FAR 28.307-1—Group insurance plans.
Plain-English Summary
FAR 28.307-1 addresses two related issues for group insurance plans used under cost-reimbursement contracts: prior approval of the plan before the contractor buys the insurance, and the Government’s right to share in premium refunds or credits. The section exists to protect the Government from paying for insurance arrangements that may be unusually costly, poorly structured, or later changed in a way that increases reimbursable costs. In practice, it means a contractor cannot simply enroll in or modify a group insurance plan and expect the resulting costs to be allowable without following agency approval procedures. It also means that if the contractor receives refunds, credits, or similar benefits from the insurer, the Government must receive its fair share, including consideration of special reserves and future refunds the contractor may be entitled to. For contracting officers and contractors, this section is a cost-control and cost-allocation rule that affects proposal review, contract administration, and settlement of insurance-related credits.
Key Rules
Prior approval required
Before a contractor buys insurance under a group insurance plan on a cost-reimbursement contract, the contractor must submit the plan for approval in accordance with agency regulations. This is a condition precedent to incurring the cost as part of the contract’s reimbursable structure.
Approval applies to material changes
If an approved plan is changed in a way that can reasonably be expected to increase the Government’s cost significantly, the contractor must obtain similar prior approval. The rule focuses on changes in benefits, not just premium amounts, when the change could materially affect cost.
Government shares refunds and credits
The plan must provide that the Government receives its share of any premium refunds or credits paid or otherwise allowed to the contractor. The contractor cannot retain the full benefit of insurer rebates, dividends, or similar adjustments when those amounts relate to reimbursed insurance costs.
Future reserves must be considered
When determining the Government’s share of refunds or credits, the contractor’s entitlement to special reserves and other future refunds must be taken into account. This prevents under-allocation to the Government where current refunds are only part of the total economic benefit from the plan.
Responsibilities
Contractor
Submit any group insurance plan for prior approval before purchase under a cost-reimbursement contract, follow applicable agency approval procedures, seek approval for any benefit change likely to significantly increase Government cost, and ensure the plan provides for sharing premium refunds or credits with the Government.
Contracting Officer / Agency
Review group insurance plans under agency regulations, determine whether the plan or a proposed change requires approval, and ensure contract administration captures the Government’s share of refunds, credits, and related reserve-based entitlements.
Insurer / Plan Administrator
Administer the plan in a way that allows refunds, credits, dividends, or similar allowances to be identified and allocated as required by the contract arrangement and applicable agency rules.
Practical Implications
Contractors should not assume a group insurance plan is allowable just because it is common or commercially available; prior approval may be required before the cost is incurred.
Changes to benefits can trigger approval even if the premium increase is not yet fully known, so contractors should flag plan amendments early and document the expected cost impact.
Refunds, credits, dividends, and reserve-related benefits must be tracked carefully; otherwise the contractor may overretain amounts that should be credited to the Government.
Contracting officers should verify that the contract file and any agency procedures address how refunds and credits will be calculated, documented, and returned or offset.
A common pitfall is focusing only on current premium rates and overlooking future reserve entitlements or other downstream insurer adjustments that affect the Government’s share.
Official Regulatory Text
(a) Prior approval requirement . Under cost-reimbursement contracts, before buying insurance under a group insurance plan, the contractor must submit the plan for approval, in accordance with agency regulations. Any change in benefits provided under an approved plan that can reasonably be expected to increase significantly the cost to the Government requires similar approval. (b) Premium refunds or credits . The plan shall provide for the Government to share in any premium refunds or credits paid or otherwise allowed to the contractor. In determining the extent of the Government’s share in any premium refunds or credits, any special reserves and other refunds to which the contractor may be entitled in the future shall be taken into account.