Federal Employees Health Benefits Program; HMO Plan Applications

SUMMARY: The Office of Personnel Management (OPM) is issuing final

regulations to clarify the policy under which it invites applications

from comprehensive medical plans (CMP's), commonly referred to as

Health Maintenance Organizations (HMO's), to participate in the Federal

Employees Health Benefits (FEHB) Program. This clarification is

necessary in order to ensure that OPM and the CMP's (HMO's) are

providing the best possible service to FEHB enrollees.

EFFECTIVE DATE: February 6, 1996.

FOR FURTHER INFORMATION CONTACT: Faith M. Hannon, (202) 606-0004.

SUPPLEMENTARY INFORMATION: On December 5, 1994, OPM published an

interim regulation in the Federal Register (59 FR 62283) to clarify the

policy under which it invites applications from comprehensive medical

plans (CMP's), commonly referred to as Health Maintenance Organizations

(HMO's), to participate in the FEHB Program. OPM made a determination

not to invite new plan applications, with a limited exception, for

contract year 1996. In addition, OPM decided neither to accept benefit

change proposals from plans already in the FEHB Program nor to print

new plan brochures or a comparison guide for contract year 1996.

OPM received 15 written comments and numerous phone calls

concerning the regulation. All of the commenters objected that OPM did

not give HMO's sufficient notice of its determination not to accept

applications and benefit change proposals for the 1996 contract year.

Among other issues, they contended that many HMO's had already expended

a substantial amount of time preparing applications or developing plan

benefit designs and that OPM's decision, therefore, caused them undue

hardship. In addition, some commenters disagreed with OPM's position

that this regulation clarified existing policy and that the Director of

OPM had authority to determine when plan applications would be

accepted.

After careful consideration of the comments received, OPM concluded

that its time frames had, in fact, been too compressed to allow for a

thorough review of all the consequences of the decision not to accept

applications and that it had not allowed sufficient time for comments.

As a result, OPM decided to accept applications and benefit change

proposals for contract year 1996 and to provide the public with a

longer comment period.

Therefore, OPM published a notice in the Federal Register on March

13, 1995, (60 FR 13491), which stated that OPM would accept

applications from new HMO's for participation in the FEHB Program, and

benefit change proposals from plans currently participating, for

contract year 1996. In this notice, OPM extended the deadline for

submission of the completed applications from January 31 to March 31,

1995, and allowed for a second extension if OPM requested additional

information from the applicants. OPM also published the clarification

of the policy under which it invites applications from HMO's as a

proposed regulation in the Federal Register, (60 FR 15074), on March

22, 1995. This issuance was in response to those commenters who

objected to the length of the comment period of the interim regulation

and other alleged publication technicalities under the Administrative

Procedure Act (APA).

OPM received seven written responses to the proposed regulation.

The primary issues mentioned by most commenters were that closing the

FEHB Program for an unlimited period of time would limit health plan

choices for Federal employees, and would restrict competition within

the FEHB Program. Both features are considered to be hallmarks of the

Program. Some commenters also opined that this regulation contravenes

OPM's obligation to contract with federally qualified HMO's and the

related HMO dual choice mandate. These comments may have originated

from a misunderstanding of the extent of the regulation. It was never

OPM's intention to close the FEHB Program to new HMO's for unlimited

periods of time. Because this misconception appears to be widespread,

the final rule states that it is OPM's intention to accept new HMO

applications on an annual basis except in those rare instances when the

Director decides it is not in the best interest of the Federal

enrollees and the FEHB Program. If this should occur, sufficient

advance notice would be given to the HMO industry, i.e., an entry in

the Federal Register at least seven months prior to the date

applications would be due for the contract year for which applications

will not be accepted, allowing for a comment period of sixty days.

Generally, there is eleven months lead time between when applications

are due on January 31, and the start of the contract year for which the

applications are being accepted.

Several commenters stated that it is their belief that the Federal

Employees Health Benefits Act (FEHBA) does not grant the Director of

OPM the authority to determine when it is beneficial to the FEHB

Program to accept applications from HMO's for participation in the

Program. It was, and is, the conclusion of OPM that the Director has

always had this authority and that this regulation simply clarifies the

policy under which this authority is administered. The final rule

states this conclusion.

Many commenters offered to assist OPM in streamlining the

application process so that OPM might utilize its resources in the most

effective way to benefit Program enrollees. OPM is appreciative of

these offers and is working closely with representatives of the

industry and other knowledgeable organizations to improve the

application process.

This Final Rule is also updating the mailing address of the Office

of Insurance Programs listed in the final sentence of

Sec. 890.203(a)(5).

Regulatory Flexibility Act

I certify that these regulations will not have a significant

economic impact on a substantial number of small entities

[[Page 62988]]

because they primarily affect OPM's administrative procedures.

List of Subjects in 5 CFR Part 890

Administrative practice and procedure, Government employees, Health

facilities, Health insurance, Health professions, Hostages, Iraq,

Kuwait, Lebanon, Reporting and recordkeeping requirements, Retirement.

U.S. Office of Personnel Management.

James B. King,

Director.

Accordingly, OPM is amending 5 CFR Part 890 as follows:

PART 890--FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM

1. The authority citation for part 890 continues to read as

follows:

Authority: 5 U.S.C. 8913; Sec. 890.803 also issued under 50

U.S.C. 403p, 22 U.S.C. 4069c and 4069c-1; Subpart L also issued

under sec. 599C of Pub. L. 101-513, 104 Stat. 2064, as amended.

2. In Sec. 890.203, paragraphs (a)(1) and (a)(2), and the last

sentence in paragraph (a)(5) are revised to read as follows:

Sec. 890.203 Application for approval of, and proposal of amendments

to, health benefits plans.

(a) New plan applications. (1) The Director of OPM shall consider

applications to participate in the FEHB Program from comprehensive

medical plans (CMP's) at his or her discretion. CMP's are automatically

invited to submit applications annually to participate in the FEHB

Program unless otherwise notified by OPM. If the Director should

determine that it is not beneficial to the enrollees and the Program to

consider applications for a specific contract year, OPM will publish a

notice with a 60 day comment period in the Federal Register no less

than 7 months prior to the date applications would be due for the

specific contract year for which applications will not be accepted.

(2) When applications are considered, CMP's should apply for

approval by writing to the Office of Personnel Management, Washington,

DC 20415. Application letters must be accompanied by any descriptive

material, financial data, or other documentation required by OPM. Plans

must submit the letter and attachments in the OPM-specified format by

January 31, or another date specified by OPM, of the year preceding the

contract year for which applications are being accepted. Plans must

submit evidence demonstrating they meet all requirements for approval

by March 31 of the year preceding the contract year for which

applications are being accepted. Plans that miss either deadline cannot

be considered for participation in the next contract year. All newly

approved plans must submit benefit and rate proposals to OPM by May 31

of the year preceding the contract year for which applications are

being accepted in order to be considered for participation in that

contract year. OPM may make counter-proposals at any time.

* * * * *

(5) * * * The extent of the data and documentation to be submitted

by a plan so qualified by HHS, as well as by a non-qualified plan, for

a particular review cycle may be obtained by writing directly to the

Office of Insurance Programs, Retirement and Insurance Service, Office

of Personnel Management, Washington, DC 20415.

* * * * *

[FR Doc. 95-29882 Filed 12-7-95; 8:45 am]

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