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. www.opm.gov www.usajobs.gov 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
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)