oversight

Audit of the Federal Employees Health Benefits Program Operations of HealthAmerica Pennsylvania, Inc

Published by the Office of Personnel Management, Office of Inspector General on 2009-09-08.

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




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.Subject:


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                                          Date: S~:IJb;U\her              8, . 2009





                                                        -- CAUTION-.;,

This audit report ha.s been distributed to Federal officials whO are responsible fO,r the adminis.tration of thc audited program. This
audil report may contain ptoprietarydala which is protected by Fedcrallaw (18 U.S.c. 1905). therefore, while tbis audit report is
avaiiable undcr the Freedom of Information. Act arid made available to the p~blic on the OIG webpage, caution needs to be ~ereised
before releasing the report to the general public as it may contain proprietary 'information thlitwas r'edacled from the publicly
distril:luted c o p y . '                                               .                                      . .
                           UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                               Washington, DC 20415


   Office of t!u:
Inspector (J,:nC:;;1




                                               AUDIT REPORT




                                    Federal Employees Health Benefits Program

                                 Community-Rated Health Maintenance Organization

                                        HealthAmerica Pennsylvania, Inc.

                                     Contract Number 2078-A - Plan Code 26

                                             Pittsburgh, Pennsylvania




                        Report No. lC-26-00-09-022                     Da~:   September 8, 2009




                                                                        Mich ael R. Esser
                                                                        Assistant Inspector General
                                                                          for Audits




          www.opm.goY                                                                         www.usaJobs.gov
                          UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                             Washington, DC 20415


  Office of the
Inspector General




                                       EXECUTIVE SUMMARY





                               Federal Employees Health Benefits Program

                            Community-Rated Health Maintenance Organization

                                   HealthAmerica Pennsylvania, Inc.

                                Contract Number 2078-A - Plan Code 26

                                        Pittsburgh, Pennsylvania




                    Report No. lC-26-00-09-022                  Da~:   September 8, 2009


        The Office ofthe Inspector General perfonned an audit of the Federal Employees Health Benefits
        Program (FEHBP) operations at HealthAmerica Pennsylvania, Inc. (Plan). The audit covered
        contract years 2006 through 2008 and was conducted at the Plan's office in Pittsburgh,
        Pennsylvania. The audit showed that the Plan's rating of the FEHBP was in accordance with
        applicable laws, regulations, and the Office of Personnel Management's rating instructions for
        the years audited.




        www.opm.goY                                                                       www.usajobs.goY
                            CONTENTS



                                            . Page

      EXECUtIVE SUMMARy                        i.

 I. INTRODUCTioN AND BACKGROUND         ;      1


II. OBJECTIVES, SCOPE, AND METHODOLOGY         3


·m.   RESlJLTS OF.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 HealthAmerica Pelll1sylvania, fuc. (plan). The audit covered contract years 2006 through
2008. The audit was conducted pursuant to the provisions of Contract CS 2078-A; 5 U.S.C..
Chapter 89; and 5 Code of Federal Regulations(CFR) Chapter I, Part 890. The audit was
performed by the Office of Personnel Management's (OPM) Office of the fuspector 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

Center for Retirement and Insurance Services. The provisions ofthe 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

byOPM.
                                                      FEHBP Contracts/Members
                                                                        March 31
The FEHBP should pay a market price rate,
                                                      14,000
which is· defined as the best rate offered to
either of the two groups dosest in size to the        12,000

FEHBP. In contracting with community­                 10,000
rated carriers, OPM relies on carrier                 8,000
compliance with appropriate laws and
                                                       6,000
regu~ations and, consequently, does not
negotiate base rates. OPM negotiations relate         4,000

primarily to the level of coverage and other           2,000
unique features of the FEHBP.                             o
                                                               2006           2007    2008

The chart to the right shows the number of       _Contracts    6,305          5,959   5,510
                                                               12,407        11,320   10,066
FEHBP contracts and members reported by
the Plan as of March 31 for each contract
year audited.

                                                 1

The Plan has participated in the FEHBP since 1986 and provides health benefits to FEHBP
members throughout the greater Pittsburgh area. The last audit conducted by our office covered
contract years 2000, 2001, and 2003 through 2005. The audit showed that the Plan
inappropriately overcharged the FEHBP for health benefit charges in contract years 2001,2003,
and 2004. The audit also showed that the Plan's rating of the FEHBP was in accordance. with the
applicable. laws, regulations, and OPM's rating instructions for contract y~ars 2000 and 2005.
All matters related to that audit have been resolved.
                                                      .                 . .

The preliminary results of this audit were discussed with Plan officials at an exit conference and
through subsequent correspondence. Since the audit showed that the Plan's rating of the FEHBP
was in accordance with the applicable laws, regulations, and instructions, we did not issue a draft
report.




                                                 2

                II. OBJECTIVES, SCOPE, AND METHODOLOGY

Objectives

The primary objectives of the audit were to verify that the Plan offered market price rates to the
FEHBP and to verify that the loadings to the FEHBP rates were reasonable and equitable.
Additional tests were peifonned todetennine whether the PI~ was in compliance with the
provisions of the lawsand regulations governingt1u~ FEHBP.
                                                                         FEHBP Premiums Paid to Plan



 We conducted this perfonnance audit in accordance with            $60

 generally accepted government auditing standards.                 $59
                                                                   $58
 Those standards require that we plan and perfonn the
                                                              ~    $57
 audit to obtain sufficient, appropriate evidence to
                                                              ~    $56
 provide a reasonable basis for our findings and              :E   $55
 conclusions based on our audit objectives. We believe             $54
 thatthe evidence obtained provides a reasonable basis             $53
 for our findings and conclusions based on our audit               $52
.objectives.                                                       $51


This perfonnance audit covered contract years 2006
through 2008. For these years, the FEHBP paid

approximately $169.8 million in premiums to the Plan.

The premiums paid for each contract year audited are shown on the chart to the right.


OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP

contract, applicable laws and regulations, and OPM 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
                                                 3
the various information systems involved. However, nothing came to our attention during our
audit testing utilizing the computer-generated data to cause usto doubt its reliability. We believe
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 Pittsburgh, Pennsylvania, during
March 2009. Additional audit work was completed at our field office.in Cranberry Township,
PeImsylvania.

Methodology

We examined the Plan's federal rate submissions and related documents as a basis for validating
themarket 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 OPM's Rate Instructions to Community-Rated Carriers 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's policies and procedures, interviewed appropriate Plan officials, and
performed other auditing procedures necessary to meet our audit objectives.




                                                 4

                                III. RESULTS OF AUDIT


Our audit showed that the Plan's rating of the FEHBP was in accordance with the applicable
laws, regulations, and OPM's rating instructions for contractyears 2006 through 2008.
Consequently, we did not identify any questioned costs and no corrective action is necessary.




                                                5

            IV. MAJOR CONTRIBUTORS TO THIS REPORT


Com!Dunity-RatedAudits Group

                      Auditor-ill-Charge

                 Lead Auditor

                  Auditor


                    Chief

                   Senior Team Leader




                                           6