U.S. Employees Health Benefits:

Status of Contractor's Nonlegislative Recommendations to Reduce Costs

HRD-89-6: Published: Dec 19, 1988. Publicly Released: Jan 19, 1989.

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In response to a congressional request, GAO provided information on the Office of Personnel Management's (OPM) efforts to implement a contractor's nonlegislative recommendations to correct problems in the Federal Employees Health Benefits Program (FEHBP).

GAO found that OPM: (1) expressed concern that implementing uniform cost-containment measures could result in the loss of enrollees to plans using less stringent methods; (2) believed that the contractor's benefit plan design recommendations should be considered as part of a major legislative program overhaul; (3) planned to terminate 24 health maintenance organizations by the end of 1989; and (4) planned to implement a letter-of-credit arrangement with the Department of the Treasury, which would minimize the potential for misuse of FEHBP funds and reduce OPM enforcement. GAO also found that: (1) OPM plans to conduct a short-term study to estimate the benefits and costs of specific cost-containment measures; (2) OPM plans to retain a consultant to study the feasibility of applying diagnosis-related groups (DRG) to FEHBP, including identifying data sources that could be used to establish DRG payment rates; and (3) the contractor estimated that $500 million in annual savings would result from full implementation of its recommendations.

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