Additional Information Related to Analysis of the Administration's
Proposal to Ensure Solvency of the United Mine Workers of America
Combined Benefit Fund (Correspondence, 08/31/2000, GAO/AIMD-00-308R).

Pursuant to a congressional request, GAO provided information on the
United Mine Workers of America Combined Benefit Fund.

GAO noted that: (1) both the net average cost per beneficiary of
providing benefits under the fund and per beneficiary premium increased
each fiscal year for the past 5 years; (2) the percentage increase in
the average net cost per beneficiary of providing benefits under the
fund for the past 5 fiscal years fluctuated from 1 to 14 percent, while
the percentage increase in the medical component of the Consumer Price
Index (CPI) for those years was relatively stable, fluctuating from 3 to
4 percent; (3) according to Fund officials, while the increase in the
medical component of the CPI is driven primarily by price increases, the
increase in the fund's average net cost of providing benefits per
beneficiary is driven by the increased use of medical care in addition
to price increases; (4) income during fiscal years 1996 through 2000 was
derived from three primary sources: (a) coal company premiums; (b) the
Health Care Financing Administration; and (c) transfers of interest from
the Abandoned Mine Land Reclamation trust fund; and (5) these three
sources provided over 85 percent of the fund's total income for each of
the past 5 years.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-00-308R
     TITLE:  Additional Information Related to Analysis of the
	     Administration's Proposal to Ensure Solvency of the United
	     Mine Workers of America Combined Benefit Fund
      DATE:  08/31/2000
   SUBJECT:  Retirement benefits
	     Mining industry
	     Coalminers benefits
	     Financial analysis
IDENTIFIER:  Abandoned Mine Land Fund

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GAO/AIMD-00-308R

United Mine Workers of America

United States General Accounting Office Washington, DC 20548

Accounting and Information Management Division

B-286176 August 31, 2000 The Honorable William V. Roth, Jr. Chairman
Committee on Finance United States Senate

Subject: Additional Information Related to Analysis of the Administration's
Proposal to Ensure Solvency of the United Mine Workers of America Combined
Benefit Fund

Dear Mr. Chairman: On June 28, 2000, we briefed your staff on the results of
our work related to your March 9, 2000, request that we review the
administration's proposal to ensure the solvency of the United Mine Workers
of America (UMWA) Combined Benefit Fund. Specifically, you asked that we
analyze the impact of the administration's proposal to (1) extend the
Abandoned Mine Land Reclamation (AML) fees, (2) reverse the effects of
National Coal v. Chater, (3) reverse the effects of Dixie Fuel Company v.
the Social Security Administration, and (4) appropriate federal funds. In
addition, you asked that we provide some general background information on
the operations, governance structure, benefit structure, and historical and
projected financial position of the fund.

On August 15, 2000, we delivered a letter to you summarizing the information
provided at the briefing. 1 The detailed briefing slides were attached to
the letter. Our analysis of the administration's proposal indicated that
while the administration's proposal improves the projected financial
position of the fund, reducing the fiscal year 2008 anticipated cumulative
deficit, not including borrowing costs, 2 from $513 million to $83 million,
it does not ensure the solvency of the fund. Additional funds will be needed
to ensure its solvency.

1 Analysis of the Administration's Proposal to Ensure Solvency of the United
Mine Workers of America Combined Benefit Fund( GAO/ AIMD- 00- 267R, August
15, 2000). 2 The actuarial projection estimates the year 2008 accumulated
deficit to be $614 million, which includes $101 million in borrowing costs.

B- 286176 GAO/ AIMD- 00- 308R United Mine Workers of America Page 2
Subsequently, in a letter dated August 16, 2000, you requested that we
provide

additional information related to the UMWA Combined Benefit Fund.
Specifically, using readily available information, you asked us to

ï¿½ compute the average cost per beneficiary of providing benefits under the
fund for at least the past 4 fiscal years as compared to the per beneficiary
premium charged to contributing companies for those years,

ï¿½ compute the annual percentage increase in the average cost per beneficiary
of providing benefits under the fund for at least the past 4 fiscal years as
compared to the increase in the medical component of the Consumer Price
Index (CPI) for those years, and

ï¿½ break out the income to the fund for at least the past 4 fiscal years in
the following manner:

ï¿½ coal company premiums (medical and death),

ï¿½ Health Care Financing Administration (HCFA) payments (Medicare Capitation
and Part A Risk Contract Settlements),

ï¿½ AML fees, and

ï¿½ other income. We used data from the fund's actuarial projections, UMWA
officials, the Bureau of Labor Statistics (BLS), and the Social Security
Administration to perform the requested calculations and to break out the
income to the fund for fiscal years 1996 through 2000. We did not
independently verify underlying data or compute actuarial projections. As
part of our prior work, we contacted independent actuaries to review the
actuarial projections and assumptions for reasonableness. We obtained
comments on a draft of this letter from UMWA's Comptroller and Assistant
Director of Managed Care Program Development and Research. Their comments
have been incorporated where appropriate.

We conducted our work in August 2000 in accordance with generally accepted
government auditing standards. The purpose of this letter is to convey the
requested information to you.

According to our calculations, both the net average cost per beneficiary of
providing benefits under the fund and per beneficiary premium increased each
fiscal year for the past 5 years. During these 5 years, the average cost
increased from $2,478 to $3,766, while the per beneficiary premium charged
to contributing companies for those years increased from $2,201 to $2,503.

B- 286176 GAO/ AIMD- 00- 308R United Mine Workers of America Page 3

Table 1: Average Annual Net Cost of Benefits Per Beneficiary and Per
Beneficiary Premium for Fiscal Years 1996- 2000

1996 1997 1998 1999 2000

Average net cost of benefits per beneficiary

$2,478 $2,762 $3,144 $3,321 $3,766 (estimate) Per beneficiary premium 2, 201
2,279 2,343 2,420 2,503

Excess of average per beneficiary net cost over premium

$277 $483 $801 $901 $1,263 (estimate)

Sources: GAO analysis based on UMWA actuarial projections, other unaudited
UMWA data, and Social Security Administration data.

The percentage increase in the average net cost per beneficiary of providing
benefits under the fund for the past 5 fiscal years fluctuated from 1 to 14
percent, while the percentage increase in the medical component of the CPI
for those years was relatively stable, fluctuating from 3 to 4 percent.

According to Fund officials, while the increase in the medical component of
the CPI is driven primarily by price increases, the increase in the fund's
average net cost of providing benefits per beneficiary is driven by the
increased use of medical care (due to the aging of its already elderly
population and the introduction of new prescription drugs), in addition to
price increases.

Table 2: Annual Percentage Increase in the Average Net Cost Per Beneficiary
of Providing Benefits as Compared to the Increase in the Medical Component
of the CPI for Fiscal Years 1996- 2000

1996 1997 1998 1999 2000

Percentage increase in the average net cost of benefits per beneficiary

1 a 11 14 6 13 Percentage increase in the medical component of the CPI

4 3 3 3 4 a According to fund officials, in 1996, reimbursement for
pharmaceutical services was based on a negotiated set payment rather than
actual cost. Beginning in the second quarter of fiscal year 1997,
reimbursement reverted to an actual cost basis.

Source: GAO computed based on UMWA and BLS data, rounded to the nearest
whole percentage point. Percentage increase for medical component of the CPI
for fiscal year 2000 was based on BLS data available for the first 10 months
of the fiscal year.

Income during fiscal years 1996 through 2000 was derived from three primary
sources: (1) coal company premiums (medical and death), (2) HCFA (Medicare
capitation payments 3 and Part A Risk Contract Settlements 4 ), and (3)
transfers of interest from the AML trust fund. Combined, these three sources
provided over 85

3 Rather than reimbursing the fund as it incurs expenses for Medicare-
eligible beneficiaries, Medicare pays the fund a fixed amount per eligible
beneficiary annually for estimated expenses for Medicarecovered services
provided to eligible beneficiaries. This flat payment amount per beneficiary
is known as a capitation payment.

4 The fund entered into a risk- sharing arrangement for Medicare Part A
service with HCFA. The effective period for the arrangement was January 1997
through June 2001. According to the arrangement, the fund paid deductibles,
coinsurance, and other covered expenses that exceeded Medicare's limits.

B-286176 GAO/AIMD-00-308R United Mine Workers of America Page 4 percent
of the fund's total income for each of the past 5 years. The remaining 15

percent of the fund's income consisted of Black Lung Disability Trust Fund
reimbursements and investment income.

Table 3: Income to the Fund for Fiscal Years 1996 through 2000 (Dollars in
Thousands) Source of income 1996 1997 1998 1999 2000

(estimate)

Medical premiums $135,014 $151,499 $77,458 a $150,252 $116,681 Death
premiums 10,968 10,896 15,789 (5,216) b 9,364 Medicare capitation 134,450
130,997 126,049 123,943 117,263 Part A risk 0 0 0 2,933 697 AML fund
transfers 32,733 42,138 70,427 46,066 127,291 c Other 54,955 14,715 11,578
11,437 10,101

Total income $368,120 $350,245 $301,301 $329,415 $381,397

a The decline in income from medical premiums is primarily due to recording
the effect of a court decision on the annual medical premium calculation.
This decision reduced premiums about 10 percent per year since inception of
the fund. b Prior year funds that were originally recorded as unassigned
premiums were reallocated to death benefit premiums in 1999, resulting in a
debit balance in the death premium account. c In November 1999, the Congress
appropriated an additional $68 million in interest from the AML fund to
allow the fund to meet its fiscal year 2000 commitments.

Source: UMWA actuarial projection reports.

---- We are sending copies of this letter to the Honorable Daniel Patrick
Moynihan, Ranking Minority Member, Senate Committee on Finance. We will make
copies available to others upon request. We appreciate the opportunity to be
of assistance. If you or your staff have any questions regarding this
letter, or if we can be of further assistance, please contact me at (202)
512- 4476 or Alana Stanfield, Assistant Director, at (202) 512- 3197. I may
also be reached by e- mail at jarmong. aimd@ gao. gov. Key contributors to
this assignment were Bonnie Derby and Ogbeide Oniha.

Sincerely yours, Gloria L. Jarmon Director, Health, Education, and

Human Services Accounting and Financial Management Issues

(916375)
*** End of document. ***