National Federation of Federal Employees v. Devine, AFL-CIO

Decision Date21 December 1981
Docket Number81-2187,AFL-CIO,Nos. 81-2184,s. 81-2184
Citation679 F.2d 907
PartiesNATIONAL FEDERATION OF FEDERAL EMPLOYEES v. Donald J. DEVINE, Director, Office of Personnel Management, et al., Appellants, Group Health Association of America, Intervenor. AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES,v. Donald J. DEVINE, Director, Office of Personnel Management, Appellant, Group Health Association of America, Intervenor.
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeal from the United States District Court for the District of Columbia (D.C. Civil Action Nos. 81-2580 and 21-2617).

Eloise E. Davies, Washington, D. C., with whom Charles F. C. Ruff, U. S. Atty., Washington, D. C., at the time the brief was filed, Robert E. Kopp and Anthony J Steinmeyer, Attys., Dept. of Justice, Washington, D. C., were on the brief, for appellants. Kenneth M. Raisler and R. Craig Lawrence, Asst. U. S. Attys., Washington, D. C., also entered appearances for appellants.

Bruce P. Heppen, Washington, D. C., with whom Catherine Waelder, Washington, D. C., was on the brief, for appellee, National Federation of Federal Employees, in No. 81-2184.

James R. Rosa, Washington, D. C., with whom Kevin M. Grile and Joseph F. Henderson, Washington, D. C., were on the brief, for appellee, American Federation of Government Employees in No. 81-2187.

R. Kenly Webster, Washington, D. C., with whom Martin D. Krall, James B. Hamlin and Judith A. Sandler, Washington, D. C., were on the brief, for intervenor, Group Health Ass'n of America in Nos. 81-2184 and 81-2187.

Philip S. Neal, Washington, D. C., was on the brief for amici curiae Blue Cross Ass'n and Blue Shield Ass'n, urging affirmance of the District Court decision in Nos. 81-2184 and 81-2187.

Robert M. Tobias, John F. Bufe and William F. White, Washington, D. C., were on the brief for amicus curiae, National Treasury Employees Union, urging affirmance in Nos. 81-2184 and 81-2187.

Stephen M. Sacks, Washington, D. C., was on the brief for amicus curiae, National Post Office Mail Handlers, AFL-CIO, urging affirmance of the decision to grant preliminary injunctions in Nos. 81-2184 and 81-2187.

Darryl J. Anderson, Washington, D. C., was on the brief for amicus curiae, American Postal Workers Union, AFL-CIO, urging affirmance in Nos. 81-2184 and 81-2187.

Robert R. Sparks, Jr. and Janis A. Cherry, Washington, D. C., were on the brief for amici curiae, The American Conservative Union and Congressman Mickey Edwards, urging that the decisions should be vacated.

Joseph Onek, Washington, D. C., entered an appearance for amici curiae, John and Jane Doe in Nos. 81-2184 and 81-2187.

Before TAMM, MacKINNON and ROBB, Circuit Judges.

Opinion PER CURIAM.

PER CURIAM: *

The American Federation of Government Employees (AFGE) and the National Federation of Federal Employees (NFFE), also referred to as the "Plans," separately complain of the action of the Office of Personnel Management (OPM) in ordering a 6.5% reduction in the contribution by the government for payment of premiums for employee health insurance offered by all carriers at a late stage in the negotiations of the contracts for 1982. The district court sustained the Plans' complaints and issued preliminary injunctions restraining OPM from imposing said 6.5% reduction and ordering OPM to "enter into a health benefits plan contract" with AFGE and NFFE "containing the level of benefits (allegedly) agreed upon by the parties (i.e., the plans and OPM) as of 5:00 p. m. Oct. 20, 1981" with informational brochures to issue in due course. (App. 1-4.)

In arriving at its decision the district court concluded that OPM did not properly consider providing maximum health benefits to government employees at the lowest possible costs and that this constituted an abuse of discretion. (App. 13.) The court's Memorandum Opinion states there is nothing in the record to indicate that OPM ever considered the impact its benefit reduction order would have on the health benefits available to government employees and that in ordering the reduction in benefits complained of the government only considered the cost savings that would result to the government. The clear implication in this statement is that OPM did not consider factors that might protect the interests of government employees but relied solely on cost to the government. We cannot agree that there is substantial evidence in the record to justify this inference. On the contrary, the whole history of OPM's handling of this matter indicates that it gave extensive consideration to both the benefits that would be available to government employees as well as to the costs that would be incurred by the government. It must also be recognized that OPM necessarily had the opportunity to evaluate the benefits after the plans submitted their modifications following the 6.5 percent order. We conclude that OPM in ordering the October 21, 1981 6.5% reductions acted within its authority and in a reasonable manner in light of the serious projected budget deficit caused by unpredicted increases in costs in the health benefits field and in light of the pressing statutory deadlines requiring it to complete negotiations with the health carriers.

A decision requires a review of OPM's reduction orders and the surrounding circumstances and exigencies that necessitated such actions. One of the difficulties here was caused by the fact that the budget allowance for the 1982 contracts was determined by the outgoing administration but bound the incoming administration upon whom fell the ultimate obligation to approve the health benefit contracts. OPM's consideration in 1981 of renewal of health benefit contracts for the next year began well before March 30, 1981 when it sent the initial "call letters" 1 to the health insurers. In the months that followed approximately 120 plans, including AFGE and NFFE, submitted their proposals for 1982 contracts. In that process OPM and the insurers fully considered all contracts, all benefits thereunder, and the rates and costs therefor. Some tentative conclusions were reached at various times as evidenced by OPM's sending of galley proofs of employee informational brochures to the health carriers.

After the 120 plans had submitted their premium rate proposals by the July 31, 1981 deadline, OPM during August conducted an analysis of all submitted plans. This study indicated that the $2.2 billion budget figure for fiscal year 1982 submitted to Congress-which contained a ten percent increase for the government's increase over the allocation for the previous fiscal year, to adjust for the effects of inflation-would prove to be $500 million short of the amount required to pay the government's contribution share to the health benefit plans if OPM approved the 1982 plans as submitted. 2 In an effort to pare the projected deficit to the budgeted amount, OPM decided to live within the budget and to seek reductions in the costs of the plans.

On August 21, 1981 OPM officials met with health carrier representatives to announce a benefits reduction order. OPM directed nearly all the plans 3 to make three principal changes:

(1) Increase the deductible on supplemental benefits to $200 per individual.

(2) Reduce the coinsurance rate to 75% on supplemental benefits.

(3) Place most non-hospital charges, such as out-patient tests, in the supplemental benefits program.

In directing that these changes be made, OPM stated: "We believe these reductions will spread the burden over as many enrollees as possible so that no enrollee will lose a substantial portion of health benefits." (App. 9.)

Following the August 21, 1981 meeting, OPM Director Devine sent the health carriers a Preliminary Analysis, dated September 11, 1981, in which he elaborated upon the circumstances that necessitated the August reduction directive. He advised all the carriers that currently the actual costs to the government for fiscal year 1981 were exceeding the amount appropriated by Congress by an estimated $58 million. (App. 311.) Devine also emphasized that OPM was attempting to comply with fiscal 1982 budget limitations while protecting the interests of both government employees and the taxpayers:

To protect the Government employee, it is necessary to keep premiums under control and to maintain benefits at an acceptable level. To protect the taxpayer, it is necessary to keep the Government contribution within budget constraints. The only solution is to pare benefits this year, but to do so only to the extent necessary to protect the budget and the financial integrity of the FEHB (Federal Employee Health Benefits) and the separate insurance plans.

(App. 311.) Devine reiterated the three major changes OPM had called for but also noted that reductions in "mental, abortion, dental, and other areas" had also been considered. (App. 315.)

Thereafter OPM advised the health carriers that "equivalency proposals" in place of the three reductions specified, supra, could be submitted and that actuarial evaluations of the cost of each plan to the carrier and to the government must be filed by September 25, 1981. (App. 78.) After AFGE and NFFE along with the other plans had timely complied with the September 25, 1981 deadline, OPM subjected their revised proposals to detailed analysis and actuarial evaluation. This extensive study was completed in the middle of October and indicated that the cost to the government of the program, as then submitted by the plans, would still exceed by a substantial margin the appropriation projected in the budget.

Acting upon this new information, it was OPM's considered judgment that further health benefit reductions had to be ordered. On October 21, 1981, OPM advised all health carriers that additional benefit reductions of 6.5% would be necessary in order to bring the 1982 contract proposals within available appropriations. (App. 319). 4 Although the...

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