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 of Pacificare of Oklahoma, Inc. Report No. lC-2N-OO-IO-20 Date: May 7, 2010 -- CAUTION - This audit report has been distributed 10 Federal officials who are responsible for the administration of the audited program. Tllis audit report may contain proprietary data which is protected by Federal law (18 V.S.c. 1905). Therefore, while this audit report is available under lhe Freedom of Information Act and made available 10 the public on the DIG webpage, caution needs to pe exercised beforereleasing'the report to the general public as it may contain proprietary information that was redacted from lhe publicly distributed copy_ UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington, DC 20415 Office of the nspector General AUDIT REPORT Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization PacifiCare of Oklahoma, Inc. Contract Number CS 2885 - Plan Code 2N Cypress, California Report No. lC-2N-OO-lO-020 Date: May 7, 2010 Michael R. Esser Assistant Inspector General for Audits WWW.Ol:;i: ,!;(~I' www.usajobs.goY 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 PacifiCare of Oklahoma, Inc. Contract Number CS 2885 - Plan Code 2N Cypress, California Report No. lC-2N-OO-10-020 Date: May 7, 2010 Tht' Office of the Inspector General perfonned an audit ofthe Federal Employees Health Benefits Prograrn (FEHBP) operations at PacifiCare of Oklahoma, Inc. (Plan). The audit covered contract years 2006 through 2009 and was conducted at the Plan's office in Cypress, California. We found that the FEHBP rates were developed in accordance with the Office of Personnel Mmldgement's rules and regulations in contract years 2006 through 2009. WWV' _')j' tl\ .[.~ov www.usajobs.gov CONTENTS Page EXECUTIVE SUMMARy i L INTRODUCTION AND BACKGROUND I 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 ofthe Federal Employees Health Benefits Program (FEHBP) operations at PacifiCare of Oklahoma, Inc. (Plan). The audit covered contract years 2006 through 2009 and was conducted at the Plan's office in Cypress, California. The audit was conducted pursuant to the provisions of Contract CS 2885; 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), cnacted 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 Retirement and Benefits Office. The provisions of the Federal Employees Health Benefits Act are implemented by OPMthrough 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 commWlity-rated carriers are federally qualified). In addition, pmticipation in the FEHBP subjects the carriers to the Federal Employees Health FEHBP Contracts/Members March 31 Benefits Act and implementing regulations promulgated by OPM. 6,000 5,000 The FEHBP should pay a market price rate, .. _ -....__- - - - - - - 1 which is defined as the best rate offered to 4,000 either of the two groups closest in size to the 3,000 FEHBP. In contracting with commWlity rated carriers, OPM relies on carrier 2,000 compliance with appropriate laws and 1,000 regulations and, consequently, does not negotiate base rates. aPM negotiations relate o 2006 2007 2008 2009 primarily to the level of coverage and other • Contracts 2,505 2,109 1,738 1,527 unique features of the FEHBP. o Members 5,172 4,177 3,300 2,813 The chart to the right shows the number ofFEHBP 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 1983 and provides health benefits to FEHBP members throughout central and northeastern Oklahoma. The last full-scope audit covered contract years 2003 through 2005. The audit did not identify any questioned costs and no corrective action was necessary. 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 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 performed to determine whether the Plan was in compliance with the provisions of the laws and regulations governing the FEHBP. FEHBP Premiums Paid to Plan We conducted this performance audit in accordance with generally accepted government auditing standards. $25 Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to $20 III provide a reasonable basis for our findings and I: ~ $15 conclusions based on our audit objectives. We believe :i $10 that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit $5 objectives. $0 .Revenue This performance audit covered contract years 2006 through 2009. For years 2006 tluough 2008, the FEHBP paid approximately $56.8 million in premiums to the Plan. 1 The premiums paid for each contract year audited are shown on the chart to the right. DIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP contract, applicable laws and regulations, and aPM rate instructions. These audits are also designed to provide reasonable assurance of detecting errors, irregularities, and illegal acts. We obtained an understanding ofthe 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 SSSGs); and • the loadings to the FEHBP rates were reasonable and equitable. ------------- - - - - - - - J The Subscription Income Report for contract year 2009 was not available at the time the report was completed. 3 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 infonnation 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 that the available data was sufficient to achieve our audit objectives. Except as noted above, the audit was conducted in accordance with generally accepted govermnent auditing standards issued by the Comptroller General of the United States. The audit fieldwork was performed at the Plan's office in Cypress, California, during January 2010. Additional audit work was completed at our offices in Jacksonville, Florida and Cranbeuy Township, Pennsylvania. Methodology We examined the Plan's federal rate submissions and related documents as a basis for validating the market price rates. Further, we examined claim payments to verify that the cost data used to develop the FEHBP rates were accurate, complete, and valid. 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 detennine 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 THE 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 to carriers for contract years 2006 through 2009. Consequently, the audit did not identify any questioned costs. 5 IV. MAJOR CONTRIBUTORS TO THIS REPORT Community-Rated Audits Group Auditor-In-Charge Auditor Auditor Chief Senior Team Leader 6
Audit of the Federal Employees Health Benefits Program Operations of Pacificare of Oklahoma, Inc
Published by the Office of Personnel Management, Office of Inspector General on 2010-05-07.
Below is a raw (and likely hideous) rendition of the original report. (PDF)