Office of Personnel Management, Office of Inspector General | U.S. Office of Personnel Management | Audit of Carefirst BlueCross BlueShield

Audit of Carefirst BlueCross BlueShield - Owings Mills, Maryland

Published by the Office of Personnel Management, Office of Inspector General on 2010-03-10.

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 CAREFIRST BLUECROSS BLUESHIELD
OWINGS MILLS, MARYLAND

Report No. IA-IO-92-09-024

Date: March 10, 2010

--CAUTI0 N-
This audit reporl has been distributed to Federatofficials who are respousibl~ for theal/ministration of tile audited program. This aUditrepor1
nJay contain proprietary data which is protected by Fednallaw (18 U.S.c. 19l1S). Thuefore. while this audil repo.'! is a\'ailable uuder the
Fre'edom oflnrormation Act and made anilable to the (lubrie on the OIG webpage, caution needs to be exercised before releasing the report to
the general puhlic as it may contain propriet)' information that was redacfed from the publicly distrihuted COl))'.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Washington, DC 20415

Office of the
Inspector General

AUDIT REPORT

Federal Employees Health Benefits Program
Service Benefit Plan Contract CS 1039
BlueCross BJueShieJd Association
Plan Code 10

CareFirst BlueCross BJueShield
Federal Employee Program Operations Center
Owings Mills, Maryland

REPORT NO. lA-1O-92-09-024 DATE: March 10, 2010

~~-
Michael R. Esser
Assistant Inspector General
for Audits

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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

Washington, DC 20415

Office of the
Inspector General

EXECUTIVE SUMMARY

Federal Employees Health Benefits Program

Service Benefit Plan Contract CS 1039

BlueCross BlueShield Association

Plan Code 10

CareFirst BlueCross BlueShield

~ederal Employee Program Operations Center

Owings Mills, Maryland

REPORT NO. lA-1 0-92-09-024 DATE: March 10, 2010

This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations at
CareFirst BlueCross BlueShield" (Plan), which specifically included the Federal Employee
Program (FEP) Operations Center's administrative expenses, disclosed no findings. Overall, we
concluded that the FEP Operation Center's administrative expenses charged to the FEHBP were
actual, allowable, necessary and reasonable expenses incurred in accordance with the terms of the
contract and applicable laws and regulations.

Our limited scope audit was conducted in accordance with Government Auditing Standards. The
audit covered administrative expenses of the FEP Operations Center from 2004 through 2008 as
reported in the Annual Accounting Statements.

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CONTENTS

PAGE

EXECUTIVE SUMMARY ~ i

I. INTRODUCTION AND BACKGROUND 1

n. OBJECTIVE, SCOPE, AND METHODOLOGY 3

Ill. AUDIT RESULTS 5

A. ADMINISTRATIVE EXPENSES 5

IV. MAJOR CONTRIBUTORS TO THIS REPORT 6

V. SCHEDULE A _ ADMINISTRATIVE EXPENSE CHARGES
I. INTRODUCTION AND BACKGROUND

INTRODUCTION

This final audit report details the findings, conclusions, and recommendations resulting from our
limited scope audit of the Federal Employees Health Benefits Program (FEHBP) operations at
CareFirst BlueCross BlueShield (Plan) pertaining to the administrative expenses of the Federal
Employee Program (FEP) Operations Center. The Plan's offices are located in Washington, D.C.
and Owings Mills, Maryland.

The audit was perfonned by the Office of Personnel Management's (OPM) Office of the
Inspector General (DIG), 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 Retirement and Benefits
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 ofthe 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 BlueShieId 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 an FEp l 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 ofthe FEP
Operations Center are perfonned by CareFirst BlueCross BlueShield, located in Washington,
D.C. These activities include acting as fiscal intennediary between the Association and member
plans, verifying subscriber eligibility, approving or disapproving the reimbursement oflocal plan
payments ofFEHBP claims (using computerized system edits), maintaining a history file of all
FEHBP claims, and maintaining an accounting of all program funds.

I 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.
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.

All findings from our previous audit of the Plan (Report No. lA-1O-85-03-1 OS, dated
September 29,2004) for contract years 2001 and 2002 have been satisfactorily resolved.

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

II. OBJECTIVE, SCOPE, AND METHODOLOGY

OBJECTIVE

The objective of our audit was to determine whether the FEP Operations Center'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.

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 conclusions based on our audit objective.

We reviewed the BlueCross and BlueShield FEHBP Annual Accounting Statements as they
pertain to administrative expenses for the FEP Operations Center for contract years 2004 through
2008. During this period, the Plan charged approximately $376 million in administrative
expenses for the FEP Operations Center (See Schedule A).

In planning and conducting our audit, we obtained an understanding of the Plan's internal control
structure to help determine the nature, timing, and extent of our auditing procedures. This was
determined to be the most effective approach to select areas of audit. For those areas selected,
we primarily relied on substantive tests of transactions and not tests of controls. Based on our
testing, we did not identify any significant matters involving the Plan's internal control structure
and its operation. However, since our audit would not necessarily disclose al1 significant matters
in the internal control structure, we do not express an opinion on the Plan's system ofintemal
controls taken as a whole.

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 did comply 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 infonnation 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 Owings Mills, Maryland on various dates from
May 4, 2009 through August 7, 2009. Audit fieldwork was also performed at our offices in
Washington, D.C.; Cranberry Township, Pennsylvania; and Jacksonville, Florida.

METHODOLOGY

We obtained an understanding of the internal controls over the Plan's cost accounting system by
inquiry of Plan officials.

We judgmentally reviewed administrative expenses of the FEP Operations Center that were
charged to the FEHBP for contract years 2004 through 2008. 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, Association dues, lobbying expenses, return on investment, subcontracts, 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. The results of the testing were not projected to the universe of
administrative expenses.

III. AUDIT RESULTS

A. ADMINISTRATIVE EXPENSES

The audit disclosed no findings pertaining to administrative expenses. Overall, we concluded
that the FEP Operation Center's administrative expenses charged to the FEHBP were actual,
allowable, necessary and reasonable expenses incurred in accordance with the terms of the
contract and applicable laws and regulations.

IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group

~ead Auditor

Auditor

Chief

Senior Team Leader

V. SCHEDULE A

CAREFIRST BLUECROSS BLUESHIELD
OWINGS MILLS, MARYLAND

ADMINISTRATIVE EXPENSE CHARGES

ADMINISTRATIVE EXPENSE CHARGES 2004 2005 2006 2007 200~ TOTAL

FEDERAL EMPLOYEE PROGRAM OPERATIONS CENTER I $59,203,709 $68,642,031 $74,392,174 $83,071,253 $90,802,673 $376,111,840