Federal Employees Health Benefits Program: Contributions and Withholdings

OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 890

RIN 3206-AI33

Federal Employees Health Benefits Program: Contributions and

Withholdings

AGENCY: Office of Personnel Management.

ACTION: Interim regulations with request for comments.

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

regulations to describe procedures for OPM's annual determination of

the weighted average of subscription charges in effect for self only

and for self and family enrollments under the Federal Employees Health

Benefits (FEHB)Program. The determinations are a requirement under

recent amendments to the FEHB law which authorize a new Government

contribution toward FEHB enrollment charges effective with the contract

year beginning in January 1999, which generally pays 72 percent of the

weighted average of subscription charges.

DATES: Interim regulations are effective August 28, 1998. We must

receive comments on or before September 28, 1998.

ADDRESSES: Send written comments to Abby L. Block, Chief, Insurance

Policy and Information Division, Retirement and Insurance Group, Office

of Personnel Management, P.O. Box 57, Washington, DC 20044; or hand

deliver to OPM, Room 3425, 1900 E Street NW., Washington, DC; or FAX to

(202) 606-0633.

FOR FURTHER INFORMATION CONTACT: Bonnie R. Rose (202) 606-0004.

SUPPLEMENTARY INFORMATION: The Balanced Budget Act of 1997, approved on

August 5, 1997 (Public Law 105-33, sec. 7002, 111 Stat. 662), amended

the Federal Employees Health Benefits (FEHB) law to authorize a new

Government contribution formula effective on the first day of the

contract year that begins in January 1999. In place of the ``Big-6''

formula, which evolved under FEHB law during the early 1970's, the new

formula bases Government contributions on the program-wide weighted

average costs, for self only and for self and family enrollments,

respectively.

The Big-6 formula provided a Government contribution for eligible

enrollees in any FEHB plan or option equal to the lesser of: (1) 60

percent of the simple average of self only or self and family

enrollment charges for the highest level of benefits offered under six

large plans described in law, or (2) 75 percent of charges for the

particular plan an individual elects to enroll in. Initially, the Big-6

formula effectively linked Government contributions to health plan

preferences of a majority of FEHB enrollees.

Over time, though, FEHB enrollees increasingly left high option

health plans which were the basis of the Big-6 formula and dispersed

themselves among other plans. During the 1970's and 1980's, the FEHB

Program expanded from several dozen to several hundred health plans and

health care inflation and rapid health plan premium increases during

this period encouraged enrollees to more carefully evaluate all

options. One distinct component of the Big-6 formula, the

Governmentwide Indemnity Benefit Plan, decided to terminate FEHB

participation at the end of 1989 due to escalating premiums and

declining enrollment. Because the average of premiums under the five

remaining Big-6 plans would have resulted in lower Government

contributions, Congress enacted temporary legislation to continue the

Big-6 calculation by using premiums for the five remaining formula

plans and a so-called phantom premium in place of the lapsed plan. The

phantom formula effectively held the Government contributions near 72

percent of total program costs and was due to expire at the end of 1998

in the absence of further action by Congress.

The 1997 amendments to the FEHB law require a determination by the

Office of Personnel Management (OPM) in advance of each contract year

of the weighted average of subscription charges that will be in effect

during the year under all FEHB plans, for self only and for self and

family types of enrollment, respectively. For employees and annuitants

generally, the law provides a Government contribution equal to the

lesser of: (1) 72 percent of the amount OPM determines is the program-

wide weighted average of subscription charges for the type of

enrollment the individual selects, or (2) 75 percent of the

subscription charge for a particular plan (5 U.S.C.Sec. 8906 (a) and

(b)). The intent of the new FEHB contribution formula, which is

referred to as the ``Fair Share'' formula, is to maintain a consistent

level of Government contributions, as a percent of the total program

costs, regardless of the configuration of participating health plans or

FEHB enrollment patterns.

The law requires OPM's determination of the amounts of the weighted

average of subscription charges for each FEHB contract year, for self

only and for self and family enrollments, not later than October 1

immediately preceding the beginning of the contract year in January. By

expressed provision of law, the weight given to each subscription

charge that will be in effect for the following FEHB contract year must

be commensurate with the number of enrollees eligible for a Government

contribution and enrolled for the same plan or option as of March 31 of

the year in which the determination is being made. Thus, OPM will

multiply each subscription charge that will be in effect for the next

contract year by the number of eligible enrollees who are in the plan

and option to which the charge applies as of March 31 immediately

preceding the contract year. We will then compute the total-dollar

subscription charge amounts for all self only enrollments and for all

self and family enrollments respectively. Finally, we will divide each

dollar total by the corresponding total numbers under each enrollment

type to achieve the program-wide weighted average costs.

The FEHB law is very clear regarding the methodology for

determining the program-wide weighted average of subscription charges

in cases where health plans continue participation substantially

unchanged from year to year. OPM is issuing regulations to explain how

we intend to treat plans for

[[Page 45934]]

purposes of determining the program-wide weighted average of

subscription charges when conditions of a plan's FEHB participation

change from one year to the next, including cases in which plans enter

the FEHB Program, cease participation, or merge with another FEHB plan,

and cases in which a health maintenance organization alters its

previous rating structure.

The regulations provide that OPM will proceed with our

determination of the program-wide weighted average of subscription

charges for the following contract year on September 1. If OPM and the

carrier of any health plan which has applied to continue FEHB

participation have not closed rate negotiations for the following

contract year by September 1, the regulations state that OPM will apply

deemed adjustments to such plan's current-year self only and self and

family subscription charges for purposes of including enrollees of the

plan in the determination of the coming year's program-wide weighted

average of subscription charges. The deemed adjustments will be equal

to any increase or decrease that OPM finds to exist in a calculation of

the weighted-average of subscription charges using only those plans

with which OPM has closed rate negotiations for the following contract

year by September 1. There will be no readjustment in the program-wide

weighted average charges based on rate negotiations closed after

September 1.

We expect deemed adjustments to be infrequent because provisions in

5 CFR 890.203 require all FEHB plans to submit benefit and rate

proposals to OPM not less than 7 months before a new contract year.

However, the regulations will ensure that OPM can complete

determination of program-wide weighted average charge amounts for each

contract year by October 1 of the preceding year, as the law requires,

and that complete information to assist enrollees in comparing health

plan features is available at the start of the annual open enrollment

period in November.

Since newly participating or terminating FEHB plans inherently lack

one of two requisite data needed for determining the program-wide

weighted average of subscription charges, namely, previous enrollment

or subscription charges for the following contract year, the

regulations exclude data associated with these plans from these

determinations. If two or more existing FEHB plans merge, or if a two-

option plan ceases to offer one of the options, the regulations state

that OPM will use the combined enrollments from the merging plans, or

the two plan options, for purposes of weighting the subscription

charges for the successor entity.

Contracts with comprehensive medical plans (CMPs) may include

different rates for specified portions of the plan's service area and

will assign a distinct enrollment code for each rating area. Such plans

occasionally decide to split the existing rating area(s) into two or

more new areas or to reconfigure geographic areas covered by existing

rating codes. When this occurs, there may not be a direct correlation

between the plan's current-year enrollment and rating codes for the

following contract year for purposes of determining the weight to be

given to each new subscription charge. So, where a participating CMP

plan is altering its FEHB rating structure for the following contract

year, the regulations provide that OPM will estimate what portion of

the total enrollments under all rating codes for the same plan on March

31 of the determination year correlates to each of the plan's rating

codes for the following contract year.

Finally, we are removing existing provisions in paragraph 5 CFR

890.501(b), and the reference to paragraph (b) in 5 CFR 890.501(a),

which reflect FEHB law in effect prior to 1974 amendments to the

Government contribution formula (Public Law 93-246, section 1, 88 Stat.

3).

Waiver of Notice of Proposed Rulemaking and Delay in Effective Date

Pursuant to section 553(b)(3)(B) and (d)(3) of title 5, United

States Code, I find that good cause exists for waiving the general

notice of proposed rulemaking and for making these rules effective in

less than 30 days. These regulations essentially expound on a

requirement in the FEHB law, which includes a prescribed methodology,

for OPM to make a determination of the weighted average of subscription

charges in effect under all FEHB plans in each contract year after

1998. Accordingly, notice of proposed rulemaking and public procedure

thereon are unnecessary. Also, good cause exists for making these rules

effective in less than 30 days. The law gives OPM some discretion

regarding the time frame for making the required determination. For

purposes of including information on Government contributions in

materials for the annual FEHB open enrollment period in November, OPM

concludes that determination of the weighted average of subscription

charges must proceed on September 1 each year, beginning with 1998.

Regulatory Flexibility Act

I certify that these regulations will not have a significant

economic impact on a substantial number of small entities because the

regulations only affect Federal Government contributions toward

enrollment costs under the Federal Employee Health Benefits Program.

Executive Order 12866, Regulatory Review

This rule has been reviewed by the Office of Management and Budget

in accordance with Executive Order 12866.

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 record keeping requirements, Retirement.

U.S. Office of Personnel Management.

Janice R. Lachance,

Director.

Accordingly, OPM is amending Title 5 of the Code of Federal

Regulations 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;

Sec. 890.102 also issued under sections 11202(f), 11232(e), and

11246 (b) and (c) of Pub. L. 105-33, 111 Stat. 251.

Subpart E--Contributions and Withholdings

2. Amend Sec. 890.501 by revising paragraphs (a) and (b) to read as

follows:

Sec. 890.501 Government contributions.

(a) The Government contribution toward subscription charges under

all health benefits plans, for each enrolled employee who is paid

biweekly, is the amount provided in section 8906 of title 5, United

States Code, plus 4 percent of that amount.

(b) In accordance with the provisions of 5 U.S.C. 8906(a) which

take effect with the contract year that begins in January 1999, OPM

will determine the amounts representing the weighted average of

subscription charges in effect for each contract year, for self only

enrollments and for self and family enrollments, as follows:

(1) The determination of the weighted average of subscription

charges will only include those health benefits plans

[[Page 45935]]

which are continuing FEHB Program participation from one contract year

to the next.

(i) If OPM and the carrier for a plan that will continue

participation have closed negotiations on rates for the upcoming

contract year by September 1 of the current contract year, i.e., the

determination year, OPM will use the plan's negotiated subscription

charges for the upcoming contract year in the determination of the

weighted average of subscription charges.

(ii) If OPM and the carrier for a plan that applied to continue

participation have not closed rate negotiations for the upcoming

contract year by September 1 of the determination year, OPM will make a

deemed adjustment to such plan's subscription charges for the current

contract year for purposes of counting eligible enrollees of the plan

in the determination of weighted average charges for the upcoming

contract year. The deemed adjustment will equal any increase or

decrease OPM finds in its determination of the weighted average of

subscription charges for the upcoming contract year for all plans with

which OPM has closed rates on September 1 of the determination year.

(iii) There will be no subsequent adjustment in the weighted

average charges applicable to the upcoming contract year to reflect

rate negotiations closed after September 1 of the determination year.

(2) Except as otherwise specified in paragraphs (b)(2) (i) and

(b)(2)(ii) of this section, the weight OPM gives to each subscription

charge for purposes of determining the weighted average of subscription

charges for the upcoming contract year will be proportionate to the

number of individuals who, as of March 31 of the determination year,

are enrolled in the plan or benefits option to which such charge

applies and are eligible for a Government health benefits contribution

in the upcoming contract year.

(i) When a subscription charge for an upcoming contract year

applies to a plan that is the result of a merger of two or more plans

which contract separately with OPM during the determination year, or

applies to a plan which will cease to offer two benefits options, OPM

will combine the self only enrollments and the self and family

enrollments from the merging plans, or from a plan's two benefits

options, for purposes of weighting subscription charges in effect for

the successor plan for the upcoming contract year.

(ii) When a comprehensive medical plan (CMP) varies subscription

charges for different portions of the plan's service area and the

plan's contract for the upcoming contract year will reconfigure

geographic areas associated with subscription charges, so that there

will not be a direct correlation between enrollment in the

determination year and rating areas for the upcoming contract year, OPM

will estimate what portion of the plan's enrollees on March 31 of the

determination year will be subject to each of the plan's subscription

rates for the upcoming contract year.

(3) After OPM weights each subscription charge as provided in

paragraphs (b)(2), (b)(2)(i), and (b)(2)(ii) of this section, OPM will

compute the total of subscription charges associated with self only

enrollments, and the total of subscription charges associated with self

and family enrollments. OPM will divide each subscription charge total

by the total number of enrollments such amount represents to obtain the

program-wide weighted average subscription charges for self only and

for self and family enrollments, respectively.

* * * * *

[FR Doc. 98-23149 Filed 8-27-98; 8:45 am]

BILLING CODE 6325-01-P