Federal Health Benefits Program:

Stronger Controls Needed to Reduce Administrative Costs

T-GGD-92-20: Published: Mar 11, 1992. Publicly Released: Mar 11, 1992.

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GAO discussed the Federal Employees Health Benefits Program's (FEHBP) fee-for-service (FFS) administrative costs, focusing on: (1) comparing FEHBP administrative costs and large health benefits programs' costs; and (2) whether opportunities existed to reduce FEHBP costs. GAO noted that: (1) in 1988, FFS plans cost $8.56 to administer for each $100 of benefits paid, which was 51 percent and 89 percent more than the average cost ratio for the reviewed large insured programs and self-insured programs, respectively; (2) although administrative and benefit differences and a legislatively designed nonuniformed benefits structure may have contributed to higher FEHBP costs, FEHBP costs can be reduced; (3) due to this structure, the Office of Personnel Management (OPM) could not competitively procure for carriers to perform administrative services, and the carriers did not have to maintain competitive operational expenses; (4) although noncompetitive, self-renewing plan contracts may weaken OPM ability to negotiate lower-cost contracts, OPM could use more effective controls and monetary incentives to encourage carriers to contain their administrative costs; and (5) the Department of Defense's Civilian Health and Medical Program of the Uniformed Services reduced its carriers' administrative costs by converting to competitive, fixed-price contracts. GAO also noted that OPM could achieve potential annual savings of at least $35 million, if: (1) it significantly improved FFS plan controls; and (2) Congress enacted legislation to provide a more uniform benefits structure and change OPM methods of selecting and paying contractors.

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