Federal Health Benefits Program:

Analysis of Contingency and Special Reserves

GGD-93-26: Published: Dec 4, 1992. Publicly Released: Dec 22, 1992.

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Pursuant to a congressional request, GAO evaluated the financial soundness of proposed changes to reserve requirements of the Federal Employees Health Benefits Program (FEHBP).

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.

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