oversight

Audit of the Federal Employees Health Benefits Program Operations at Aetna HealthFund

Published by the Office of Personnel Management, Office of Inspector General on 2014-08-22.

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 the Federal Employees Health Benefits
           Program Operations at Aetna HealthFund


                                          Report No. 1C-22-00-14-023

                                          Date: August 22, 2014




                                                      -- 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 is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                                                      AUDIT REPORT



                                   Federal Employees Health Benefits Program
                                Community-Rated Health Maintenance Organization
                                              Aetna HealthFund
                                     Contract Number 2900 - Plan Code 22
                                            Blue Bell, Pennsylvania



                 Report No. 1C-22-00-14-023                                            Date: August 22, 2014




                                                                                      Michael R. Esser
                                                                                      Assistant Inspector General
                                                                                        for Audits




                                                      -- 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 is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                              EXECUTIVE SUMMARY




                      Federal Employees Health Benefits Program
                   Community-Rated Health Maintenance Organization
                                 Aetna HealthFund
                        Contract Number 2900 - Plan Code 22
                               Blue Bell, Pennsylvania


         Report No. 1C-22-00-14-023                    Date: August 22, 2014


The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at Aetna HealthFund (Plan). The audit covered contract
years 2010 and 2011, and was conducted at the Plan’s office in Blue Bell, Pennsylvania. We
found that the FEHBP rates were developed in accordance with applicable laws, regulations, and
the Office of Personnel Management’s Rate Instructions to Community-Rated Carriers for the
contract years audited.




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                                                    CONTENTS

                                                                                                                   Page

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

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

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

III. RESULTS OF THE AUDIT ............................................................................................ 5

IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 6
                     I. INTRODUCTION AND BACKGROUND

Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at Aetna HealthFund (Plan). The audit covered contract years 2010 and 2011, and was
conducted at the Plan’s office in Blue Bell, Pennsylvania. The audit was conducted pursuant to
the provisions of Contract CS 2900; 5 U.S.C. Chapter 89; and 5 Code of Federal Regulations
(CFR) Chapter 1, Part 890. 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 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. The FEHBP is administered by
OPM’s Healthcare and Insurance Office. The provisions of the Federal Employees Health
Benefits Act are implemented by OPM through regulations codified in Chapter 1, Part 890 of
Title 5, CFR. Health insurance coverage is provided through contracts with health insurance
carriers who provide service benefits, indemnity benefits, or comprehensive medical services.

Community-rated carriers participating in the FEHBP are subject to various federal, state and
local laws, regulations, and ordinances. While most carriers are subject to state jurisdiction,
many are further subject to the Health Maintenance Organization Act of 1973 (Public Law 93-
222), as amended (i.e., many community-rated carriers are federally qualified). In addition,
participation in the FEHBP subjects the carriers to the Federal Employees Health Benefits Act
and implementing regulations promulgated by OPM.

The FEHBP should pay a market price rate,                         FEHBP Contracts/Members
                                                                         March 31
which is defined as the best rate offered to
either of the two groups closest in size to the
FEHBP. In contracting with community-
rated carriers, OPM relies on carrier                 100,000
compliance with appropriate laws and                   90,000
                                                       80,000
regulations and, consequently, does not
                                                       70,000
negotiate base rates. OPM negotiations relate
                                                       60,000
primarily to the level of coverage and other           50,000
unique features of the FEHBP.                          40,000
                                                       30,000
The chart to the right shows the number of             20,000
FEHBP contracts and members reported by                10,000
the Plan as of March 31 for the contract years              0
                                                                        2010                 2011
audited.                                              Contracts        42,696               46,606
                                                      Members          88,895               99,152




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The Plan has participated in the FEHBP since 2005 and provides health benefits to FEHBP
members nationwide. The last audit conducted by our office was a full scope audit and covered
contract years 2005 through 2009. The report questioned inappropriate claims payments. All
issues from the prior audit have been resolved.

The preliminary results of this audit were discussed with Plan officials at an exit conference and
in subsequent correspondence. Since the audit concluded that the Plan’s rating of the FEHBP
was in accordance with applicable laws, regulations, and OPM Rate Instructions to Community-
Rated Carriers (rate instructions), a draft report was not issued.




                                                2
                II. OBJECTIVES, SCOPE, AND METHODOLOGY
Objectives

The primary objectives of the audit were to determine if the Plan offered the FEHBP market
price rates and that the loadings to the FEHBP rates were reasonable and equitable. Additional
tests were performed to determine whether the Plan was in compliance with the provisions of the
laws and regulations governing the FEHBP.

Scope                                                              FEHBP Premiums Paid to Plan

We conducted this performance audit in
accordance with generally accepted government                      $500
auditing standards. Those standards require that




                                                      Millions
                                                                   $400
we plan and perform the audit to obtain
                                                                   $300
sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions                  $200

based on our audit objectives. We believe that                     $100
the evidence obtained provides a reasonable                          $0
                                                                             2010           2011
basis for our findings and conclusions based on                  Revenue    $332.7         $413.5
our audit objectives.

This performance audit covered contract years
2010 and 2011. For these years, the FEHBP paid approximately $746.2 million in premiums to
the Plan.

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP
contract, applicable laws and regulations, and the rate instructions. These audits are also
designed to provide reasonable assurance of detecting errors, irregularities, and illegal acts.

We obtained an understanding of the Plan’s internal control structure, but we did not use this
information to determine the nature, timing, and extent of our audit procedures. However, the
audit included such tests of the Plan’s rating system and such other auditing procedures
considered necessary under the circumstances. Our review of internal controls was limited to the
procedures the Plan has in place to ensure that:

        • The appropriate Similarly Sized Subscriber Groups (SSSG) were selected;

        • the rates charged to the FEHBP were the market price rates (i.e., equivalent to the best
          rate offered to the SSSGs); and

        • the loadings to the FEHBP rates were reasonable and equitable.

In conducting the audit, we relied to varying degrees on computer-generated billing, enrollment,
and claims data provided by the Plan. We did not verify the reliability of the data generated by
the various information systems involved. However, nothing came to our attention during our
audit testing utilizing the computer-generated data to cause us to doubt its reliability. We believe
                                                 3
that the available data was sufficient to achieve our audit objectives. Except as noted above, the
audit was conducted in accordance with generally accepted government auditing standards,
issued by the Comptroller General of the United States.

The audit fieldwork was performed at the Plan's office in Blue Bell, Pennsylvania during March
and April of 2014. Additional audit work was completed at our office in Cranberry Township,
Pennsylvania.

Methodology

We examined the Plan’s federal rate submission and related documents as a basis for validating
the market price rates. In addition, we examined the rate development documentation and
billings to other groups, such as the SSSGs, to determine if the market price was actually charged
to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition
Regulations, and the rate instructions to determine the propriety of the FEHBP premiums and the
reasonableness and acceptability of the Plan’s rating system.

To gain an understanding of the internal controls in the Plan’s rating system, we reviewed the
Plan’s rating system policies and procedures, interviewed appropriate Plan officials, and
performed other auditing procedures necessary to meet our audit objectives.




                                                 4
                            III. RESULTS OF THE AUDIT
Our audit showed that the Plan’s rating of the FEHBP was in accordance with applicable laws,
regulations, and the rate instructions for contract years 2010 and 2011. Consequently, the audit
did not identify any questioned costs and no corrective action is necessary.




                                                5
            IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

                   , Auditor-in-Charge

                 , Lead Auditor

                 r, Lead Auditor


                  ., Chief

                , Senior Team Leader




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