GAO auditors found three overarching issues with the insurance program.
Key features of the FEGLI program not clearly explained
The FEGLl differs in key ways from many private-sector plans, but OPM has not done enough to disclose FEGLI’s unique features, which means some employees may not be making “fully informed decisions,” auditors wrote in the report.
For example, under the federal program, employees pay only two-thirds of the premium for basic coverage, compared to a full premium for most private plans. FEGLI premiums also include a set-aside to cover a portion of retirement coverage, which most private plans do not include.
Finally, FEGLI premiums remain level throughout the career of a federal career, meaning younger employees’ premiums could actually be more than the cost of coverage, while older workers’ premiums may be lower.
A lack of a structured review process
While OPM conducts periodic reviews of premiums to see how they align with private plans, GAO found OPM doesn’t have “documented processes” for conducting such comparisons or for recommending rate changes.
“The lack of documented processes in both areas creates a risk that FEGLI benefits may not be meeting the needs of federal employees and could be priced at inappropriate rates,” the GAO report states.
Lack of information about settlement payments
Until fairly recently, the default option for most FEGLI beneficiaries was a retained-asset account. Instead of being issued a check, beneficiaries are issued a sort of checkbook that draws from an interest-bearing account containing the life-insurance settlement.
GAO notes that OPM and some in industry look favorably on RAAs because they lower administrative costs and allow beneficiaries more flexibility in spending.
However, GAO found that OPM doesn’t provide “important information” about the accounts — they aren’t insured by the Federal Deposit Insurance Corporation, for example — or that employees also have other options.
In a response to the recommendations,OPM Director John Berry said his agency agreed with GAO’s recommendations.
“We are pleased that your thorough review of the FEGLI program has shown that is a sound program that has served the federal workforce for over 50 years,” Berry wrote to GAO.