United States General Accounting Office

Washington, DC 20548

Office of the General Counsel

GAO/OGC-00-53

B-285916

August 7, 2000

The Honorable Fred Thompson

Chairman

The Honorable Joseph Lieberman

Ranking Minority Member

Committee on Governmental Affairs

United States Senate

The Honorable Dan Burton

Chairman

The Honorable Henry A. Waxman

Ranking Minority Member

Committee on Government Reform

House of Representatives

Subject: Office of Personnel Management: Health Insurance Premium Conversion

Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a

major rule promulgated by the Office of Personnel Management (OPM), entitled

“Health Insurance Premium Conversion” (RIN: 3206-AJ17). We received the rule on

July 24, 2000. It was published in the Federal Register as an interim rule with request

for comments on July 19, 2000. 65 Fed. Reg. 44644.

The interim rule enables federal employees to pay Federal Employees Health

Benefits premiums with pre-tax dollars, as provided by Section 125 of the Internal

Revenue Code.

Enclosed is our assessment of OPM’s compliance with the procedural steps required

by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule. Our review

indicates that OPM complied with the applicable requirements.

If you have any questions about this report, please contact James W. Vickers,

Assistant General Counsel, at (202) 512-8210. The official responsible for GAO
Page 2 GAO/OGC-00-53

evaluation work relating to the subject matter of the rule is Michael Brostek,

Associate Director for Workforce Issues. Mr. Brostek can be reached at (202) 512-

9039.

Robert P. Murphy

General Counsel

Enclosure

cc: The Honorable Janice R. Lachance

Director, Office of Personnel

 Management
GAO/OGC-00-53

ENCLOSURE

ANALYSIS UNDER 5 U.S.C. § 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE

ISSUED BY THE

OFFICE OF PERSONNEL MANAGEMENT

ENTITLED

"HEALTH INSURANCE PREMIUM CONVERSION"

(RIN: 3206-AJ17)

(i) Cost-benefit analysis

OPM performed a cost-benefit analysis of the interim rule. The benefits are that the

federal government will become a more competitive employer and the tax liability of

federal employees will decrease.

The costs associated with the interim rule are start-up costs to implement the

premium conversion program and a decrease in Medicare, Social Security and

income taxes paid by federal employees. OPM estimates the start-up costs to be

$3 million in 2001. The tax benefit to federal employees is estimated to be about

$670 million. Also, the decrease in federal employer payments to the Medicare and

Social Security Trust Funds is estimated to be $85 million and $35 million,

respectively.

(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. §§ 603-605,

607, and 609

The Director of OPM has certified that the interim rule will not have a significant

economic impact on a substantial number of small entities.

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform

Act of 1995, 2 U.S.C. §§ 1532-1535

The interim rule does not contain a federal mandate, as defined in title II, on either

state, local or tribal governments or the private sector of more than $100 million in

any one year.

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.

The Director of OPM found good cause for waiving the general notice of proposed

rulemaking and public comment under 5 U.S.C. 553(b)(3)(B) as unnecessary and

contrary to the public interest. OPM consulted with affected stakeholders and

followed the Internal Revenue Code in developing the rule, which parallels the

practices of private sector employers. Also, it was necessary to have the interim rule
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in effect so payroll offices could begin work on system changes to enable the benefit

to begin at the start of Fiscal Year 2000.

Paperwork Reduction Act, 44 U.S.C. §§ 3501-3520

The interim rule does not contain any information collections that are subject to

review by the Office of Management and Budget (OMB).

Statutory authorization for the rule

The interim rule was issued under the authority of 5 U.S.C. 8913, 50 U.S.C. 403p,

22 U.S.C. 4069c and 4069c-1, section 599C of Pub. L. 101-513, 104 Stat. 2064, as

amended, sections 11202(f), 11232(e), and 11246(b) and (c) of Pub. L. 105-33, 11 Stat.

251 and section 721 of Pub. L. 105-261, 112 Stat. 2061.

Executive Order No. 12866

The interim rule was reviewed by OMB and determined to be an “economically

significant” regulatory action, which complies with the requirements of the order.

Executive Order No. 13132 (Federalism)

OPM has determined that the interim rule will not have a negative impact on the

rights, roles, and responsibilities of state, local, or tribal governments.