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Audit Report: IG-0470

May 11, 2000

Follow-up Audit of Health Benefit Costs at the Department’s Management and Operating Contractors

In Calendar Year (CY) 1998, the Department of Energy (Department) spent about $480 million to provide health benefits for employees of its contractors. In 1994, the Office of Inspector General (OIG) evaluated the system in place at that time to determine if contractor employee health benefit costs were reasonable. In our June 1994 report, DOE/IG-0350, Audit of Health Benefit Costs at the Department's Management and Operating Contractors, we reported that the Department paid more than its fair share of management and operating contractors’ employee health benefit costs. We recommended that the Department (1) publish quantitative measurement techniques or standards for use in testing the reasonableness of contractor employees' health benefit costs, (2) require tests of the reasonableness of employees' health benefit costs to be performed periodically, and (3) provide guidance concerning specific health care provisions in Management and Operating (M&O) contracts. In response to the audit recommendations, the Department issued Order 350.1, Contractor Human Resource Management Programs, to require that contractors use one of two quantitative measurement techniques to periodically evaluate the reasonableness of employee benefit programs, and to require model contract language addressing employee benefit program features. Health benefit plans are a part of overall contractor employee benefit programs. In addition, the Department increased its staff of benefit experts, prepared a training manual, and held training on Order 350.1 at Departmental field sites.