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ADMINISTRATIVE EXPENSES UNDER FEDERAO

EMPLOYEES HEALTH BENEFITS ACT OF 1959

HEARING

1-R BEFORE THE

1-R

E COMMITTEE ON

OFFICE AND CIVIL SERVICE

0

JSE OF REPRESENTATIVES

rR

•ez EIGHTY-EIGHTII CONGRESS

FIRST SESSION

ON

H.R. 7400

A BILL TO AMEND THE FEDERAL EMPLOYEES HEALTH

,BENEFITS ACT OF 1959 TO AUTHORIZE THE TRANSFER OF

UNUSED FUNDS FROM THE ADMINISTRATIVE EXPENSE

RESERVE TO THE CONTINGENCY RESERVES OF THE

SEVERAL HEALTH PLANS UNDER SUCH ACT

AUGUST 5, 1963

Printed for the use of the

Committee on Post Office and Civil Servic -,•-•

,P24

, tr.

0.3

7 SEP 20 C

U.S. GOVERNMENT PRINTING OFFICE

2-328 WASHINGTON : 1963
-

COMMITTEE ON POST OFFICE AND CIVIL SERVICE

TOM MURRAY, Tennessee, Chairman

JAMES H. MORRISON, Louisiana

THADDEUS J. DULSKI, New York

DAVID N. HENDERSON, North Carolina

ARNOLD OLSEN, Montana

MORRIS K. UDALL, Arizona

DOMINICK V. DANIELS, New Jersey

LINDLEY BECKWORTH, Texas

HARLEY 0. STAGGERS, West Virginia

ROBERT N. C. NIX, Pennsylvania

JOE R. POOL, Texas

ALBERT W. WATSON, South Carolina

EDWARD R. ROYBAL, California

CHARLES H. WILSON, California

ROBERT J. CORBETT, Pennsylvania

H. R. GROSS, Iowa

JOEL T. BROYHILL, Virginia

AUGUST E. JOHANSEN, Michigan

GLENN CUNNINGHAM, Nebraska

GEORGE M. WALLHAUSER, New Jersey

ROBERT R. BARRY, New York

KATHERINE ST. GEORGE, New York

EDWARD J. DERWINSKI, Illinois

ROBERT F. ELLSWORTH, Kansas

HOMER E. ABELE, Ohio

SUBCOMMITTEE APPOINTED To CONSIDER H.R. 7400

EDWARD R. ROYBAL, California, Chairman

JOE R. POOL, Texas GLENN CUNNINGHAM, Nebraska

CHARLES H. WILSON, California GEORGE M. WALLHAUSER, New Jersey

II

•

• •
CONTENTS

Statement of— Page

Griner, John, president, American Federation of Government Employees 9

Macy, Hon. John W., Jr., Chairman, U.S. Civil Service Commission,

accompanied by Andrew E. Ruddock, Director, Bureau of Retirement and Insurance, U.S. Civil Service Commission 2

McCart, John A., operations director, Government Employes' Council, AFL—CIO 8

sEp 23

k

ADMINISTRATIVE EXPENSES UNDER FEDERAL

EMPLOYEES HEALTH BENEFITS ACT OF 1959

MONDAY, AUGUST 5, 1963

HOUS,E OF REPRESENTATIVES,

SUBCOMMITTEE OF THE

COMMITTEE ON POST OFFICE AND CIVIL SERVICE,

Washington, D.C.

The subcommittee met at 10 a.m., room 215, Cannon House Office

Building, Hon. Edward R. Roybal (chairman) presiding.

Mr. ROYBAL. The meeting will come to order.

This subcommittee was appointed to consider H.R. 7400, a bill to

amend the Federal Employees Health Benefits Act of 1959 to authorize the transfer of unused funds from the administrative expense

reserve to the contingency reserves of the several health plans under

such act. The bill represents an official legislative recommendation

of the U.S. Civil Service Commission.

The members of the subcommittee are Mr. Pool, Mr. Wilson, Mr.

Cunningham, Mr. Wallhauser, and I was designated as chairman.

The purpose of this legislation appears to be in accordance with

sound business practice and in the interest of the Federal employees

health benefits program, with which it deals.

When the legislation which became the Federal Employees Health

Benefits Act of 1959 was being developed in this committee, the

matter of fixing a reasonable limitation on the portion of contributions to support the program which could be used for administrative

expenses was recognized as a problem. There was no adequate precedent, since the then-pending legislation was the first of its kind to

come before the committee. Finally, according to the committee

records, it was decided—for lack of a better standard—that the

limitation on money for administrative expenses in the Federal Employees' Group Life Insurance Act of 1954 would be used as an initial

guideline, at least for the time being.

Accordingly, the Federal Employees Health Benefits Act of 1959

provides that not to exceed 1 percent of all contributions under the

program will be set aside as a reserve for expenses of the Civil Service

Commission in administering the program.

Experience under the Federal Employees Health Benefits Act of

1959 now has demonstrated that the continued setting aside of 1

percent of contributions will accumulate a sum in excess of that

reasonably needed to pay administrative expenses, and that a smaller

percentage will, under normal circumstances, be reasonably adequate.

Since the full 1 percent of contribution is not needed for administrative expenses, the Civil Service Commission proposes, in this

legislation, that it be authorized to transfer unneeded funds from the

1

•
2 ADMINISTRATIVE EXPENSES—EMPLOYEES HEALTH BENEFITS ACT

administrative expense reserve to the contingency reserves of the

various health benefits plans and thus strengthen such contingency

reserves, which will be in the interest of both the Government and

the employees who benefit under the program. It is understood that

a similar procedure has been successfully followed under the group

life insurance program.

(The bill H.R. 7400 follows:)

[H.R. 7400, 88th Cong., 1st sess.1

A BILL To amend the Federal Employees Health Benefits Act of 1959 to authorize the transfer of unused

funds from the administrative expense reserve to the contingency reserves of the several health plans

under such Act

Be it enacted by the Senate and House of Representatives of the United States of

America in Congress assembled, That section 8(b) of the Federal Employees Health

Benefits Act of 1959 (5 U.S.C. 3007(b)) is amended by inserting immediately

after the first sentence thereof the following new sentences: "The Commission,

from time to time and in such amounts as it considers appropriate, may transfer

unused funds for administrative expenses to the contingency reserves of the plans

then under contract with the Commission. When funds are so transferred, each

contingency reserve shall be credited in proportion to the total amount of the

subscription charges paid and accrued to the plan for the contract term immediately preceding the contract term in which the transfer is made."

Mr. ROYBAL. Our first witness this morning is Chairman John W.

Macy, of the U.S. Civil Service Commission. Chairman Macy, we

will be glad to receive your testimony and that of your associates.

STATEMENT OF HON. JOHN W. MACY, JR., CHAIRMAN, U.S. CIVIL

SERVICE COMMISSION, ACCOMPANIED BY ANDREW E. RUDDOCK, DIRECTOR, BUREAU OF RETIREMENT AND INSURANCE,

U.S. CIVIL SERVICE COMMISSION

Mr. MACY. Thank you very much, Mr. Chairman.

As in the presentation of other amendments on the health benefits

program, I am accompanied by Mr. Andrew E. Ruddock, the Director

of the Commission's Bureau of Retirement and Insurance.

Mr. Chairman and members of the subcommittee, I appreciate

this opportunity to appear before you in support of H.R. 7400 which

Chairman Murray introduced.

In fact, Mr. Chairman, I would like to have the record show the

appreciation of the Commission for the introduction of this bill by

Chairman Murray and appreciation to you and your colleagues and

the staff of the committee for holding early hearings on the bill.

The purpose of the bill is to authorize a procedure under which the

Civil Service Commission can better manage the fund created by the

Federal Employees Health Benefits Act of 1959.

By letter of June 20, 1963, to the Speaker of the House of Representatives, the Commission explained in detail the need for amendment of the Health Benefits Act to provide the Commission with

authority to retransfer unused funds from the administrative expense

reserve to the contingency reserves of the various health benefits plans

in proportion to the subscription charges they received in the preceding annual contract term. I suggest that the Commission's June

20 letter be made a part of the record of this hearing.

Mr. ROYBAL. Without objection, it is so ordered.

Mr. MACY. Thank you, sir.
ADMINISTRATIVE EXPENSES—EMPLOYEES HEALTH BENEFITS ACT 3

(The letter follows:)

Hon. JOHN W. MCCORMACK,

,Speaker of the House of Representatives,

Washington, D.C.

DEAR MR. SPEAKER: The Civil Service Commission is submitting with this

letter, for the consideration of the Congress, a proposed amendment to the

Federal Employees Health Benefits Act. The proposed amendment would

authorize the Commission to transfer unused funds from the administrative

expense reserve created by the act to the contingency reserves of the various

health plans in proportion to their annual subscription charges. A draft bill

and a statement of purpose and justification are enclosed.

The Bureau of the Budget advises that enactment of the proposed legislation

will be consistent with the administration's objectives.

A similar letter is being sent to the President of the Senate.

By direction of the Commission:

Sincerely yours,

U.S. CIVIL SERVICE COMMISSION,

Washington, D.C., June 20, 1963.

JOHN W. MACY, Jr., Chairman.

STATEMENT OF PURPOSE AND JUSTIFICATION

The Federal Employees Health Benefits Act of 1959 creates an employees

health benefit fund into which are paid contributions of employees, annuitants,

and the Government. Section 8(b) of the act reads in part as follows:

"(b) Portions of the contributions made by employees, annuitants, and the

Government shall be regularly set aside in the Fund as follows: (1) a percentage,

not to exceed one per centum of all such contributions, determined by the Corn--

mission as reasonably adequate to pay the administrative expenses made available

by section 9; (2) for each health benefits plan, a percentage, not to exceed three

per centum of the contributions toward such plan, determined by the Commission

as reasonably adequate to provide a contingency reserve. * * *"

The purpose of the proposed legislation is to authorize the Commission to

transfer unneeded funds from the administrative expense reserve to the contingency reserves of the various plans in proportion to the subscription charges they

have received in the preceding contract term.

By regulation, the Commission has, since the start of the health benefits

program, been setting aside 1 percent of contributions as a reserve for its expense

in administering the program. At the outset it was not possible to estimate

with precision what the administrative costs would be. While the 1 percent

set-aside proved reasonable in implementing the program, experience has shown

that the continued setting aside of 1 percent of contributions will accumulate

a sum which is more than reasonably adequate to pay administrative expenses

and that a smaller percentage would, under normal circumstances, be reasonably

adequate.

Several alternative proposals for avoiding an unreasonable accumulation in

the fund have been considered, but each has disadvantages. For example,

the Commission could simply reduce the 1 percent and set aside a lesser percentage for administrative purposes as of the new contract term beginning in

November 1963. This could be done efficiently if at the start of the new contract

term all plans changed their subscription charges. But, as far as we can foresee,

all plans will never simultaneously change their subscription charges. Therefore,

in order to now reduce (and perhaps later increase) the set-aside (presently about

$0.08 per employee per biweekly pay period), it would be necessary to make

payroll changes for all of the more than 2 million employees and annuitants

enrolled in the program.

The contingency reserves of the individual health plans may be used to defray

increases in future premium rates reduce the contributions of employees and the

Government or, to increase the benefits provided by the plans. The legislation

proposed will enable the Commission to transfer excess administrative reserves

to increase contingency reserves where the funds transferred would be available

to give a direct benefit to employees. The allocation of these funds to plans in

proportion to their subscription charges is, we feel, an equitable method.

Enactment of the proposal would authorize a procedure in fund management

analogous to the manner in which the Federal employees life insurance fund

is administered. Under the Federal Employees' Group Life Insurance Act
4 ADMINISTRATIVE EXPENSES—EMPLOYEES HEALTH BENEFITS ACT

the entire fund, composed of employee and Government contributions, except

for the Civil Service Commission's actual administrative expenses, is available

to meet premium payments, including increases in those payments which might

arise because of various contingencies. The health benefits fund is presently

less fluid because of the restriction on use of the administrative expense reserve.

Allowing the Commission to transfer excess administrative reserve funds to

contingency reserves, would permit more flexible use of the administrative reserve

fund, comparable to the life insurance method which has proved satisfactory.

Another advantage would accrue immediately upon enactment of the legislation. Enactment would permit reduction of the administrative reserve to the

optimum level immediately and enable it to be kept there without periodic

adjustment of the set-aside.

The legislation will not require any increase in staff or existing level of expenditures.

Mr. MACY. I shall not take up your time by repeating all of the

details included in the Commission's letter. However, I do wish to

outline briefly the cause and nature of the problem involved and to

review our reasons for recommending this particular approach for its

solution.

The Health Benefits Act created an employees' health benefits fund

into which contributions of enrolled employees and annuitants, and

the Government are paid. The act, in section 8(b), requires that

percentage portions of these contributions be regularly set aside to

establish two types of reserves:

1. An administrative expense reserve reasonably adequate to

pay the Commission's expenses for program operations; and

2. A contingency reserve with respect to each health benefits plan,

for use in defraying future rate increases, reducing employee and

Government contributions, or, for increasing benefits provided by

the plan.

The Commission determines the percentage portions to be set aside

for these reserves, subject to statutory maximums of 1 percent for

administrative expense and 3 percent for contingency reserves. Since

the start of the health benefits program, the Commission has by

regulation been setting aside the full 1 percent of contributions as a

reserve for its administrative expenses.

The health benefits program was unprecedented and at the outset

there was no way of precisely estimating administrative costs. The

1 percent set-aside proved reasonable in initially installing this complex program. However, once the program was installed and functioning smoothly, it became increasingly evident that a continued

setting aside of 1 percent would accumulate a sum which would be

more than reasonably adequate to meet our administrative expenses.

By the close of October 1962 the expense fund had grown to $5,104,838;

we estimate that if it is allowed to accumulate at its present rate the

fund will amount to over $10 million by November 1, 1964.

Several methods for avoiding an unreasonable accumulation in this

fund were studied by the Commission, but each was found to have

disadvantages. The idea of simply manipulating the percentage of

set-aside from time to time had to be rejected because it would have

resulted in additional administrative costs. The 1 percent is reflected

in each total subscription charge and any change in its amount would

require payroll changes for all of the more than 2 million enrolled

employees and annuitants. Manipulation of the percentage could be

done efficiently only if at the start of a new contract term all plans

changed their subscription charges. This has never occurred, and, so

far as we can foresee, never will.
ADMINISTRATIVE EXPENSES—EMPLOYEES HEALTH BENEFITS ACT 5

The wise and constructive approach, in our judgment, is to maintain

the set-aside at 1 percent and allow the Commission authority, as

here proposed, to transfer unneeded funds from the administrative

expense reserve to the contingency reserves of the various plans 011 an

equitable basis where the funds will be available to benefit employees.

The allocation of transferred funds to the plans in proportion to their

subscription charges is, we feel, an equitable method.

Allowing the Commission this transfer authority will permit a

flexibility in fund management comparable to that achieved under the

procedure in effect for the group life insurance program, which has

proved eminently satisfactory. Enactment of H.R. 7400 will permit

the Commission to immediately reduce the expense reserve to an

optimum level and enable us to keep it at that level without periodic

adjustment of the set-aside.

I urge favorable consideration of this legislation on the part of your

subcommittee.

Let me add, Mr. Chairman, that this legislation would not require

any increased costs or increased employment for the Commission.

Mr. Ruddock and I will be pleased to answer any questions you

and your colleagues may have with respect to this proposal.

Mr. ROYBAL. You now have in the reserve an expense fund in the

amount of $5 million; is that what you said?

Mr. MACY. Yes, sir.

Mr. ROYBAL. $5,104,838?

Mr. MACY. That is correct.

Mr. ROYBAL. What would be the optimum level you would maintain for operating purposes?

Mr. MACY. Mr. Chairman, if the proposed legislation were immediately enacted, we would probably transfer virtually the entire $5

million in accordance with the formula proposed here. The way the

administrative funds are now controlled is by an appropriation limitation assigned each year. For example, in fiscal year 1963, there was

a congressional appropriation limitation of $1,101,000 but by the 1

percent accumulation, or from the set-aside, funds amounting to

$3,612,000 were accumulated. There would continue to be a congressional control over the amount of money that could be spent for

this purpose, even after the transfer took place.

Mr. ROYBAL. These transfers would be done in proportion to the

subscription charges?

Mr. MACY. That is correct.

Mr. ROYBAL. How does that work? Can you explain that further?

Mr. MACY. Each of the plans has a subscription charge and those

charges are met by the employee and the Government making an

appropriate contribution in each case. The proportion of subscription charges among the various plans, and I believe there are 37 plans

in operation at the present time—the distribution among the 37 plans

would be in accordance with the accumulated subscription charges in

each of the plans.

We feel this is an equitable method which would distribute thfc:p*„

funds in accordance with the elections of the employe ,es. under the

options they have under the provisions of the act.

Mr. ROYBAL. Questions, Mr. Pool?

QEp vqc
6 ADMINISTRATIVE EXPENSES—EMPLOYEES HEALTH BENEFITS ACT

Mr. Pool, What would be the percentage? Did you figure out

the percentage as to what it actually is? You estimated 1 percent

when you set up the plan but what did it actually turn out to be?

Mr. MACY. If you use 1963 as a measure, the percentage is down

to somewhere in the neighborhood of one-third of 1 percent.

Mr. Pool,. One-third of 1 percent?

Mr. MACY. Yes, sir.

Mr. Poor,. How much money is involved? You say you have 2

million employees?

Mr. MACY. There are 2 million employees as subscribers, plus 4

million dependents of employees.

Mr. Poor,. How much per year is that? Is that about a dollar a

year or something like that?

Mr. MACY. Mr. Ruddock?

Mr. RUDDOCK. This runs roughly 50 cents for every covered employee. When we consider the family, the figure is 16 cents per person

per year.

Mr. PooL. What I was thinking about is, and I think you said you

thought about reducing the premium 

Mr. MACY. Reducing the set-aside. Under the statute we have the

option of setting a lower rate than 1 percent.

Mr. PooL. What would be the average amount per person?

Mr. RUDDOCK. The change could amount to something in the

neighborhood of 4 cents per employee per biweekly pay period.

Mr. PooL. How much is it a year, $2?

Mr. MACY. A little over a dollar. There are 26 pay periods and it

would be 

Mr. PooL. About a dollar a year per person?

Mr. MACY. Your figure of a dollar is right on the button.

Mr. PooL. The employees are not concerned with such a small

matter and it does not bother the employees, that dollar? You would

not refigure it that way?

Mr. MACY. The benefit to the employee would be very small but

we would have a lot of unhappy paymasters.

Mr. PooL. It costs a good deal for the changeover?

Mr. MACY. That is right.

Mr. Pool,. I wanted that in the record in case any questions come

up about it.

Mr. MACY. There would be the administrative expense of making

these changes on 2 million pay cards each time there was an adjustment. Consequently, our feeling was that it was better to continue

the 1 percent.

Mr. PooL. If you had a similar situation come up again with a

new plan or a plan similar to this, it would be helpful to know this

percentage figure because it would be better to set it up almost like

it should be without requiring this change. If we had known this

before, it would have been better to set it up at one-third of 1 percent

at the time the plan was set up.

Mr. MACY. It might have, but at the time, in 1959 when this

committee and the Senate committee were considering this legislation,

this was totally new and there was really no precedent to follow.

One percent looked like about the minimum you could include.

Mr. Poor,. If we have the advantage of this experience, it would

have been better to set it up at one-third of 1 percent?
ADMINISTRATIVE EXPENSES—EMPLOYEES HEALTH BENEFITS ACT 7

Mr. MACY. Yes; it would have.

Mr. PooL. I wanted to get that in the record, also. It is good

experience for us to know this in connection with some future plan.

Mr. MACY. Right. We feel that, as the administrators of this

program and the custodians of this fund, we have an obligation to

come back to Congress and report on this and recommend how the

statute might be altered in order to give greater flexibility and not to

have an excess accumulation for the purpose.

Mr. Pool,. I appreciate the statement you made and I agree with

you 100 percent that that is the way it should be handled.

Thank you.

Mr. ROYBAL. Mr. Cunningham?

Mr. CUNNINGHAM. Thank you, Mr. Chairman.

As I understand it, the 1 percent contingency fund is more than you

ner,d, and you wish to transfer a certain portion of it to the con-.

tingency7

Mr. MACY. The contingency funds of each of the benefit plans

provided under the act.

Mr. CUNNINGHAM. That is a most refreshing suggestion.

Sometimes we get requests for more money for administration and

I am delighted to see this proposal and a recognition of the fact you

do not need the money and that you want to put it over into the other

fund.

I have said before, Mr. Macy, and I say again, I was on the committee when we enacted this program and I think it is an excellent one,

and it certainly has been excellently administered by your Department.

Mr. MACY. Thank you.

Mr. Pool,. I want to add for the record also that I would like to

congratulate the Civil Service Commission for the administration of

this and the fact they have showed a saving and that it can be

transferred to this contingency fund.

Mr. MACY. Thank you.

Mr. ROYBAL. May I also compliment you for the very efficient job

you have done?

However, I would like to know how many different groups are

participating in the plan. How many employee groups are participating and how many in the Blue Cross? Can you give me an

approximate figure?

Mr. MACY. The number of participants in each plan?

Mr. ROYBAL. Yes.

Mr. MACY. Mr. Ruddock, can you provide that on a current basis?

Mr. RUDDOCK. Blue Cross, Blue Shield, in rough figures cover 1

million Federal employees.

The Government-wide indemnity benefit plan which is administered

by Aetna for the insurance industry has about half a million. The

plan of the National Association of Letter Carriers has over 100,000,

and from that point they drop down very, very sharply.

Mr. ROYBAL. Thank you. We all thank you.

Mr. MACY. Thank you, Mr. Chairman. We appreciate your

hearing us.

Mr. ROYBAL. The next witness will be Mr. John A. McCart,

'operations director, Government Employes' Council, AFL-CIO.
8 ADMINISTRATIVE EXPENSES—EMPLOYEES HEALTH BENEFITS ACT

STATEMENT OF JOHN A. McCART, OPERATIONS DIRECTOR,

GOVERNMENT EMPLOYES' COUNCIL, AFL-CIO

Mr. MCCART. Good morning, Mr. Chairman.

Since there seems to be happy agreement over the pending legislation, Mr. Chairman, I think it is in the best interests of the committee

that I ask that my formal statement, which has been presented to

the committee, be included in the record.

I would like to make just one or two very brief comments.

First, to thank you and your colleagues for arranging this hearing

and to express our appreciation to the chairman of the full committee

for his sponsorship of this legislation.

Mr. ROYBAL. Without objection, your statement as presented to

the subcommittee, will be included in the record.

Mr. MCCART. Thank you, Mr. Chairman.

(The statement of Mr. McCart follows:)

STATEMENT OF GOVERNMENT EMPLOYES' COUNCIL, AFL—CIO

Mr. Chairman and members of the subcommittee, the Government Employes'

Council, AFL—CIO, requests favorable action on the bill which is the subject of

this hearing. Twenty-five unions representing wage board, classified, and

postal employees in the Federal service are members of the council.

Briefly, the bill proposes that funds made available by law for administration

of the Health Benefits Act, which are in excess of actual requirements, be distributed among the contingency reserves of the various participating health

benefits programs on the basis of previous enrollments.

At the outset, the council desires to commend the Civil Service Commission for

its effective and economical administration of this huge program. Despite the

manpower and related requirements were quite heavy in launching such an undertaking involving medical coverage of almost 6 million individuals, the Commission

has managed the assignment with unusual efficiency. As a result, it has been

necessary to use only a part of the funds originally made available for purposes

of inaugurating the program.

Logically, H.R. 7400 proposes that the difference between the money actually

expended for administration and the funds made available under the Health

Benefits Act for this purpose revert to the benefit of covered employees and their

families. By crediting the money to the participating plans on a proportionate

basis, it can be used to maintain premium rates at their present level or to provide employees with additional benefits. Under the health benefits statute, the

participating organizations must maintain adequate reserves to meet unforeseen

contingencies. H.R. 7400 would permit the transfer of unused administrative

funds to these reserves.

Conceivably, other uses could be found for the administrative surplus. But

the benefit to individual policyholders would either be transitory or would result

in a very minute saving when distributed among all subscribers. The recommendation for crediting this money to the reserves of the plans the employees

have selected will provide a more durable benefit to covered individuals in the

future.

For these reasons, we urge the subcommittee to act favorably on H.R. 7400.

In addition to conveying our appreciation to Committee Chairman Tom

Murray for his introduction of the measure, we are grateful to the subcommittee

for arranging this hearing and the opportunity for us to comment.

Mr. MCCART. I do not often find myself in this role. I want to

express the commendation of the 25 unions associated with our council

for the economical and efficient manner in which the Civil Service

Commission has handled this huge program.

As I mentioned in the hearing last Friday morning, there was a

necessary note of caution introduced when the legisa tion was first

enacted because it was very difficult to foresee the total impact of it.

,mormimMEMIlh
ADMINISTRATIVE EXPENSES—EMPLOYEES HEALTH BENEFITS ACT 9

There was no precedent for this kind of program so Congress wisely

decided to set the limitation on the reserves for both contingencies

and administration at a somewhat high level.

Experience has now shown that through the frugality of the administration of the Civil Service Commission it has not been necessary to

use all of the funds available for the administration of the program.

Chairman Macy has explained the two basic points resulting from

the legislation: first, that the excess or surplus administrative funds

will be available for transfer to the contingency reserves of the various

programs on a proportionate basis; second, that Congress will still

maintain control through the necessary appropriations action.

We think the legislation is good. We endorse it, Mr. Chairman,

and we appreciate your arranging these hearings and accepting our

comments.

Mr. ROYBAL. Can you tell us how many employee groups you

represent?

Mr. MCCART. Twenty-five, Mr. Chairman.

Mr. ROYBAL. Are there any questions by the committee?

Mr. PooL. Mr. Chairman, I want to compliment the witness for

being a very practical person in representing his people in their best

interests as well as the Government's. I appreciate the fact that you

have conceded a technical point here, perhaps to raise a little Cain you

might say, over a very petty sum. It is really refreshing to have a

witness come before us like that and I wanted to make that comment.

Mr. MCCART. Thank you, Mr. Pool.

Mr. ROYBAL. We thank you very much for appearing before the

subcommittee this morning.

The Chair has a statement from Mr. John Griner, president of the

American Federation of Government Employees, and a request has

been made that his statement be included in the record.

Without objection, the statement will be included in the record.

(The statement follows:)

STATEMENT OF JOHN GRINER, PRESIDENT, AMERICAN FEDERATION OF

GOVERNMENT EMPLOYEES

The proposed change in the Health Benefits Act of 1959 which is provided in

H.R. 7400 is desirable. In sponsoring the measure, Chairman Murray of the

House Post Office and Civil Service Committee is making it possible to make a

procedural change in the law which appears to be to the advantage of the Government and to the participants in the various health benefits plans.

The amendment involves the transfer of unneeded funds from the administrative expense reserve of the Civil Service Commission to the contigency reserves

of the various plans. This administrative expense reserve is provided by means

of the Commission setting aside 1 percent of the contributions to the fund to

cover the expenses of administering the program.

It has become apparent in operating the program that continuance of a setaside as large as 1 percent is amounting to a sum which is more than is needed to

pay the administrative expenses incurred by the Civil Service Commission.

Under ordinary circumstances, a smaller proportion of total contributions to the

fund may be reasonably earmarked for use in paying operating expenses.

The manner of distributing these excess moneys in the administrative reserve

appears to be equitable. It would make it available to the various participating

plans in proportion to the subscription charges they have received in the preceding contract term.

The same objective may be obtained in more than one way, but that proposed

by H.R. 7400 seems to be the more practical. Mal, ing the excess funds available

as part of contingency reserves of the health insurance plans might be accom-
10 ADMINISTRATIVE EXPENSES—EMPLOYEES HEALTH BENEFITS ACT

plished by reducing the proportion of the set-aside. However, that would entail_

extensive changes in the Federal payroll.

The transfer proposed by H.R. 7400 would make the addition to the contingency

reserves immediately available to the participating plans. These contingency reserves may be utilized in many ways. They may be used to increase benefits or

to reduce the contributions of employees. Thus, such funds may be applied to

the operation of the program in a manner directly benefiting the employees whom

it is designed to benefit.

To transfer the funds whenever there seems to be an excess above the amount

reasonably needed is doing it in a manner analogous to that provided in the management of the life insurance fund. The determination may be made whenever the

excess becomes apparent.

The bill H.R. 7400 is needed to improve the operation of the health benefits

system and as such should be enacted. The opportunity to testify on this bill,

Mr. Chairman. is appreciated.

Mr. CUNNINGHAM. Mr. Chairman, does Mr. Griner support the

bill?

Mr. ROYBAL. The statement does support the bill; yes, sir.

Mr. POOL. We have no opposition to the bill, is that correct?

Mr. ROYBAL. There is no opposition to the bill up to this time.

Is there anyone else who would like to testify before the subcommittee?

(No response.)

Mr. ROYBAL. The subcommittee will now adjourn.

(Thereupon, the hearing was adjourned at 10:34 a.m., Monday,

August 5, 1963.)
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