Audit of the Federal Employees Health Benefits Program Operations at Aetna Open Access - Georgia

Published by the Office of Personnel Management, Office of Inspector General on 2011-04-13.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                                     U.S. OFFI CE OF PERSO NNEL MAN AGE MENT
                                                                           O FFICE OF THE INSPE CTOR G ENERAL
                                                                                             OfF ICE OF AUDITS

                                              Final Audit Report


    Audit of the Federal Employees Health Benefits
  Program Operations at Aetna Open Access - Georgia

                                                        Re port No. IC-2 U-OO-t l-003

                                                         Date:            Apr il 1 3, 201 1

                                                                        -- CAU T ION -­
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                                        UN ITE D STATES O FFICE O F PERSONNEL MA NAGEME:"JT
                                                                    wa shing ton DC 204 15

    O ffice (If tho:
ln~p o: (.· l "r
             Gen era l

                                                        EXEC UT IVE S UMMARY

                                             Federal E mp loyees Healt h Benefits Program

                                          Com m unity- Rate d Hea lth Mainten an ce O rganization

                                                      Aet na O pen Ac cess - ( ;c o r~j a

                                              Co nt ract Number CS 210167 - Pla n Cod e 2lJ

                                                         Blue Hell. l'enn sy lvuuia

                               Repor t No . t C- 2IJ-OO- I I -003                       Da te: Ap r i l   1 3 , 2 011

             The Offi ce of the Inspector Genera l perform ed an audit of the Federal Employees I lcalth Benefits
             Program (FEII BP) operat ions at Aetna Ope n Access - Georgia (Plan). The audit covered contract
             years 2006 thro ugh 10 10 and was conducted at the Plan' s office in HIlle Bell. Pennsylvania.

             This repor t ques tions S1.48 7.355 for inappro priate health benefit charges in co ntract year 2007 .
             The questioned amoun t includes 5 1.17 3,615 for defec tive pricing and $1 13.730 due the r EHBP
             for lost investm ent income. calc ulated through Marc h 31. 20 11. We round that the FEHB P ra il' S
             were dev elo ped in accordance with the Offi ce of'Pcrsonne l Management's rules and reg ulations
             in 200 6, 200B, l OO!), and 20 10.

             For contract year 2007 . W I.' determined that the FU IBP' s rates were overstated by $ 1.27 3,625
             due to defective pricing . More speci fically the Plan did no t apply a similarly sized subscriber
             group disc ount to the FEl-lBP' s rates,

              Con sistent with the FElfB P regulations and the contract. the FEIIB P is due $2 13,730 fer lost
              investment income. calculated thro ugh March j L 20 1 1. on the de fective pr icing findin g. In
              addition, the- con tracting offi ce r should recove r lost investment incom e on amo unts due tin the
              period beginni ng April I, 20 11. unt il all defective pricing amo unts have been returned to the
              FF I IBP.

                   www ,o pm .go v                                                                                      www.u sa lo bs .go ,
                                UN ITED STATES O FF ICE O F PERSON NE L M AKAGE M ENT
                                                        \"'ashingw n. DC 20415

   Office Ilf the
I n 'p"~-l ()r G ~n"n l

                                                        AUDIT REPORT

                                          Federal Employees Healt h Ben efit s Program

                                      C umm un iry- Rated Hea lth Ma inten an ce Orga niza tio n

                                                   Aetna Open Access - Ceorgia

                                           Co nt ract Nu mber CS 2867 - Plan Cod e 2 U

                                                      Rlue Bell, Pen nsyl vaniu

                           Re port Nil. l C -2lJ-UO-l 1-llU3                     Dat e:   April 13 , 2011

                                                                                 ::\1ichacl R. Esser
                                                                                 Assistant Inspecto r Cenerul
                                                                                     for Audits

            www.o pm.go,                                                                                www.u .aJobs.g o,

    EXEC UTIVE SUMMARY	                                                    i

 J. INTRODUCT ION AND BACKGROUND	                                          1

II.	 OBJECTIV ES. SCOPE, AND METHODOLOG Y                                  3

III.	 AUD IT FIND iNGS AN D RECOMMENDATIONS                                5

    Premium Rates                                                          5

    1. Defec tive Pricing	                                                 5

    2. Lost Investment Incom e	                                            7

IV.	 MA JO R CONTRIBUTORS TO T Ill S REP OR T                              9

    Exhibit A (Sum mary of Que stioned Costs)

    Exhibit 13 <Defective Pricin g Questioned Costs)

    Exhibit C (Lost Investment Inco me)

    Appendix (Ae tna 's March 4. 20 11. respo nse to the dra ft report)

                      I. INT RODUCT ION AND BACKGROUND

Int nt d uction

We completed an aud it ofthe Federa l Em ployees Heal th Benefits ProgramlF EHBP) operations
at Ae tna Open Access - Geor gia (Plan) in Blue Bell, Pennsylvania. The audit covered con tract
years 2006 th rough 20 10. The aud it was conducted pursuan t to the pro visions of Contract CS
2867 ; 5 U.S.c. Chapter 89 ; and 5 Code of Federal Regulations (CrR) Chapter 1, Part 890 . The
aud it was performed by the Office of Personnel Management's (OPM) Office of the Inspector
Gen eral (O IG) , as established by the Inspector General Act of 1978. as am ended.

Backgroun d

The FEHBP was established by the Fede ral Employees Health Ben efits Act (Public Law 86-382 ).
enac ted on September 28. 1959. The FEHB I' was created to pro vide health insurance be nefits
for federal employees. annuitants. and dependent s. The FEHBP is adm inistered by OI'M' s
I lealthcare and Insurance Office. The pro vision s o f the Federa l Employees Hea lth Benefit s Act
are implemented by OPM through regulation s codified in Chapter 1. Part 890 of Title 5. Cr R.
l lealt h insurance coverage is pro vided thro ugh co ntracts wit h hea lth insurance carr iers who
provide service benefits. indemnity benefits, or com prehens ive med ical servic es .

Co mmunity-rated carriers parti cipating in the FEl-lB r are subje ct to various fed eral. state and
local laws. regul ations, and ordinances . While most carrier s are subject to sta le j urisdiction,
many are further subje ct to the Hea lth Ma intenance Organization Act of 197 3 (Public Law 93­
222 ), as ame nde d (i.e.. many community-ra ted ca rriers arc feder ally qual ified ). In addi tion .
participation in the F EI IBP subjects the ca rriers to the Federa l Emp loyees I lealth Benefi ts Act
an d im pleme nting regu lati ons pro mu lgate d by 0 1'\1.

T he FE! IBI' sho uld pay a market price rate,                    FEHBP Cont racts/Members
which is defi ned as the best rate offered to                            March 31

either of the two gro ups c losest in size to          16,000
                                                                  _ '"
the FEIIBP. In con tracti ng with                      14,000
com mun ity-rated carrie rs, O PM relies on            12.000
                                                                  -          -       "
carrier ca mpiian ce with appro priate laws            10,000
                                                                    -        -            -            -                    '"
and regulation s and, consequently. docs not
                                                        8,000    ,/
                                                                    - ' ­
                                                                                          -       :    ­             -
negot iate base rates. OPM negotiation s
                                                                        -                 -       :
                                                                                                       -             -       "

relate primaril y to the level of coverage and                          -                 -            -             -            -
other unique features of the FE llBl'.
                                                         2,000        ••••
                                                                             -            -            -             -
The chart to the right show s the numbe r o f                a L ,;,;, ~
                                                                  2006           200 7
                                                                                          '!E    =
                                                                                                       -   2009
                                                                                                               ;."   =:     ='
                                                                                                                         20 10
FEIIB P contracts and mem bers repo rted by                       6.44 7         6,364        6.316        5,50 7        5, 150
                                                   • Contracts
the Plan as o f March 31 for eac h cont ract       o Members      15,168         14,857       14 576       12.1 54       10,974
yea r audi ted .
The Plan has participated in the FEHBP since 1983 and provides healt h benefits to FElI BP
membe rs in the Athens and Atlanta areas o f Geo rgia. The last aud it conducted by our offic e was
a full scope audit and covered contract years 2001,2003 and 2005. All matters related to that
audit have been reso lved.

The preliminary results of this audit were discussed with Plan officials at an ex it conference and
in subsequent correspondence . A draft report was also provided to the Plan for review and
comment. The Plan' s comments were considered in the preparatio n of this report and are
included. as appropriate. as the Appendix .



Ob jcctins

T he prima ry obj ecti ves oft he audit were to veri I).' that the Plan offered market price rates to the
FE I IIW an d to verity that the load ings to the FE rIHP rates were rea son able an d eq uitab le.
Additi onal tests were performed to determ ine whether the Plan \.. . as in co mplianc e wi th the
prov isions ofth e law s and regulatio ns go ve rning the FElIBP .

                                                                       FEHBP Prem ium s Paid to Plan

We conducted this perfo rmance a udit in
accordanc e with generally accepted governm ent                  '"
a uditing standards. Those standards require that                '"
we pla n and per form the audit to obta in                       '"
sufficient appropriate evidenc e to pro vide a                   ,,,

reasonable basis fix our findings and conclusions
basted on our audit objectives. \VCbelieve that                  '"
the evidence ob tained pro vides a reasonable basis              $48
for our findings and conclu sions based o n o ur
                                                           _ Revenuti           $56 .0   S60.7   $56 .4
aud it objective s .

I11is perform ance audit cov ered contract years 2006 thro ugh 20 10. For the se co ntract yea rs. the
fE H I1P paid approximately $28 I. S million in premi ums 10 the Plan. T he premium s paid for
each contract yea r audited are sho wn on the cha n abo ve.

0 1(; audits o fco mrn unity-rared carriers are designed to tes t carri er comp lia nce with the FEIH3P
cont ract. ap plicable laws ami regulations. a nd O PM rate instructio ns. These audits an; also
designe d to pro vide reas ona ble assura nce of detecting e rrors. irregularities. and illega l acts.

We o btain ed an understanding or the Plan' s internal co ntrol struc ture. but we did not usc this
in formation to dc tcnnin ..- thc nat ure. tim ing, and exte nt of o ur a udit proced ures. However, the
audit included such test s of thc· Plan' s rating sys1I..'IJ] and such other a uditing proce dures
co nsidered necessary unde r thc· circumstance s. O ur review or internal cont ro ls was limited to the
procedures the Plan has in place to e nsure that:

        • The a ppropri ate simil arly sized subscriber groups (S SSG ) we re selected:

        •	 the rate s ch arged to the FEH BP we re the mar ket price rates (i.c., eq uivalent to the best
           rate offere d to the SSSGs ); and

        •	 the load ings tothe FEI mp rates were reasonable and eq uita ble.

In condu cti ng the a udit. \~ C rel ied to varyin g de grees on co mputer-generated billing. en rol lment.
an d claims da ta prov ided by the Plan. Vl e did n01 verify the reliability of the data generated by


the variou s information system s invo lved. Howev er. nothing came to our attention d uring o ur
aud it testing uti lizing the comput er-generated data to cause us to doubt its reliability. We be lieve
that the av ai lable data wa s sufficient to achieve o ur audi t objectives. Exce pt as noted ab ove , the
audit was co ndu cted in accordance with generally acce pted government audit ing standards .
issued by the Com ptro ller Ge ne ral o f the United States .

The aud it fieldwork was perfo rmed at the Plan ' s offic e in Blue Bell, Pennsylvania, during
No vembe r 2010. Additional aud it work was com pleted at our field offices in Cranberry
Township, Pen nsylvania. and Jackson ville, Florida .


Wc exam ined the Plan ' s federal rate submissio ns and related documents as a basis for val idating
the market pr ice rates. Furt her. we examin ed clai m payments to veri fy that the cos t dat a used to
develo p the FEIIBP rates was accurate, co mp lete and valid. In add ition, we ex amined the rate
developm ent docume nta tion and bill ing s to other gro ups. such as the SSSGs. to determine if the
ma rke t price was actually charged to the FEHBP. Final ly. we use d the contract, the Federal
Employees Health Benefits Acqui sit ion Regulations (FEHBARJ. and OPM 's Rate Instructions to
Communi ty-R ated Carriers to determ ine the propriety of the FE HBP prem ium s and the
reasonah lene ss and acceptability o f the Plan's rati ng system.

To gain an under standing of the interna l cont rol s in the Plan ' s rating sys tem. we rev iew ed the
Plan' s rat ing system ' s poli cies am] proc edures. int erviewed appropri ate Plan offi cials. and
performed other aud iting procedu res necessary to meet our audit obj ec ti ves.



Pr emium H.att·s

I . Dcfcc thiC Prici ng                                                                       51,273,625

  The Certificate of Accurate Pri cing the Plan signed for contract year 2007 was detective. In
  accordance with federa l rcgulations. Jhe FE IIBP is therefore d ue a price adj ustme nt for this
  year. Application o f'thc defective pricing remedy shows tha t the FEI IBP is entitled to a
  premi um adj ust men t totaling S1.273.6 25 (see Exhibit A ). We fo und that the FEHBP rates
  were develo ped in accordance with O P:-V1' s rules and regu lations fo r contract yea rs 2006.
  2(l08. 200'}. and 201 O.

   FEllBAR 1652.2 15-70 provides that ca rriers pro pos ing rates to Ol'M arc required to submit a
   Certi fica te of Accurate Prici ng CCl1 i fyin g that the proposed subscription rates. subject to
   adjustment s recog nized by O PM. are market price rates . O PM regu lations refe r to a market
   price rate in conjunction \...ith the rates offe red to an SSSG. If it is found that the FEllBP was
   charged higher than a market price (i.c .. the best rate offered to an SS SG ). a co ndition of
   dcfcctivc pricing ex ists. requ iring a downward adju stment of th e FEf IBP premiu ms to the
   equivalent market price.

   We disagree with the Plan ' s sel ection o r .                                                        as
   the SSSO s for co ntract year :::007. The Pla n excl uded                              from being
   selected as an SSSG because the Plan stated that the group had mo re than a 100 percent
   enroll men t increase from ~OO() 10 200 7. We determined tha t                                only had a
   75.7 percen t en ro llmen t increa se from 2006 to :2007 and \'...as elig ible to he se lected as an
   SS SG. Therefore. we de termined that the 1007 SSSGs were

   Ou r analys-is of the rates ch arged to the SSSGs shows that                             . did not
   recei ve a disc ount a nd                          recei ved a      -crccn r discou nt. Th e Plan did
   not apply a discount to the FElI BP's rates in co ntract year 200 7.                                is a
   total replacemen t grou p and the 2007 Reconciliati on Instructions slate " tor a total replacem ent
   group we will not view the first 2% discou nt o n thei r rates as a discount that wil l have 10 be
   gi ven to the Federal gr oup if'it is the carrier's policy to adjust the rates of a ll total rep lacement
   grou ps by this amount. lfsom c of the replacem en t grou ps are given non standard or
   prefe renti al disco unts. this policy wi ll not apply.'

   We de termin ed that the Plan did not have offic ial policies and pro cedures related to applying
   disco unts for tota l replacement groups and that any discounts were applied using a non­
   standard method ofunderw riting j udgment. T here fore. we did not adjust the discount that
                             rece ived by :2 percent and de termin ed that the group rece ived a .

   perce nt di sco unt that is app licable to the FE HBP' s rates.


Vole re-developed the FEHB P' s rates by applying the .    percent discount granted to _
                to the line 5 rates. A comparison of thc reconciled line 5 rates to our audited
line 5 rates shows that the FEII BP was overcharged $1.:273.6:25 in 2007 (see Exhibit B},

Pla n's Commen ts (See Appendix ):

The Plan agrees that                                   V·i US inappropriately   exclud ed as an SS SG and
should have been selected as an SSSG.

The Plan agrees that _                         received a _            discount. but disagrees
\vith the FEI IBP rcce~rc en t discount. The Plan states that
_        was a total replacement group in contract year 2007 anti. based on OPM po licy. the
tirsr Z percent o ft he discount is not to be used when applying the discou nt to the FEIIB P' s
rates. The Plan states that while it doe s not have a formal. wri tten policy in place regard ing a
specific adjustment to tota l rep lacement groups, the Plan considers total replacement
adj ustments a business necessity and common industry practice and interprets OPM's
instructions to ignore the first 2 percen t of any discoun t as applicable to its total replacement
quotes. The Plan states that, based on OP;"'! policy, only ,~ percent discount adjustment is
appropriate to be applied to the FEHBP's rates.

The Plan also stares it reco uped any d iscount that                     received in 2007 in
contract year 2008. The Plan                                     in contract year 1008 by .
percent and th... Plan states that this                         percent disco unt that _
                 received in the prior year.              , fo rmerly the Renewal
Underwriting Head or Aetna' s Nat ional Account Business, was contacted and contirm ed that

Ol(; 's   Rcs ron _~t.· t tl   the Plan' !'i Com m{'n ls:

We agree with the Plan' s analysis in regards to                                     being an eligible SSSG
in 10t)7 ,

We disagree with the Plan' s assertion that the first 2 percent of                             s
discount should be ignored due to the fact that it is a total replacement group. The 2007
Reconciliation Instructions state "For a total replacement group we \\; 11 not view the first Z
percent discount on their rates as a discount that will have h ) he given to the Federal group ifi t
is the carrier' s policy to adj ust the rates of all total rep lacement groups by this amount. If
some o ft he replacement groups are given non standard or preferential discounts , this po licy
will not apply:" We agree that                                is a total replacement group, but the Plan
docs not have o ffi cial polic ies and proced ures for adj usting the rates ofall total replacement
groups. In its response to the drutt report. the Plan s ta les that " While Aetna UtlCS not have a
written formal policy in place regarding a speci fic adj ustment 10 total replacement groups,
Aetna considers total replacement a business necessity and common industry practice .. ." We

  bel ieve that busine ss necessity and co mmo n ind ustry practice do      110t   equate to o fficial po lic ies
  and procedures.

                             Ihe 2008 Reconc iliat io n tnstrucuons state 'T he FEHU must receive
  all discounts given to an SS SG in the rate reco nciliation of the same year the disco unts were
  given. lf thc carr ier can sho w discounted funds are recovered fro m an SSSG , the carrier ca n
  recou p these fund s fr om the FEHB." We agree that the Plan
                    pe rcent in contract year 2008. but in reviewing the Plan' s 20U8 rate mode l.
  there was no evide nce that any portion of the .        pe rcent loading was du e to
  _        bein g undercharged in 2007 and there was 110 dis count applied to the FEH BP's rates in
  co ntract year 2007.

                                                         as support for the Underwri tin g Team ' s tal ks to

                                              whic h wa s the time period du rin g the response 10 the
  draft. repo rt. T he Plan did no t provide any doc umentat ion from the origina l qu ote da te for
                           stating that an y po rtion of the 2008 _           was di rec tly related to
  the 2007 undercharge.

  Recommendation 1

  We recommend that the contrac ting offi cer require the Plan to return $1. 273, 625 to the
  r a TB P for defect ive pricin g in con tract year 2007 .

2. Ll)st Investmen t Incomt·                                                                      S213,7311

  In accordance with the FEH BP regu lations and the co ntrac t between OP:\-1 and the Plan. the
  FE HB P is entitled to recove r lost investment inco me o n the de fective pricing finding in
  co ntract yea r 200 7. We determined that the fEIIDP is due $113 .730 fo r los t investment
  income. cal c ulated throu gh March 3 1. 20 11 (see Exhibit C ). In addition. the FEHBP is
  entitled to lost investm en t inco me for the period beginning Apr il I. 20 1L until all defe ctive
  pricing findin g amo unts ha ve been return ed 10 the FEI-IB P.

  FEI IBAR 1 6 5 2 . 2 1 5 ~ 70 pro vides that. if any rate estab lished in conne ction with the r EI TBP
  co ntract was increased because the carrier furnishe d cost (Ir pricing data tha l were not
  complete. accura te. or cu rrent as ce rtified in its Certificate of Ac curate Pricing, the rat".. sha ll
  be redu ced by the amount oft he ov e rc harge caused by the dete ctive data. In aud ition. when
  the rates are reduced d ue to de fective pricing. the regulatio n states tha t the go venuucnt is
  ent itled to H refund an d simple interest on the amou nt or the ove rcharge from the date the
  ove rcharge was paid to the carrier until the ove rcharge is liqu idated .

  Our ca lculat ion ofle st invest ment income is based o n the Un ited States Department of tile
  Treasury's semiann ual cos t o r capita l rates.

I'lan 's Comments (See Appendix):

The Plan did not specifica lly address lost investmen t income in its respo nse to the draft report:
however, the Plan cont ends that no adjustment is due the FEHBP for defective pricing in

G IG's Res ponse to the Pla n's Commen ts :

We believe that the findin g is correct and will conti nue to assess lost investment income for
the full amount of the findin g in contract year 2007,

Reco mme ndation 2

We recommend that the cont racting o fficer require the Plan to return 52 13,730 to the FEIIBP
for lost investment incom e for the period January 1, 2007 through March 31. 20 II . In
addition. we recommend that the con tracting officer recover lost investment income on
amo unts due tor the period beginning April 1, 2011. until all defective pricing amounts have
been return ed to the FEHBI'.



Co mmunih:- Rated Audits Group

                     _Auditor- in-C harg e

                    , Lead Audi tor

                   . Auditor

                   , Auditor

                      . Aud itor


                  . Senior Team Leade r


                                                                         Exhibit A

                                  Aetna Open Access - Georgia
                                 Summary of Questioned Costs

Defective Pricing Questioned Costs:

      Contract Year 2007                                   S1.273,625

              Total Defective Pricing Questioned Costs:                 $1,273.625

      Lost Investment Income:                                             $213.710

                  Total Questioned Costs:                               $/ .487.355
                                                                                                   Exh ibit B

                                          Aet na O pe n Access - Geo rgia
                                        Uefecriv e Pricin g, Ques tion ed Co ..h

FEHBP Line 5 - Reco nciled Rate
FEHBP Line:' • Audited Rate                                      -- Self


                                                                  -                 -
1"0 Annualize Overcharge :
    3/3 )/07 enrollment
  Pay Period s
                                                                  - 26
                                                                 5273 .232
                                                                                    - 2.Q

Total 2007 - Detec tive l'ricinc Questioned Costs                                               SI ,273 ,62,

Tou l Defectiv e   IJr icin ~   Q ue ..tion cd Cestv                                            5J273.625
                                                                                                                                     EXII IBIT C

                                                        Aetna Open Access - Geo rgia
                                                          Lost Investment Incom e

  Ycal'                                                  2007
           20 10
         20 11
          To ta l
Audit F tnd ings:

1. Defective Prici ng                                 $ 1,273.625
         $0              $0             $0             $0          $1 . 27~. 6 25

                              To ta ls (pe r year):
 $ 1.273 .62 5
           $0               $0
        $ 1.273.6 25

                            C umulative To ta ls:
 $1. 273.625
       $ 1,2 73.625
   $1 .27~.6 25
   $ 1.273.625
   $ 1.273 .625
   $ 1.273.625

               1\ vg. Interest Rate (p er year) :
        5.2500'Yo       3. 1875%

            Interest o n Prior Years Findin gs:
          $ 62.885
       $66,865         $40 .597
       $8.35 8
       $ 178.705

                        C urrent Years Inte rest :
    $35 ,025
             $0              $0
          $35 .025

       Total Cumulative Interest Calcu lated

                Through March 3 1. 20 11:
             $35.02 5
       $62 .885
       $66.865         $4 0.597
       $8,35 8
       $2 13,730


                                                                                       Aetna Health Inc.
                                                                                       980 Jolly Road

  XAetna:                                           ZOIIII ~R -1 PM 2: 04              81ue 8ell, PA 19422

                                                                                       FEHBP Underwriting Manager
                                                                                       Government & Specialty Products

March 4, 2011

Chief, Community Rated Audits Group
U.S. Office of Personnel Management
U.S. Office of Inspector General
1900 E Street, NVV • Room 6400
Washington, D.C. 20415-1100

RE: Aetna's response to Draft Report No. 1C-2U-Q0-11-Q03

Dear _

         Aetna submits the following comments to the above mentioned Draft Audit Report issued by the Office of
Personnel Management (OPM) Office of the Inspector General (OlG) under the Federal Employees Health Benefits
Program (FEHBP). The audit covered the FEHBP contract for the Aetna Open Access - Georgia (Plan Code 2U)
for the contract years 2006 through 2010. Except for the 2007 co ntract year, the OIG determined that the rates
Aetna charged the FEHBP were in compliance with OPM's requirements.

        With respect to contract year 2007. the Draft Report disagrees with Ae
Group (SSSG) selection. The Draft Report identifies                         and

appropriate SSSGs. Moreover, the Draft Report indicates that                        received a
that should have been passed along to the FEHBP. Aetna agrees that or contract year 2007,
        was inappropriately excluded as an SSSG, and should have been submitted alongside
     However, Aetna disagrees that the FEHBP is entitled to           rate adjustment based on Aetna's rating of

         A. Aetna was a Total Replacement Carrier in 2007

        For the 2007 contract year,                  sought to consolidate its health benefit offerings under
one carrier. Aetna provided                         ~t quote and was successful in acquiring
the business. See Exhibit A, which is a letter from                  Human Resources department to their
employees acknowledging Aetna as their sole carrier.

        In order to obtain the business for                        entire population, the total replacement renewal
package that Aetna presented to
Specifically, in order to secure
2007, Aetna provided a
                                                                          OPM's Instructions acknowledge the
competitive environment in which carriers operate and that, unlike with the FEHBP, a carrier can be presented with
the opportunity to be a group's sale carrier. While Aetna does not have a written formal policy in place regarding a
specific adjustment to total replacement groups, Aetna considers total replacement adj ustments a business
necessity and common industry practice, and interprets OPM's Instructions to ignore the first 2% of any discount
applied to total replacement quotes. Pursuant to OPM's policy, if the FEHBP is entitled to any adjui'i1
                                                                                                         . nilllfo
                                                                                                                 . r.
contract year 2007, that adjustment IS limited to        the amount of the concession provided to
         in excess of the permitted 2%.
        B, Aetna Recouped the Concession in 2008

        When the audit was initially completed, Aetna was left with the impression that any finding for the 2007
contract year would be limited to a _
Report would recommend
                                           adjustment. As a result, Aetna was disappointed to leam that the Draft
                                     adjustment for 2007. In preparation for responding to the finding, Aetna's
FEHBP underwriting team began working with Aetna's underwriting team responsible for	
better understand what happened during the 2007 and 2008 rating process. It was at this time that Aetna's FEHBP
underwriting team learned of conversations among the Aetna underwriting team

                      in 2008 in order

                                            , Aetna's FEHBP Underwriting Manager, met with
                                                       , Senior Team Leader, to discuss the Draft Report and how
                                                                                          Based on OIG's
guidance,                  ' formerly the Renewal Underwriting Head of Aetna's National Accounts business
(currently Head of Aetna's RHA Programs) was contacted regarding
                 confirmed that the strategy for
                                                                                                    rates. ee
                                                                         confirming the 2008 strategy _          ,

         OPM's Reconciliation Instructions from Carrier Letter 2007-03 speclfica~ery of
discounts to SSSGs. Consistent with those instructions, Aetna's 2008 rating of                         included a
_      I_hat recoups the 2007 discount of            At the time of audit and in the Draft Report, QIG confirmed
that in 2008                       had a      of   % to their rates, Based on the support provided with this
response regarding the recoup strategy, the             to                         2008 rates covers the _
discount in                        2007 rates, See xhibit C, the mathematical support illustrating the foiiOWIng:

            •   2007 Rating Summary - the_       discount to
            •   2008 Rating Summary- the ~oa d to
            •   2008 Adjusted Rating Summary - the         recoup applied to	                          2008 rates

         After review of OIG's and Aetna's position on the findings stated in the Draft Report, Aetna believes the
findings do not accurately represent the outcome of the 2aO~e Aetna agrees that _
_        should have been submitted as an SSSG, and that                            received a _       discount to
~07 rates, under OPM's Instructions (1) if the FEHBP is entitled to an adjustment in 2007 due to the rating of
                         that adjustment is limited to       and (2) riardless of whether the adjustment due the
FEHBP is           0          Aetna fully recouped the discount from                       in 2008. Although Aetna
erred in not identifying                         as an SSSG for 2007, Aetna maintains that there is no rate
adjustment due to a PM for 2007.

        If ou have an cuestions or concems about the above response, please feel to contact me at

cc:	                        , Senior Vice President, Federal Plans
                              Health Insurance Group 111 Insurance Services Program