Health Benefits Program (FEHBP) in the years to come.
On September 24, 2001,
the United States Court of Appeals for the Federal Circuit,
in Qualmed Plans for
Health of New Mexico, Inc. v. United States, supported the
ability of my office to
identify, and OPM's right to collect, interest the FEHBP
loses when a health
insurance carrier overcharges the program through its
premium rates.
The Court of Appeals decision will
allow OPM to continue collecting millions
of dollars of interest due the FEHBP.
Since the interest will be paid directly back
to the FEHBP trust fund, this will
help offset any future increases in FEHBP
premium rates.
Specifically, this ruling by the U.S.
Court of Appeals for the Federal Circuit reverses
a U.S. Court of Federal Claims
decision that took away our agency's right to collect lost investment income on certain
defective pricing audit findings involving
rate overcharges to the FEHBP in 1991
and 1992. Our auditors identified these
overcharges after discovering that Qualmed, in developing the FEHBP's premium
rates, had made a mistake in selecting
the two subscriber groups used to determine
if the FEHBP's rates were equitable
and reasonable.
After selecting the appropriate groups
and recalculating the FEHBP's rates, we
found that Qualmed had overcharged the FEHBP. Qualmed did not deny the overcharge and reached agreement with OPM
on the overcharge amount. The plan paid
that amount within 30 days,
notwithstanding the lost investment income still due.
The issue over lost investment income
owed to the FEHBP remained unresolved.
Qualmed contended that no interest was
due and filed a complaint with the U.S. Court
of Federal Claims. Qualmed argued that
simply not selecting a subscriber group
closest in subscriber size to the
FEHBP did not represent defective pricing and,
therefore, any interest on the
overcharge was due only from the date that it was notified of the overcharge and then only
if the amount was not paid within 30 days.
The U.S. Department of Justice, with
the assistance of OPM's Office of General
Counsel, argued that Qualmed had
engaged in defective pricing and that the
FEHBP contract and applicable
regulations provide for interest from the date of
the overcharge. With this decision,
the court voiced strong disagreement with the
lower court's position, ruling that the selection of
inappropriate groups did, in fact,
represent defective pricing and that Qualmed must pay OPM
interest from the
date of the FEHBP overcharges.
If the court had ruled against OPM, the decision would have had
a decidedly
negative impact on the FEHBP. First, OPM would not have been
able to collect
interest amounting to more than $28 million, owed not only by
Qualmed but by
numerous other plans which also had refused to pay any lost
investment income
while the court case was pending. Second, future overcharges
resulting from the
selection of improper subscriber groups would no longer be
subject to lost investment income charges. The FEHBP would lose millions of dollars as
a consequence,
because my office would no longer be in a position to recommend
an interest assessment on overcharges in these cases.
We cannot overstate how potentially critical this ruling is for
the FEHBP since
such a large portion of the overcharges we identify in our
audits result from plans
selecting inappropriate subscriber groups.
I believe it is entirely appropriate for plans to pay interest
when they overcharge
the FEHBP, particularly since the FEHBP is losing money by not
having the funds
available to it. Furthermore, the FEHBP and its subscribers are
able to realize a
specific benefit when lost investment income is returned to the
FEHBP trust fund:
the return of this money will have a positive impact on future
premium rates. I am
hopeful that the decision the court made in this case will end
any question that plans
may have concerning OPM's right to collect lost investment
income in the future.
would
like to offer a special thanks to OPM's Retirement and
Insurance Service and Office of General Counsel for
their diligence and determination in bringing this case
to a successful conclusion.
Without their efforts to protect the FEHBP and its
subscribers, the FEHBP would have continued to be
financially harmed indefinitely by these insurance
carriers. actions. Now, the government, our agency, and
FEHBP subscribers alike will benefit for years to come.
During
this reporting period, the U.S. Office of Personnel Management
(OPM) won an important victory in the courts that will have a
significant impact
on the Federal Employees
U.S. Office of Personnel Management 1900 E Street, NW, Washington, DC 20415 | (202) 606-1800 | TTY (202) 606-2532