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Highlights

Pursuant to a congressional request, GAO reviewed the budget treatment of federal insurance programs to assess whether the current cash-based budget provides complete information on the government's cost and whether accrual concepts could be used to improve budgeting for these programs, focusing on: (1) potential approaches for using accrual concepts in the budget for insurance programs; (2) trade-offs among different approaches, including the current cash-based budget treatment; and (3) potential implementation issues such as cost estimation.

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Recommendations

Matter for Congressional Consideration

Matter Status Comments
Congress may wish to consider encouraging the development and subsequent reporting of annual risk-assumed cost estimates in conjunction with the cash-based estimates for all federal insurance programs in the President's budget. Congress may wish to consider periodically overseeing and assessing the reliability and usefulness of these estimates, making adjustments, and determining whether to move toward a more comprehensive accrual-based budgeting approach for insurance programs.
Closed - Implemented
H.R. 853, the Comprehensive Budget Process Reform Act of 1999, was introduced in February 1999. Among its provisions, it called for budgeting for the risk-assumed cost for insurance programs. Its approach is modeled upon GAO's work and called for agencies to develop and report risk-assumed costs for an interim period before including them in budget numbers. It further called for CBO, OMB, and GAO to evaluate the interim reporting and to report on the advisability and appropriate implementation of the insurance budgeting reforms. In drafting the bill congressional staff drew heavily on GAO's report and consulted extensively with GAO staff. GAO also provided testimony on the budgetary treatment of insurance programs before the House Budget Committee's Budget Process Task Force (T-AIMD-98-147, April 23, 1998). H.R. 853 was defeated when the House voted on it in May 2000. However, budget process reforms are again being discussed in 2001. If a comprehensive bill is proposed, it would likely include insurance budgeting reform since it enjoys bipartisan support. In addition, legislation has been proposed to establish a National Commission on Budget Concepts which would address the bases of accounting for the budget, which would likely include insurance budgeting.

Recommendations for Executive Action

Agency Affected Recommendation Status
Office of Management and Budget 1. The Director, Office of Management and Budget (OMB), should develop risk-assumed cost estimation methods for federal insurance programs and encourage similar efforts at agencies with insurance programs. As they become available, the risk-assumed estimates should be reported annually in a standardized format for all insurance programs as supplemental information along with the cash-based estimates. A description of the estimation methodologies used and significant assumptions made should be provided. To promote confidence in risk-assumed cost measures, the estimation models and data should be available to all parties involved in making budget estimates and be subject to periodic external review. As data become available, OMB should undertake and report on evaluations of the validity and reliability of the reported estimates.
Closed - Implemented
OMB worked with the House Budget Committee on legislation to implement risk-assumed accrual budgeting for federal insurance programs. In response to GAO's recommendation in a letter dated November 11, 1998, OMB stated that it would endeavor to develop risk-assumed estimation models for insurance programs within the bounds of available resources and would rely heavily on program agencies' expertise, data, and research. H.R. 853 would require agencies to develop models to estimate their risk-assumed costs and report it to OMB beginning with the request for FY2002. It would also require OMB to advise interested persons of the availability of information describing the models, data, and critical assumptions, thus making it available for external review. OMB would also be required by H.R. 853 to evaluate the availability and reliability of data or information to make risk-assumed estimates. H.R. 853 was defeated when voted on in May 2000.

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