oversight

Audit of the Federal Employees Health Benefits Program Operations of AultCare Health Plan

Published by the Office of Personnel Management, Office of Inspector General on 2010-10-28.

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
Su bject:

        Audit of the Federal Employees Health Benefits
         Program Operations of AultCare Health Plan



                                           Report No. lC-3A-OO-lO-027

                                          Date:         October 28            r   2010




                                                       - CAUTION-­
''rhis audit report has been distributed to Federal officials \ ho are responsible for the lIdrninislnuion of the audited prugram. This
audit report may contain proprietary data whieh is protected by Fcdcrallaw (18 U.S.C. 1905). Therefore, while this audit report is
avuiluble IUlller the I~reedom of InFormation Act and millie :lvailable 10 HIl' public on Ihe OIG wcbpage, caution needs to be exercised
before I'eleasing the I'cportto the general public as H rna)' contllin pl'oprictllry illfol'mation that was ndaeted from the publicly
distributed cnpy.
                         U ITED STATE OFFICE OF PER ON EL MANAGEMENT
                                             Washington. DC 204]


  Office of the
Impector General




                                             AUDIT REPORT




                                  Federal Employees Health Benefits Program

                               Community-Rated Health Maintenance Organization

                                            AultCare Health Plan

                                   Contract umber CS 2723 - Plan Code 3A

                                                Canton, Ohio




                      Report   o. lC-3A-OO-lO-027                  Dak:   October 28, 2010




                                                                   ~             c~ 

                                                                    Michael R. Esser
                                                                    Assistant Inspector General
                                                                      for Audits



                                                                                        -----
        www.opm.gov                                                                      www.usaJobs.gov
                            UNITED TATES OFFICE OF PERSONNEL MANAGEMENT

                                               Wa 'hillgton. DC 2041:


   Office fth

In pector Gt:nera)





                                         EXECUTIVE SUMMARY





                                  Federal Employees Health Benefits Program

                               Community-Rated Health Maintenance Organization

                                            AultCare Health Plan

                                   Contract Number CS 2723 - Plan Code 3A

                                                Canton, Ohio




                      Report No. lC-3A-OO-lO-027                     Da~:   October 28, 2010

         The Office of the Inspector General perfonned an audit ofthe Federal Employees Health Benefits
         Program (FEHBP) operations at the AultCare Health Plan (Plan). The audit covered contract
         years 2006 through 2009 and was conducted at the Plan's office in Canton, Ohio.

         This report questions $4 249 016 for defective pricing in contract years 2006 through 2008,
         including $618 675 due the FEHBP for Lost investment income, calculated through
         September 30 2010. We found that the FEHBP rates were developed in accordance with the
         Office of Personnel Management's rules and regulations in 2009.

          For contract years 2006 through 2008, we determined that the FEHBP s rates were overstated by
          $3,630,341 due to defective pricing. More specifically, the Plan did not select the correct
          similarly sized subscriber groups (SSSG) and did not apply the largest discolmt given to an SSSG
          to the FEHBP rates.

          Consistent with the FEHBP regulations and the contract, the FEHBP is due $618,675 for lost
          investment income calculated through September 30, 2010 on the defective pricing findings. In
          addition, the contracting officer should recover lost investment income on amounts due for the
          period beginning October 1,2010, until aU defective pricing amounts have been returned to the
          FEHBP.




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                                      CONTENTS


                                                                                     Page

   EXECUTIVE SUMMARY	                                                                  i


 I. INTRODUCTION AND BACKGROUND	                                                      1


II.	 OBJECTIVES SCOPE, AND METHODOLOGY                                                3


III.	 AUDIT FINDINGS AND RECOMMENDATIONS                                              5


   Premiunl Rates                                                                     5


   1. Defective Pricing	                                                              5


   2. Lost Investment Income	                                                        10


IV.	 MAJOR CONTRIBUTORS TO THIS REPORT                                               I 1


   Exhibit A (Swnmary of Questioned Costs)


   Exhibit B (Defective Pricing Questioned Costs)


   Exhibit C (Lost Investment Income)


   Appendix (AultCare Health Plan s August 27, 2010, response to the draft report

                     I. INTRODUCTION AND BACKGROUND


Introduction

We completed an audit ofthe Federal Employees Health Benefits Program (FEHBP) operations
at AultCare Health Plan (Plan) in Canton, Ohio. The audit covered contract years 2006 through
2009. The audit was conducted pursuant to the provisions of Contract CS 2723; 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
Retirement and Benefit 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 ubject to various federal state and
local laws, regulations, and ordinances. While most carriers are subject to state jurisdiction
many are fulther subject to the Health Maintenance Organization Act of 1973 (Public Law 93­
222), as amended (i.e., many community-rated caniers are federally qualified). In addition
participation i11 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
which is defined as the best rate offered to                         March 31

either of the two groups closest in size to          4,000
the FEHBP. In contracting with                       3,500
community-rated carriers, OPM relies on              3,000
carrier compliance with appropriate laws
                                                      2,500
and regulations and, consequently, does not
                                                      2,000
negotiate base rates. OPM negotiations
                                                      1,500
relate primarily to the level of coverage and
other unique features ofthe FEHBP.                    1,000
                                                       500

The chart to the right shows the number of                o
                                                              2006     2007     2008    2009
FEHBP contracts and members reported by                                1.258    1,206
                                                • Contracts   1,532
the Plan as of March 31 for each contract       o Members     3,743   2,779     2,545
year audited.



                                                1

The Plan has participated in the FEHBP since 1996 and provides health benefits to FEHBP
members in Stark, Carroll Holmes, Tuscarawas and Wayne counties and the Canton
Metropolitan area in Ohio. The last audit conducted by our office was a full scope audit and
covered contract years 2000 through 2003 and 2005. All matters related to that audit have been
resolved.

The preliminary result of this audit were discussed with Plan officials at an exit 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 preparation of this report and are
included, as appropriate as the Appendix.




                                                 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 Jaws and regulations governing the FEHBP.


                                                               FEHBP Premiums Paid to Plan

We conducted this performance audit in
accordance with generally accepted government                $16

auditing standards. Those standards require that             $15
we plan and perform the audit to obtain                      $14
sufficient, appropriate evidence to provide a                $13
reasonable basis for oW" findings and conclusions            $12
based on our audit objectives. We believe that               $11
the evidence obtained provides a reasonable basis            $10 -f--~"'----"---+-~-..,....=...=:...o.~
for oW" findings and conclusions based on our                      2006     2007     2008     2009
audjt objectives.                                      • Revenue   $14.1    $13.0    $12.9    $13.6


This performance audit covered contract years 2006 through 2009. For these years, the FEHBP
paid approximately $53.6 million in premiums to the Plan. The premitm1s paid for each contract
year audited are shown on the chart above.

OIG audits of commtmity-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' internal control structure, but we did not use tIns
inforn1ation to determine the nature timing, and ei tent 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 ill 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
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 Canton Ohio during January and
February 2010. Additional audit work was completed at our field offices in Cranberry Township,
Permsylvania.

Methodology

We examined the Plan's federal rate submissions and related documents as a basis for validating
the market price rates. In addition, we examined the rate development docwnentation 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 (FEHBAR), and OPM's Rate Instructions to Community-Rated Carriers to
determihe 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

             Ill. AUDIT FINDINGS AND RECOMMENDATIONS

Premium Rates

1. Defective Pricing                                                                $3,630,341

  The Certificates of Accurate Pricing the Plan signed for contract years 2006 through 2008
  were defective. In accordance with federal regulations, the FEHBP is therefore due a price
  adjustment for these years. Application of the defective pricing remedies shows that the
  FEHBP is entitled to premium adjustments totaling $3,630,341 (see Exhibit A). We found
  that the FEHBP rates were developed in accordance with OPM's rules and regulations for
  contract year 2009.

  FEHBAR 1652.215-70 provides that carriers proposing rates to OPM are required to submit a
  Certificate of Accurate Pricing certifying that the proposed subscription rates, subject to
  adjustments recognized by OPM, are market price rates. aPM regulations refer to a market
  plice rate in conjunction with the rates offered to an SSSG. If it is found that the FEHBP was
  charged higher than a market price (i.e., the best rate offered to an SSSG), a condition of
  defective pricing exists, requiring a downward adjustment of the FEHBP premiums to the
  equivalent market price.

  2006

   The Plan selected the

 _        as SSSGs for contract year 2006. We agree with the selection of the

 • • • • but disagree with the selection 0

                   should have been chosen as an SSSG, since it was closer in enrollment size to
   the FEHBP and because it met SSSG requirements.

  Our analysis of the rates charged to the SSSGs shows that

  received ~ percent discount and_received a

  not apply either discount to the FEHBP.


  Since OPM requires the FEHBP rates to be at lea t equivalent to the best rates offered to an
  SSSG, the FEHBP rates were recalculated by applying all relevant adjustments and applying
  the_percent discount given t o _ A comparison of the Plan s reconciled line 5 rates
  to our audited line 5 rates shows that the FEHBP was overcharged $1,222,168 see Exhibit B)
  in 2006.

  Plan's Comments (See Appendix);

  The Plan is not in agreement with the SSSG selection and believes that_should have
  been selected instead 01        The Plan chose~ecause it is the closest in size, next
  larger group to the FEHBP and has the most group similarities and demographics to the
  FEHB~. Based on this selection, the Plan believes that the largest discount ofllll percent

                                               5

from                            should be applied to the FEHBP rates, resulting in

monies owed the FEHBP in the amount of $431 130.


OIG's Response to the Plan's Comments:

We disagree with the Plan's assertion tha~should be an SSSG in 2006 since it is not the
group closest in size to the FEHBP at the time of reconciliation. According to the 2006 rate
reconciliation instructions,

      At the time of your 2006 proposal our regulation, 48 CFR 1602.170-13, defined SSSGs
     as follows:

            (a)Similarly Sized Subscriber Groups (SSSGs) are a comprehensive medical
               plan's two employer groups that:

                    (1) As of the date specified by OPM in the rate instructions, have a
                        subscriber enrollment closest to the FEHBP subscriber
                        enrollment· ...."

The above instruction criteria does not state that the group must be 'next larger' or 'most

similar" to the FEHBP, only that the group have the closest subscriber emollment to the

FEHBP. Based on these instructions, the two groups closest in size to the FEHBP are the



_discount o~percentwas the largest SSSG discount in 2006 and was applied to
the FEHBP rates at line 5. A comparison ofthe Plan's reconciled line 5 rates to our audited
line 5 rates shows that the FEHBP was overcharged $ t ,222,168 (see Exhibit B) in 2006.



                                    s SSSGs for contract year 2007. We agree with the
 selection 0       but disagree with the selection o f _ • • •
  hould have been chosen as an SSSG since it was closer in enrollment size to the FEHBP and
 because it met SSSG requirements.


 receiveda_
 Our analysis of the rates charged to the SSSGs shows that

                   percent discount an.~ did not receive a discount. The Plan did not

 apply a discount to the FEHBP.


 Since OPM requires the FEHBP rates to be at least equivalent to the best rates offered to an
 SSSG, the FEHBP rates were recalculated by applying all relevant adjustments and applying
 the       percent discount given to                                     A comparison of the
 Plan s reconciled line 5 rates to our audited line 5 rates shows that the FEHBP was
 overcharged $2,3 I9,521 (see Exhibit B) in 2007.


                                              6
Plan's Comments (See Appendb'):

The Plan is not in agreement with the SSSG selection and believes that_should have
been selected instead 0                                   The Plan chose_because it is
the closest in size, next larger group to the FEHBP, and has the most group similarities and
demographics to the FEHBP. Based on this selection, the Plan believes that the largest
discount o~percent given to_should be applied to the FEHBP rates.

In addition the Plan does not agree with using the 2006 audited premium increase to adjust
the 2007 premiwn experience. Instead, the Plan believes that the 2006 percentage increase it
calculated and billed should be applied to the 2007 premium experience to adjust the groups'
premiums to the 2007 level.

FinaJly, the Plan believes that th                            loading should be added into the
benefit loading portion ofth final rate determination.

Based on the adj ustments discussed above, the Plan states that the FEHBP is due $181 646 fi r
2007.

OlG's Respon e to the Plan's Comments:

We disagree with the Plan' assertion tha_should be an SSSG in 2007 since it is not the
group closest in size to the FEHBP at the time of reconciliation. According to the 2007 rate
reconciliation instructions,

    "At the time of your 2007 proposal our regulation, 48 CFR 1602.170-13, defined SSSGs
    as follows:

            (a)SimilarIy Sized Subscriber Groups (SSSGs) are a comprehensive medical
               plan's two employer groups that:

                   (1)	 As of the date specified by aPM in the rate instructions, have a
                       subscriber enrollment closest to the FEHBP subscriber
                       enrollment· ...."

The above instruction criteria does not state that the group must be "next larger" or "most
similar' to the FEHBP, only that the group have the closest subscriber enrollment to the
FEHBP. Based on these instruction, the two groups closest in size to the FEHBP are_


In addition for all groups lU1der revi w in the audit scope, the audited renewal increases were
used to adjust the following year's experience premiums. based on the Plan's methodology.
The Plan's methodology detelmines a percentage increase for the current year and that
renewal increase is aJso applied in the following year to adjust the monthly experience
premiums, which brings them to a ClUTent level.

                                              7
We used this methodology consistently and it accurately captures the costs associated with the
rates in each year. Whi Ie the larger renewal increase in 2006 essentially produces greater
questioned costs in 2007, the questioned costs in 2006 are lower because we calculated a
higher renewal increase. This effect would work in reverse as well. If we would calculate a
lesser renewal increase than the Plan in the first year, the first year's questioned costs would
be greater and the following year's questioned costs would be lower be,cause the experience
premiums are adjusted accordingly.

Finally, when using an adjusted community rating methodology, the extension of coverage
loading is not applicable. According to the 2007 rating instructions,

     (4) If claims include special benefits claims, you should take no special benefits loadings
    (either in the proposal or reconciliation). Note that claims should reflect extension of
    coverage, which means that you should not take the extension of coverage loading.'

The claims used in the rate development are group specific and represent the benefits
purchased by that specific group and are utilized in the Plan's adjusted community rating
methodology. For these reasons, the extension of coverage loading should not be applied in
the questioned cost calculation for any of the audit scope years.

Overalll        cannot be an SSSG in 2007 since it does not have the closest subscriber
enrollment to the FEHBP as of March 31 2007. Additionally, the audited premium
adjustment will continue to be used consistently for all groups to adjust the experience
premiums. Finally the eX'1ension of coverage loading will not be included in any of the final
rate determinations.

                                          0_
                                    iscount          percent was the largest SSSG discount in
2007 and was applied to the FEHBP s rates at line 5. A comparison of the Plan's reconciled
line 5 rates to our audited line 5 rates shows that the FEHBP was overcharged $2,319,521 (see
Exhibit B) in 2007.



                                                          as SSSGs for contract year 2008. We

                                         should have been chosen as SSSGs since they were
closest in enrollment size to the FEHBP and because they met SSSG requirements.

Our analysis of the rates charged to the SSSGs shows that
received ~percent discount and_received a " percent discount. The FEHBP
received a_percent discount.

Since OPM requires the FEHBP rates to be at Jeast equivalent to the best rates offered to au
SSSG the FEHBP rates were recalculated by applying all relevant adjustments and applying
the_percent discount given to                                     A comparison ofthe Plan's

                                              8
reconciled line 5 rates to oW' audited line 5 rates shows that the FEHBP was overcharged
$88 652 (see Exhibit B) in 2008.

Plan's Comments (See Appendix):

The Plan is not in agreement with the SSSG selection and believes that       should have
been selected. The Plan chose_because it is the closest in size, next larger group to the
FEHBP, and has the most group similarities and demographics to the FEHBP. The selection
o~as an SSSG does not change the outcome of the rating in 2008, and the Plan agrees
that th~percent discount from                                     be applied to the FEHBP
rates. Overall, the Plan agrees that they owe the FEHBP $88,652.

OIG's Response to the Plan's Comments:

We disagree with the Plan's assertion that-,hould be an SSSG in 2008 since it is not the
group closest in size to the FEHBP at the time of reconciliation. According to the 2008 rate
reconciliation instructions,

    "The SSSG concept was developed to ensW'e OPM receives equitable and reasonable
    market-based rates. OPM shall determine the Federal group rates by selecting the lower
    of each carrier's rates derived by rating methods consistent with those used for the SSSG
    rates. For the 2008 rates OPM will focus on the rating methods used for the two SSSGs
    to determine if the Can'ier appropriately derived the Federal group rates.

           Definition

           (a)Similarly Sized Subscriber Groups (SSSGs) are a comprehensive medical
              plan's employer groups that:

                   (1) As of the date specified by OPM in the rate instructions have a
                       subscriber enrollment closest to the FEHBP subscriber
                       enrollment; ....

The abo e instruction criteria does not state that the group must be next larger" or' most
similar" to the FEHBP, only that the group have the closest subscriber enrollment to the
FEHBP. Based on these instructions, the two groups closest in size to the FEHBP a r e _


The OIG and the Plan are in agreement that the FEHBP is owed $88,652 for 2008 (Exhibit B).

Recommendation 1

We recommend that the contracting officer require the Plan to return $3 630.341 t tbe
FEHBP for defective pricing in contract years 2006 through 2008.


                                             9
2. Lost Investment Income                                                                  $618,675

  In accordance with the FEHBP regulations and the contract between OPM and the Plan the
  FEHBP is entitled to recover lost investment income on the defective pricing findings due the
  FEHBP in contract years 2006 tlu"ough 2008. We detennined that the FEHBP is due $618,675
  for lost investment income calculated through September 30,2010 (see Exhibit C). In
  addition, the FEHBP is entitled to lost investment income for the period beginning October 1,
  2010 w1til all defective pricing finding amounts have been returned to the FEHEP.

  FEHBAR 1652.215-70 provides that, if any rate established in connection with the FEHBP
  contract was increased because the carrier fumished cost or pricing data that were not
  complete accurate, or current as celtified in its Certificate of Accurate Pricing, the rate shall
  be reduced by the amount of the overcharge caused by the defective data. In addition, when
  the rates are reduced due to defective pricing, the regulation states that the government is
  entitled to a refund and simple interest on the amount of the overcharge from the date the
  overcharge was paid to the carrier until the overcharge is liquidated.

  Our calculation of lost investment income is based on the United States Department of the
  Treasury's semi31IDual cost of capital rates.

  Plan's Comments (See Appendix):

  The Plan is requesting that the 10 t investment income recoveries be forgiven and that the 010
  waive the lost investment income payment.

  OIG's Response to the Plan's Comments:

  It is not within our autl10rity to waive the lost investment income payment. The provisions
  contained within the FEHBP regulations and the contract clearly allow for lost investment
  income.

  Recommendation 2

  We recommend that the contracting officer require the Plan to return $618,675 to the FEHBP
  for lost investment income for the period January 1,2006 through September 30 2010. In
  addition we recommend that the contracting officer recover lost investment income on
  amounts due for the period beginning October 1. 2010, unt11 all defective pricing amounts
  have been returned to the FEHEP.




                                                 10

            IV. MAJOR CONTRIBUTORS TO THIS REPORT


Community-Rated Audits Group

                      Auditor-Tn-Charge

                Lead Auditor

                    Auditor


                    Chief

               Senior Team Leader




                                          II

                                                                           Exhibit A


                                         AultCare Health Plan

                                      Summary of Questioned Costs




Defective Pricing Questioned Costs:


      Contract Year 2006                                     $1,222,168
      Contract Year 2007                                     $2,319,521
      Contract Year 2008                                       $88,652


                 Total Defective Pricing Questioned Costs:                $3,630341


      Lost Investment [ncome:                                               $618.675


                      To/al Questioned Costs:                             $4,249,016
                                                                                      Exhibit

                                          AultCare Health Plan
                                    Defective Pricing Que tioned Costs

    2006 Contract Year - High Option

FEHBP Line 5 - Reconciled Rate
FEHBr Lin 5 - Audited Rate

Overcharge

To Annualize Overcharge:
   3/31/06 enrollment
   Pay Periods	                                         ~6
 ubtotal	                                         $165,65R

Toral 2006 Defecti e Pricing Questioned Cost'	                                    1222,168

    2007 Contract Year - High Option

FEHBP Line 5 . Reconciled Rate
FEHBP Line 5 - Audited Rate

Overcharge

To Annualize 0 er harge:
   3/31107 enrollment
   P:,\y Period                                         26                 26
Subto al                                          $4 8,76'2         $l,860,759

Tolal 2007 Defective Pricing   uestioned Cost	                                   $2,319,521

    2008 Contract Year-High Option

FEHBP Line 5 - Reconciled Rate
FEIlf3P Line 5 - Audited Rate

Overcharge

T	 Annualize Over harge:
   3/31/08 enrollment
   Pay Periods
 ubI tal

Tolal 2008 Defective Pricing Qu stioned Co ts                                     $88,652


Tot I Oefective Pricing Que tioned Costs                                          3,630,341

                                                                                                                                               E, HTBIT

                                                                    ultCare Health Plan
                                                                  Lost Investment Income



  Year                                           2006              2007              2008             2009                2010                 Total
Audit Findings:

I DeleCli e Pricmg                                 1,222,168         $2.319,521             $88,652                                       0      $3.630.341
                                                                                                                      °
                            Totals (per year)'    $1.222.168         $2,31'1,521         $88,652               $0                  $0            $3,630.341
                           Cumulative Totals'     $1.222,168         'B,541,689       $3,630,341       $3,630,34 J         $3,630,341            $3,630,341

           Avg. Interest Rate (per ye-ar);          :>.4375%              5.500%           4.9375%       5.2500%             3.1875%

        Interest   011   Prior Years Findings                $0           $67,219         $174.871       .$1 '10.59              $86,788          $519.471

                     Currenl Years Imerest.             $33.228           $63.787           $2.189               SO                   $0               $99.204



                                                                                                                                          ~I
    T tal Cumulative Interest Calculated
           Through September 30, 2010'                  $33,228       $131,006            $177.060       .$1 '10,59              $86.78           $618,675
                                                                                                   Appendi:
        AULTCARE
                                                 20 I0AUG 31 PH 3: 4 I
 Friday, August 27,2010



 Chref, Community-Rated Audits Group

 United States Office of Personnel Management

 Office of the Inspector General

 1900 E Street, NW

 Room 6400

 Washington, D.C. 20415-1100


 Re:	      AultCare Health Plan

           Contract Number CS 2723 Plan 3A

           DIG Audit Report Number 1C·3A·00·10·027, dated June 2, 2010


 Dea_

         We are commenting to question the findings of the Office of Inspector General (OIG), following
 the audit of the AultCare Health Plan's administration of the Federal Employees Health Benefits Program
 (FEHBP). Our response is in regards to the contract years 2006 through 2008.

          In review of the 2006 contract year, we are not in agreement with the selection of the Similar
 Sized Subscriber Group (SSSG). The OIG has selected
                                     From their analysis they determined that                   received an
• • •discount and _received a _discount. During this contract year FEHBP received a
~discount when comparing their rating to the Adjusted Community Rating (ACR) method. We agree
 with the analysis of the calculations performed by the OIG auditors for these two groups. However, we
 are not in agreement with the selection of the SSSG. Our determination would select
•••••••••••••••. _                                would have received a " discount
                   . Therefore,                   would have received the greatest discount of
 Applying this discount to the FEHBP would then result in an overcharge of $431,130. Please see 2006
 Audited FEHBP Model Response AultCare Exhibit; we have updated the auditor's model to reflect the
_discount.

         In review of the 2007 contract year, we are not in agreement with the selection of the SSSG and
 the development of the FEHBP adjusted community rating development. The OIG has selected
~~~~====~~~~as SSSG's. From their analysis they determined that
received a discount and _ received a fair market rate. During this contract year FEHBP
 received no discounts. We agree With the analysis of the calculations performed by the OIG auditors for
 these two groups. However, we are not in agreement with the selection of the SSSG. OUf determination
 again for this year would select               . _would have received a _ d i s c o u n t _
                        . Therefore,~ould have received the greatest discount o f "




        P.O, Box 6910/ Canton. OH 44706
  •	    PHONE: 330-363-6360 I TOLL FREE: 1-800-344-8858

        TIY LI NE: 330-363-2393 I 1-866-633-4752 for the hearing impaired

        WEBSITE: www.aultcare.com

~AU                  CARE

Friday, Augusl27, 2010
Re: #1 C-3A-00-1 0-027
Page #2
         Through the development of the FEHBP rate using the ACR method, we disagree with the
increase in premiums from the 2005 to 2006 contract year. FEHBP received a               increase in



should be reflective     of_
premiums that AultCare collected, The auditor calculated the renewal increase in the ACR adjusted
premiums at a_increase. Since we did not collect this additional revenue, the adjusted premiums
                                 Using the audited file provided from the auditors, we have updated the
worksheets to illustrate the changes. Please see the 2007 AUdited FEHBP Model Response AultCare
Exhibit. In the claims tab the adjusted premiums have been changed to reflect this increase in premiums
as of January 2006, By making this adjustment to the calculation the renewal calls for ~ increase
instead of the          calculated by the auditors. The new calculated rates carried over to the exhibit A
tab to represent the premiums that should have been provided. Further there was no extension of
benefits loading applied in the calculation using the        factor. Then the SSSG discount from_of
_would be applied creating an overpayment of $181.646 owed to FEHBP.




                                                                         a_
          In review of the 2008 contract year, we are not In agreement with the selection of the SSSG. The



          a_
OIG has selected
From their analysis they determined that
received
                                                               received a ~ discount and
                    discount. During this contract year FEHBP received             discount when comparing




discount for this contract year	
the	
                                                                           would have received   a_
their rating to the ACR method. We agree with the analysis of the calculations performed by the OIG
auditors for these two groups. However, we are not in agreement with the selection of the SSSG. Our
determination would selec l          again for this year as a SSSG.
                                                                 Since the_discount would be less than
                         discount, we would agree then with the auditors calculation using the _discount
applied to FEHBP. We would agree with the OIG on the 2008 questioned findings and the amount owed
to FEHBP.

         From our analysis in each of the years, 2006-2008, we are in disagreement with the selection of
the Similar Sized Subscriber Group (SSSG). TI1e reconciliation guidelines definition of the SSSG is the
medial plan's employer groups that U( 1) As of the date specified by OPM in the rate instructions, have a
subscriber enrollment closest to the FEHB subscriber enrollment." From the ten groups submitted (Total
enrollment 2006-2008 Exhibit) in the rate proposal the two group's closest in size to the Federal group at
the time of reconciliation will become the SSSG's for the plan. The enrollment to determine the groups
                                                                     st
should be based on the most recent enrollment as of the March 31 of the current year. During our
selection process and utilizing this definition, we selected_as a SSSG as it was the closest in size,
next larger group to the FEHBP. In the total enrollment exhibit, it is illustrated that    's represented
by being the closest in demographics to the FEHBP. We also feel that this group should be selected as
an SSSG because of the similarities to FEHBP. On an enrollee or per life basis these groups are
reflective of one another. Both groups have premiums within the given years from                 Ilillion. So
on an overall basis_would provide the best analysis to the FEHBP that they were receiving the
most equitable and reasonable rate within the market,

          AultCare was audited in November 2005 by the OIG for years 2000 through 2003 and year 2005.
At that time we had also submitted         as a SSSG and the auditor in charge during that audit excluded
this group, Later in the post audit reviews we received an e-mail notice from the auditor in charge that

 •	   P.O. Box6910tCanton, OH 44706
      PHONE: 330-363-6360 I TOLL FREE: 1-800-344-8858
      TIY LINE: 330-363-2393 t 1-866-633-4752 for the hearing impaired
      WEBSITE: www.aultcare.com
~AUlTCARE

Friday,August27,2010
Re: #lC-3A-OO-l0-027
Page #3
provided us with an explanation and notation that _     had been erroneously excluded from each of the
contract years. We were notified that_would have been an SSSG for all of those years under
review. However, at that time in August of 2006 the auditors informed us that they would not be
requesting any additional information and would continue with the SSSG selection made during the audit.
It was from this communication that we were led to understand that going forward from that date that
       would no longer be excluded from an SSSG selection if they are close-enough in size to the
FEHBP. Therefore, we strongly feel that based on the instructions in the reconciliation and rate
guidelines along with the communication we received from the OIG that AultCare selected the SSSG's
that meet the requirements.

         In conclusion, we would like to ask the Office of the Inspector General to review the selection of
the SSSG's and to utilize t h e _ f o r the contract years 2006 through 2008. For the 2007
contract we would like to have the ACR rating method for the FEHBP reviewed based on our earlier
comments. Lastly, we would like to request that the OIG give consideration to AultCare in regards to the
lost investment income on the defective pricing findings. We are asking that the lost investment
recoveries be forgiven and that AultCare can be waived of this payment.

         We have included several exhibits as mentioned throughout our comments         If you have any
questions in regards to those exhibits or would like to discuss further any matter related to the review. we
would make ourselves available for a teleconference or an established meeting. Please do not hesitate
to contact me at               or via e-mail at                          for any questions. Thank you for
your time and considerations in this matter.

Sincerely,




Underwriting Manager

cc:                     Senior Vice President AultCare
              • • • • Chief Health Insurance Group III
        • • • •tl\'\ultCare Compliance




      P.o. Box6910 I Canton, OH 44706
      PHONE~ 330-363-6360 / TOLL FREE: 1-800-344-8858
      TIY LINE: 330-363-2393/1-866-633-4752 for the hearing impaired
      WEBSITE: www.aultcare.com