TREASURY. OPM'S PLAN WOULD BE IMPROPER FOR THE REASONS EXPLAINED BELOW.

BACKGROUND

ON JULY 10, 1985, THE JUSTICE DEPARTMENT APPROVED A PROPOSAL BY OPM TO ACCEPT A REFUND OF EXCESS PREMIUM CONTRIBUTIONS ACCUMULATED BY BLUE CROSS AND BLUE SHIELD (BC/BS) IN THE SERVICE BENEFIT PLAN DURING FISCAL YEARS 1984 AND 1985. BC/BS HAD BEEN MAINTAINING THE EXCEPTIONAL ACCUMULATION IN ITS SPECIAL RESERVE FUND (SEE 41 C.F.R. SEC. 16-4.152 (1984)), BUT OFFERED A REFUND WHEN THE EXCESS BECAME TOO GREAT. AFTER REJECTING AN EARLIER BLUE CROSS PROPOSAL TO REFUND DIRECTLY TO AFFECTED EMPLOYEES AND TO THE TREASURY, OPM PROPOSED ACCEPTING THE REBATE IN THE CONTINGENCY RESERVE FROM WHICH FUND INDIVIDUAL REBATES WOULD BE DISBURSED DIRECTLY TO EMPLOYEES. ACCORDING TO THE OPM PROPOSAL REVIEWED BY JUSTICE, THE GOVERNMENT'S SHARE OF THE REBATE WAS TO REMAIN IN THE CONTINGENCY RESERVE. MEMO TO THE ATTORNEY GENERAL FROM RALPH W. TARR, JULY 9, 1985 AT 19.

WE CONCURRED IN THE JUSTICE DEPARTMENT'S APPROVAL OF THE OPM PROPOSAL. B-219236, JULY 31, 1985. SUBSEQUENT TO OUR DECISION, OPM CHANGED ITS PLAN FOR DISTRIBUTION OF THE GOVERNMENT'S SHARE OF THE REBATE. IT NOW PLANS TO DEPOSIT THE ENTIRE REBATED AMOUNT (LESS THE EMPLOYEES' SHARE) DIRECTLY TO THE GENERAL FUND OF THE TREASURY, RATHER THAN RETAINING IT IN THE CONTINGENCY RESERVE. IF THERE WERE NO STATUTORY AUTHORITY TO ACCEPT THE FUNDS IN THE CONTINGENCY RESERVE, OPM'S ACTION WOULD BE CORRECT. HOWEVER, THERE IS A STATUTE GOVERNING BOTH THE ACCEPTANCE OF FUNDS AND THEIR PERMISSIBLE USES. 5 U.S.C. SEC. 8909 (1982). WE THINK OPM'S PROPOSAL WOULD VIOLATE THAT STATUTE.

HISTORY OF FEHBP FUND AND POTENTIAL REFUNDS

THE FEDERAL EMPLOYEE HEALTH BENEFITS PLAN (FEHBP) WAS ESTABLISHED IN 1959. PUB.L. NO. 86-382, 73 STAT. 708. IT IS NOW CODIFIED AT 5 U.S.C. SECS. 8901-13 (1982). THE STATUTE ESTABLISHED A FEHBP FUND, MANAGED BY THE CIVIL SERVICE COMMISSION (NOW OPM), TO CUMULATE AND HOLD THE PREMIUM CONTRIBUTIONS OF ALL THE PARTICIPATING GOVERNMENT ENTITIES AND OF ALL THE ENROLLED EMPLOYEES AND ANNUITANTS FOR TIMELY DISBURSEMENT TO THE INSURANCE CARRIERS.

THE ORIGINAL SENATE VERSION OF THE LEGISLATION CALLED FOR THE FUND MANAGERS TO SET ASIDE A CONTINGENCY RESERVE COMPOSED ENTIRELY OF "DIVIDENDS, PREMIUM RATE CREDITS OR OTHER REFUNDS." THE CIVIL SERVICE COMMISSION WAS HIGHLY CRITICAL OF THE SENATE PROPOSAL. NOTING A GENERAL AND PERVASIVE TREND TOWARD ESCALATING HEALTH CARE COSTS, THE DIRECTOR WROTE:

"THESE REFUNDS (AND THERE IS NOTHING TO GUARANTEE THAT ANY WILL BE MADE BY THE CARRIERS) ARE COMPLETELY INADEQUATE FOR USE AS A CONTINGENCY RESERVE." H.R. REP. NO. 957, 86TH CONG., 1ST SESS. 22.

HE THEN SUGGESTED THAT 10 PERCENT OF PREMIUMS BE SET ASIDE AS A CONTINGENCY RESERVE. THE COMMITTEE ACCEPTED THAT PROPOSAL, BUT REDUCED THE RESERVED AMOUNT TO A MAXIMUM OF 3 PERCENT OF PREMIUMS.

THE CURRENT STATUTORY LANGUAGE REMAINS BASICALLY UNCHANGED AND READS AS FOLLOWS:

"PORTIONS OF THE CONTRIBUTIONS MADE BY EMPLOYEES, ANNUITANTS, AND THE GOVERNMENT SHALL BE REGULARLY SET ASIDE IN THE FUND AS FOLLOWS:

"(2) FOR EACH HEALTH BENEFITS PLAN, A PERCENTAGE, NOT TO EXCEED 3 PERCENT OF THE CONTRIBUTIONS TOWARD THE PLAN, DETERMINED BY THE OFFICE TO BE REASONABLY ADEQUATE TO PROVIDE A CONTINGENCY RESERVE.

"*** THE INCOME DERIVED FROM DIVIDENDS, RATE ADJUSTMENTS, OR OTHER REFUNDS MADE BY A PLAN SHALL BE CREDITED TO ITS CONTINGENCY RESERVE." U.S.C. SEC. 8909(B) (1982).

THE LEGISLATIVE HISTORY REFERRED TO INDICATES THAT REBATES OF EXACTLY THE TYPE NOW IN PROCESS WERE ANTICIPATED BY THE ORIGINAL LEGISLATION, THOUGH THEY WERE THOUGHT TO BE UNLIKELY TO OCCUR. UNLIKELY OR NOT, HOWEVER, THEIR INTENDED DESTINATION WAS THE CONTINGENCY RESERVE.

GIVEN THE STATUTORY LANGUAGE AND ITS BOLSTERING LEGISLATIVE HISTORY, WE THINK IT IS CLEAR THAT THE REBATE WAS PROPERLY CREDITED TO THE RESERVE.

USE OF FUNDS IN THE RESERVE IS LIMITED

ONCE FUNDS ARE DEPOSITED IN THE RESERVE THEY CAN ONLY BE USED FOR PURPOSES AUTHORIZED, /1/ WHICH ARE:

"*** TO DEFRAY INCREASES IN FUTURE RATES *** 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 ***."

DIRECT DISBURSEMENT TO OVERCHARGED EMPLOYEES WAS APPROVED BY THE JUSTICE DEPARTMENT AND OUR OFFICE AS A MEANS OF REDUCING EMPLOYEE CONTRIBUTIONS. REBATES WOULD DIRECTLY OFFSET EMPLOYEES' CURRENT PAYROLL DEDUCTIONS ACCORDING TO THIS ANALYSIS.

THE THEORY, HOWEVER, DOES NOT APPLY TO THE GOVERNMENT'S SHARE OF THE FUNDS IN THE CONTINGENCY RESERVE. DIRECT RETURN OF THE GOVERNMENT'S SHARE OF THE REBATE TO THE TREASURY WOULD NOT OFFSET CURRENT PREMIUM OBLIGATIONS. ON THE CONTRARY, THIS PLAN IS INTENDED TO "SAVE" THE REBATE, RATHER THAN USE IT FOR ITS INTENDED PURPOSES.

THE ESSENCE OF OPM'S DILEMMA IS THAT THE CONTINGENCY RESERVE STATUTE'S AUTHORITY TO APPLY RESERVES TO CURRENT PREMIUM OBLIGATIONS ALSO PROVIDES AUTHORITY TO "AUGMENT" AGENCIES' APPROPRIATIONS BY THE AMOUNT THOSE AGENCIES WOULD OTHERWISE HAVE SPENT ON INSURANCE COVERAGE. TEMPORARILY RELIEVED OF THE OBLIGATION TO FUND INSURANCE PREMIUMS, THOSE AGENCIES CAN DEVOTE THE NEWLY-LIBERATED FUNDS (MOST OF WHICH ARE IN UNRESTRICTED LUMP- SUM APPROPRIATIONS) TO PROGRAM PURPOSES. APPARENTLY, IN OPM'S VIEW, THE ONLY WAY TO AVOID THIS RESULT IS TO "SAVE" THE REBATE BY DEPOSITING IT IN THE TREASURY.

DEPOSIT WOULD BE UNAUTHORIZED TRANSFER

ASIDE FROM THE FEHBP STATUTE ITSELF, THERE ARE OTHER STATUTORY RESTRICTIONS ON THE DISPOSITION OF THE CONTINGENCY RESERVE FUNDS. TITLE 31 U.S.C. PROVIDES IN SECTION 1532 THAT:

"AN AMOUNT AVAILABLE UNDER LAW MAY BE WITHDRAWN FROM ONE APPROPRIATION ACCOUNT AND CREDITED TO ANOTHER *** ONLY WHEN AUTHORIZED BY LAW."

THIS IS AN ABSOLUTE BAR TO THE PERMANENT ADMINISTRATIVE TRANSFER OF FUNDS BETWEEN APPROPRIATION ACCOUNTS. NOTHING IN THE FEHBP STATUTE LEADS US TO BELIEVE THAT TRANSFERS WERE AUTHORIZED. ON THE CONTRARY, SEC. 8909(B) DICTATES THAT REFUNDS BE MAINTAINED IN THE RESERVE AND USED FOR AUTHORIZED PURPOSES.

FUNDS DEPOSITED IN THE TREASURY SHOULD BE RECOUPED

WE UNDERSTAND THAT OPM'S PLAN TO DEPOSIT THE FUNDS COULD BE EXECUTED AT ANY TIME. IF THE FUNDS HAVE BEEN DEPOSITED, WE WOULD RECOMMEND THAT OPM TAKE APPROPRIATE ADMINISTRATIVE ACTION TO RESTORE THE FUNDS TO THE CONTINGENCY RESERVE.

WE TRUST THIS OPINION WILL BE HELPFUL AND TIMELY. UNLESS OTHERWISE AGREED WITH YOUR STAFF THIS OPINION WILL BE AVAILABLE TO THE PUBLIC 30 DAYS FROM ITS DATE.

/1/ THIS STATEMENT, OF COURSE, ASSUMES THAT A DEPOSIT WAS LEGALLY AUTHORIZED. WE DO NOT MEAN TO IMPLY THAT AN ERRONEOUS DEPOSIT COULD NOT BE RETRIEVED ADMINISTRATIVELY.