OPM gives health insurance carriers new acquisition rules

The Office of Personnel Management has announced new acquisition rules for the federal employee health insurance program and affirmed that it will not apply cost accounting standards to contractors in the program.

Until recently, OPM said, health care service and supply providers that contracted with carriers such as Aetna in OPM's Federal Employees Health Benefits program were not considered subcontractors. "Hundreds of thousands of such agreements between carriers and providers are in place, and until recently, the dollar value of each agreement was relatively small," OPM stated in the Federal Register.

But now, those providers often take on larger contracts. "Because of the impact of these costs on the FEHB program, we are expanding our oversight in this area," said OPM.

Contracts between providers and carriers now will be governed by the FEHB Acquisition Regulation, which sets audit requirements and determines what information carriers must give to OPM, such as costs and the reason providers are selected. The FEHB Acquisition Regulation supplements the Federal Acquisition Regulation, which sets rules for government contracting.

When OPM first proposed this rule in August 2003, an unnamed association that represents fee-for-service health plans complained that the requirement forced them to abide by the Federal Acquisition Regulation, which it said should only be applied to federal agencies. OPM said it disagreed.

In another section of the new regulations, OPM said it would not add cost accounting requirements for carriers.

The American Federation of Government Employees has backed such requirements. Jacque Simon, director of the AFGE's public policy department, said the fact that OPM does not require cost accounting standards to be applied to contracts in the FEHB program will lead to overpayments for health insurance by taxpayers and federal employees.

Without accounting standards, Simon said health insurance carriers can charge federal employees for costs that are not directly related to health care, such as corporate retreats.

Cost accounting standards, which are required by the FAR except in certain circumstances, specify how contractor costs must be calculated. FAR allows agencies to waive cost accounting standard requirements when they deem it necessary.

"We determined that there are sufficient reasons and granted waivers for certain health plans under the FEHB program," OPM said in the Federal Register.

OPM added that the FEHB Acquisition Regulation requires carriers to file annual financial statements and submit to audits from OPM's Inspector General's office. Moreover, it said that "because OPM has contracted with carriers for 20 to 40 years, it has been able to collect extensive data on each carrier, thus making disclosure statements superfluous."

The regulations already in place, OPM said, are sufficient and "much less burdensome" than cost accounting standards.

"It is nonsense to say that OPM has adequate safeguards in place without cost accounting standards .… The application of CAS is the kind of regulation that prevents Enron-style fraud -- allocating huge costs or losses from one business to another unrelated account," said Simon.

OMB said it was not involved in the rule and declined to comment. OPM could not immediately provide a comment.