oversight

Audit of the Premera Bluecross Mountlake Terrace, Washington

Published by the Office of Personnel Management, Office of Inspector General on 2011-10-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                      u.s. OFFICE OF PERSONNEL MANAGEMENT
                                                                 OFFICE OF THE INSPECTOR GENERAL
                                                                                  OFFICE OF AUDITS




Final Audit Report

SUbject:



                AUDIT OF PREMERA BLUECROSS 

              MOUNTLAKE TERRACE, WASHINGTON 



                                            Report No. lA-lO-69-11-035



                                             Date:         10/26/11




                                                          --CAUTION-­
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 U.S.c. 1905). Therefore, while this audit report i!'i available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to he exercised before
releasing tbe report to the general public as it may contain propriety information that was redacted from the publicly distributed copy.
                       UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                           Wa~hington,   DC 20415


  Office of the
In~peCh)rGeneral




                                        AUDIT REPORT 




                              Federal Employees Health Benefits Program 

                              Service Benefit Plan     Contract CS 1039 

                                   BlueCross BlueShield Association 

                                             Plan Code 10 



                                        Premera BlueCross 

                                Washington and Alaska Service Areas 

                                 Plan Codes 430/439/934/936/939 

                                  Mountlake Terrace, Washington 





                      REPORT NO. IA-10-69-11-035            DATE: 10/26/11 





                                                             Michael R. Esser
                                                             Assistant Inspector General
                                                               for Audits




        www.opm.gov                                                                        www.usajobs.gov
                         UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 

                                                Washington, DC 20415 



  Oftice of the
In~pector   General




                                       EXECUTIVE SUMMARY



                                Federal Employees Health Benefits Program 

                                Service Benefit Plan     Contract CS 1039 

                                     BlueCross BlueShield Association 

                                               Plan Code 10 



                                            Premera BlueCross 

                                    Washington and Alaska Service Areas 

                                     Plan Codes 430/439/934/936/939 

                                      Mountlake Terrace, Washington 





                      REPORT NO, lA-10-69-11-035               DATE: 10/26/11


      We conducted a limited scope audit of the Federal Employees Health Benefits Program (FEHBP)
      operations at Premera BlueCross (Plan) in Mountlake Terrace, Washington. The audit was
      conducted in accordance with Government Auditing Standards. The audit covered miscellaneous
      health benefit payments and credits and administrative expenses from 2006 through 2010 as
      reported in the Annual Accounting Statements. In addition, we reviewed the Plan's cash
      management practices related to FEHBP funds for contract years 2006 through 2010,

      The audit disclosed no significant findings, Accordingly, this final audit report contains no
      questioned charges and recommendations.




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                                                    CONTENTS
                                                                                                                      PAGE

       EXECUTIVE SUMMARY............................................................................................... i

 I.    INTRODUCTION AND BACKGROUND ......................................................................1

II.    OBJECTIVES, SCOPE, AND METHODOLOGY ..........................................................3

III.   RESULTS OF AUDIT ......................................................................................................6

IV.    MAJOR CONTRIBUTORS TO THIS REPORT .............................................................7

V.     SCHEDULE A - CONTRACT CHARGES
                         I. INTRODUCTION AND BACKGROUND

INTRODUCTION

This final audit report details the results from our limited scope audit of the Federal Employees
Health Benefits Program (FEHBP) operations at Premera BlueCross (Plan), pertaining to the
Washington and Alaska Service Areas. The Plan is located in Mountlake Terrace, Washington.

The audit was performed by the Office of Personnel Management’s (OPM) Office of the
Inspector General (OIG), as established by the Inspector General Act of 1978, as amended.

BACKGROUND

The FEHBP was established by the Federal Employees Health Benefits (FEHB) Act (Public Law
86-382), enacted on September 28, 1959. The FEHBP was created to provide health insurance
benefits for federal employees, annuitants, and dependents. OPM’s Healthcare and Insurance
Office has overall responsibility for administration of the FEHBP. The provisions of the FEHB
Act are implemented by OPM through regulations, which are codified in Title 5, Chapter 1, Part
890 of the Code of Federal Regulations (CFR). Health insurance coverage is made available
through contracts with various health insurance carriers.

The BlueCross BlueShield Association (Association), on behalf of participating BlueCross and
BlueShield plans, has entered into a Government-wide Service Benefit Plan contract (CS 1039)
with OPM to provide a health benefit plan authorized by the FEHB Act. The Association
delegates authority to participating local BlueCross and BlueShield plans throughout the United
States to process the health benefit claims of its federal subscribers. The Plan is one of
approximately 63 local BlueCross and BlueShield plans participating in the FEHBP.

The Association has established a Federal Employee Program (FEP 1) Director’s Office in
Washington, D.C. to provide centralized management for the Service Benefit Plan. The FEP
Director’s Office coordinates the administration of the contract with the Association, member
BlueCross and BlueShield plans, and OPM.

The Association has also established an FEP Operations Center. The activities of the FEP
Operations Center are performed by CareFirst BlueCross BlueShield, located in Washington,
D.C. These activities include acting as fiscal intermediary between the Association and member
plans, verifying subscriber eligibility, approving or disapproving the reimbursement of local plan
payments of FEHBP claims (using computerized system edits), maintaining a history file of all
FEHBP claims, and maintaining an accounting of all program funds.

Compliance with laws and regulations applicable to the FEHBP is the responsibility of the
Association and Plan management. Also, management of the Plan is responsible for establishing
and maintaining a system of internal controls.

1
 Throughout this report, when we refer to "FEP" we are referring to the Service Benefit Plan lines of business at the
Plan. When we refer to the "FEHBP" we are referring to the program that provides health benefits to federal employees.


                                                          1
All findings from our previous audit of this Plan (Report No. 1A-10-70-04-021, dated
October 19, 2004) for contract years 1998 through 2002 have been satisfactorily resolved.

The results of this audit were discussed with the Plan and/or Association officials throughout the
audit and at an exit conference. Since our audit disclosed no significant findings, we bypassed
the draft report and issued this final report.




                                                2
                II. OBJECTIVES, SCOPE, AND METHODOLOGY

OBJECTIVES

The objectives of our audit were to determine whether the Plan charged costs to the FEHBP and
provided services to FEHBP members in accordance with the terms of the contract. Specifically,
our objectives were as follows:

       Miscellaneous Health Benefit Payments and Credits

       •   To determine whether miscellaneous payments charged to the FEHBP were in
           compliance with the terms of the contract.

       •   To determine whether credits and miscellaneous income relating to FEHBP benefit
           payments were returned promptly to the FEHBP.

       Administrative Expenses

       •   To determine whether administrative expenses charged to the contract were actual,
           allowable, necessary, and reasonable expenses incurred in accordance with the terms
           of the contract and applicable regulations.

       Cash Management

       •   To determine whether the Plan handled FEHBP funds in accordance with applicable
           laws and regulations concerning cash management in the FEHBP.

SCOPE

We conducted our limited scope performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform the audit to
obtain sufficient and appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit objectives.

We reviewed the BlueCross and BlueShield FEHBP Annual Accounting Statements as they
pertain to Plan codes 430, 439, 934, 936, and 939 for contract years 2006 through 2010. During
this period, the Plan paid approximately $1.5 billion in health benefit charges and $74 million in
administrative expenses (See Figure 1 and Schedule A).

Specifically, we reviewed miscellaneous health benefit payments and credits (e.g., refunds,
subrogation recoveries, and fraud recoveries), administrative expenses, and cash management
activities from 2006 through 2010.




                                                 3
In planning and conducting our audit, we obtained
an understanding of the Plan’s internal control                         PREMERA BLUECROSS
structure to help determine the nature, timing, and                   Summary of Contract Charges
extent of our auditing procedures. This was                         $400
determined to be the most effective approach to




                                                       $ Millions
select areas of audit. For those areas selected, we                 $300
primarily relied on substantive tests of
                                                                    $200
transactions and not tests of controls. Based on
our testing, we did not identify any significant                    $100
                                                                             2006   2007   2008   2009   2010
matters involving the Plan’s internal control                                        Contract Year
structure and its operation. However, since our
audit would not necessarily disclose all significant                          Adm inistrative Expenses

matters in the internal control structure, we do not                          Health Benefit Charges

express an opinion on the Plan’s system of
internal controls taken as a whole.                                        Figure 1 – Contract Charges

We also conducted tests to determine whether the Plan had complied with the contract, the
applicable procurement regulations (i.e., Federal Acquisition Regulations (FAR) and Federal
Employees Health Benefits Acquisition Regulations (FEHBAR), as appropriate), and the laws
and regulations governing the FEHBP. The results of our tests indicate that, with respect to the
items tested, the Plan complied with all provisions of the contract and federal procurement
regulations. With respect to the items not tested, nothing came to our attention that caused us to
believe that the Plan had not complied, in all material respects, with those provisions.

In conducting our audit, we relied to varying degrees on computer-generated data provided by the
FEP Director’s Office and the Plan. Due to time constraints, we did not verify the reliability of
the data generated by the various information systems involved. However, while utilizing the
computer-generated data during our audit testing, nothing came to our attention to cause us to
doubt its reliability. We believe that the data was sufficient to achieve our audit objectives.

The audit was performed at the Plan’s office in Mountlake Terrace, Washington from June 7
through June 30, 2011. Audit fieldwork was also performed at our offices in Cranberry
Township, Pennsylvania and Jacksonville, Florida.

METHODOLOGY

We obtained an understanding of the internal controls over the Plan’s financial, cost accounting
and cash management systems by inquiry of Plan officials.

We interviewed Plan personnel and reviewed the Plan’s policies, procedures, and accounting
records during our audit of miscellaneous health benefit payments and credits. We also
judgmentally selected and reviewed 199 high dollar health benefit refunds and recoveries,
totaling $11,412,064 (from a universe of 44,594 refunds and recoveries, totaling $40,844,461),
and 21 special plan invoices (SPI), totaling $596,098 in net payments (from a universe of 113
SPI’s, totaling $20,670,300 in net payments), to determine if refunds and recoveries were


                                                 4
promptly returned to the FEHBP and if miscellaneous payments were properly charged to the
FEHBP. 2 The results of these samples were not projected to the universe of miscellaneous health
benefit payments and credits.

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years
2006 through 2010. Specifically, we reviewed administrative expenses relating to cost centers,
natural accounts, out-of-system adjustments, prior period adjustments, pension, post-retirement,
employee health benefits, executive compensation, subcontracts, non-recurring projects, return
on investment, Association dues, and Health Insurance Portability and Accountability Act of
1996 compliance. We used the FEHBP contract, the FAR, and the FEHBAR to determine the
allowability, allocability, and reasonableness of charges.

We reviewed the Plan’s cash management to determine whether the Plan handled FEHBP funds
in accordance with Contract CS 1039 and applicable laws and regulations.




2
  The Plan provided a consolidated universe of all types of FEP health benefit refunds and recoveries. From this
universe, we selected all health benefit refunds and recoveries greater than $25,000. From the SPI universe, we
selected 17 SPI’s with high dollar miscellaneous credits totaling $414,370, as well as 4 SPI’s with high dollar
miscellaneous payments totaling $1,010,468.


                                                         5
                                III. RESULTS OF AUDIT
Our audit disclosed no findings pertaining to miscellaneous health benefit payments and credits,
administrative expenses, and the Plan’s cash management practices. Overall, we concluded that
the Plan promptly returned health benefit refunds and recoveries to the FEHBP and properly
charged miscellaneous payments to the FEHBP. We also concluded that the Plan’s
administrative expenses charged to the contract were actual, allowable, necessary, and reasonable
expenses incurred in accordance with the terms of the contract and applicable regulations. In
addition, we determined that the Plan handled FEHBP funds in accordance with Contract CS
1039 and applicable laws and regulations.




                                               6
              IV. MAJOR CONTRIBUTORS TO THIS REPORT


Experience-Rated Audits Group

             , Lead Auditor

                , Auditor

             , Auditor

               Auditor



                  , Chief (

             Senior Team Leader




                                  7
                                              V. SCHEDULE A

                                      PREMERA BLUECROSS
                                 MOUNTLAKE TERRACE, WASHINGTON

                                            CONTRACT CHARGES

CONTRACT CHARGES                2006           2007            2008            2009            2010         TOTAL

A. HEALTH BENEFIT CHARGES

  PLAN CODE 430              $125,796,054 $145,084,020      $158,669,888    $176,763,077    $195,178,688     $801,491,727
  MISCELLANEOUS PAYMENTS          (14,834)   3,692,532         1,920,501       2,779,241       3,388,234       11,765,673

  PLAN CODE 439                40,194,035     44,952,376      50,533,808      54,568,911      61,636,661      251,885,791
  MISCELLANEOUS PAYMENTS                0              0               0               0               0                0

  PLAN CODE 934                 3,760,816      4,164,490       4,110,980       4,598,064       5,094,474       21,728,824
  MISCELLANEOUS PAYMENTS                0              0               0               0               0                0

  PLAN CODE 936                21,416,001     23,454,510      25,118,459      26,903,059      27,246,715      124,138,744
  MISCELLANEOUS PAYMENTS                0              0               0               0               0                0

  PLAN CODE 939                49,537,241     55,339,154      61,096,261      66,910,092      76,660,447      309,543,195
  MISCELLANEOUS PAYMENTS                0              0               0               0               0                0

  TOTAL                      $240,689,313   $276,687,082    $301,449,897    $332,522,444    $369,205,219    $1,520,553,954

B. ADMINISTRATIVE EXPENSES

  PLAN CODE 430               $15,132,351    $13,627,387     $14,630,844     $16,025,397     $15,561,131      $74,977,110
  PRIOR PERIOD ADJUSTMENTS              0         (2,162)        131,362               0               0          129,200
  BUDGET SETTLEMENTS                    0              0        (376,313)       (328,398)       (143,265)        (847,976)

  TOTAL                       $15,132,351    $13,625,225     $14,385,893     $15,696,999     $15,417,866      $74,258,334

TOTAL CONTRACT CHARGES       $255,821,664   $290,312,307    $315,835,790    $348,219,443    $384,623,085    $1,594,812,288