oversight

Audit of the Federal Employees Health Benefits Program Operations at Health Insurance Plan of Greater New York

Published by the Office of Personnel Management, Office of Inspector General on 2015-08-31.

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

                  AUDIT OF THE FEDERAL EMPLOYEES HEALTH
                  BENEFITS PROGRAM OPERATIONS AT HEALTH
                    INSURANCE PLAN OF GREATER NEW YORK

                                              Report Number 1C-51-00-14-066
                                                      August 31, 2015


                                                                   -- CAUTION --

This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit report may
contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available under the Freedom of
Information Act and made available to the public on the OIG webpage (http://www.opm.gov/our-inspector-general), caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
             EXECUTIVE SUMMARY 

               Audit of the Federal Employees Health Benefits Program Operations at                           

                             Health Insurance Plan of Greater New York 

Report No. 1C-51-00-14-066                                                                         August 31, 2015


Why Did We Conduct the Audit?            What Did We Find?

The primary objectives of the audit      This report questions $17,191,178 for inappropriate health benefit
were to determine if Health Insurance    charges to the FEHBP in contract years 2013 and 2014. The
Plan of Greater New York (Plan)          questioned amount includes $16,633,324 for defective pricing and
offered the Federal Employees Health     $557,854 due the FEHBP for lost investment income, calculated
Benefits Program (FEHBP) premium         through July 31, 2015.
rates using complete, accurate and
current data, and that the rates were    Additionally, the Plan does not have adequate rating system
equivalent to the Plan’s Similarly       controls to assure that past audit findings are not repeated in future
Sized Subscriber Groups, as provided     FEHBP rates and that the FEHBP Medicare loading is developed
in Federal Employees Health Benefits     using reliable data.
Acquisition Regulation 1652.215-
70(a). Additional tests were
performed to determine whether the
Plan was in compliance with the
provisions of the laws and regulations
governing the FEHBP.

What Did We Audit?

Under contract CS 1040, the Office of
the Inspector General completed a
performance audit of the FEHBP’s
rates offered for contract years 2013
and 2014. Our audit fieldwork was
conducted from September 8, 2014
through September 19, 2014 at the
Plan’s office in New York, New
York.




 _______________________
 Michael R. Esser
 Assistant Inspector General
 for Audits
                                                       i
                ABBREVIATIONS


CMS      Centers for Medicare and Medicaid Services
COB      Coordination of Benefits

FEHBAR   Federal Employees Health Benefits Acquisition Regulations
FEHBP    Federal Employees Health Benefits Program

OIG      Office of the Inspector General
OPM      U.S. Office of Personnel Management
Plan     Health Insurance Plan of Greater New York
SSSG     Similarly Sized Subscriber Group
TCR      Traditional Community Rating
U.S.C.   United States Code




                               ii
IV. MAJOR CONTRIBUTORS  TO THIS REPORT
          TABLE OF CONTENTS

                                                                                                                           Page 

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


        ABBREVIATIONS ..................................................................................................... ii 


I.	     BACKGROUND ..........................................................................................................1 


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


III.	   AUDIT FINDINGS AND RECOMMENDATIONS.................................................5


        Premium Rate Review ...................................................................................................5 


        1. Defective Pricing .....................................................................................................5 


        2. Lost Investment Income .........................................................................................12 


        3. Rating System Controls .........................................................................................13 


IV.	    MAJOR CONTRIBUTORS TO THIS REPORT ..................................................15 


        Exhibit A (Summary of Questioned Costs) 


        Exhibit B (Defective Pricing Questioned Costs) 


        Exhibit C (Lost Investment Income) 


        Appendix (Health Insurance Plan’s March 31, 2015 response to the draft report) 


        REPORT FRAUD, WASTE, AND MISMANAGEMENT
 IV. MAJOR CONTRIBUTORS
            I. BACKGROUND
                        TO THIS REPORT

This final report details the findings, conclusions, and recommendations resulting from our audit
of the Federal Employees Health Benefits Program (FEHBP) operations at Health Insurance Plan
of Greater New York (Plan). The audit covered contract years 2013 and 2014, and was
conducted at the Plan’s office in New York, New York.

The audit was conducted pursuant to FEHBP contract CS 1040; 5 United States Code (U.S.C.)
Chapter 89; and 5 Code of Federal Regulations Chapter 1, Part 890. The audit was performed by
the U.S. Office of Personnel Management’s (OPM) Office of the Inspector General (OIG), as
established by the Inspector General Act of 1978, as amended.

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, and is administered by OPM’s
Healthcare and Insurance Office. Health insurance coverage is provided through contracts with
health insurance carriers that provide service benefits, indemnity benefits, or comprehensive
medical services.

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

The FEHBP should pay a premium rate that is                        FEHBP Contracts/Members
                                                                          March 31
equivalent to the best rate given to either of the
two groups closest in size to the FEHBP. In              16,000
contracting with community-rated carriers, OPM           14,000
relies on carrier compliance with appropriate            12,000
laws and regulations and, consequently, does not
                                                         10,000
negotiate base rates. OPM negotiations relate
                                                          8,000
primarily to the level of coverage and other
                                                          6,000
unique features of the FEHBP.
                                                          4,000

                                                          2,000
The chart to the right shows the number of
                                                             0
FEHBP contracts and members reported by the                             2013                 2014
                                                       Contracts        9,866                9,267
Plan as of March 31 for each contract year             Members          15,111               13,986
audited.


                                                 1                               Report No. 1C-51-00-14-066
The Plan has participated in the FEHBP since 1960 and provides health benefits to FEHBP
members in the Greater New York City area. The last audit conducted by our office was a rate
reconciliation audit and covered contract year 2012. That audit identified inappropriate health
benefit charges to the FEHBP contract, which were generated by errors in the FEHBP Medicare
loading. All issues identified were resolved.

The preliminary results 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 preparation of this report and are included,
as appropriate, as the Appendix to the report.




                                                 2                           Report No. 1C-51-00-14-066
 IV. MAJOR CONTRIBUTORS
 II. OBJECTIVES, SCOPE, AND TO THIS REPORT
                            METHODOLOGY

Objectives
The primary objectives of this performance audit were to determine if the FEHBP premium rates
were developed using complete, accurate and current data, and were equivalent to the Plan’s
Similarly Sized Subscriber Groups (SSSGs), as provided in Federal Employees Health Benefits
Acquisition Regulation (FEHBAR) 1652.215-70(a). 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 the Plan
                                                                          High and Standard Options Combined
Scope
We conducted this performance audit in                             $120
accordance with generally accepted government
                                                                   $100
auditing standards. Those standards require that

                                                      Millions
                                                                    $80
we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis                  $60

for our findings and conclusions based on our                       $40
audit objectives. We believe that the evidence                      $20
obtained provides a reasonable basis for our
                                                                     $0
findings and conclusions based on our audit                                        2013                  2014
                                                                 Revenue          $102.1                 $94.1
objectives.

This performance audit covered contract years
2013 and 2014. For these years, the FEHBP paid approximately $196.2 million in premiums to
the Plan. The premiums paid for each contract year are shown on the chart above.

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP
contract, applicable laws and regulations, and the Rate Instructions to Community-Rated Carriers
(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 SSSGs were selected;




                                                3                                      Report No. 1C-51-00-14-066
        the rates charged to the FEHBP were developed using complete, accurate and current
         data and were equivalent to the best rate given 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, we did find inconsistencies between two
sets of Medicare enrollment data generated from the Plan’s information systems. We reported
the variances and determined that one set of the data was unreliable. 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 from September 8, 2014 through September 19, 2014 at the
Plan’s office in New York, New York. Additional audit work was completed at our office in
Cranberry Township, Pennsylvania.

Methodology
We examined the Plan’s Federal rate submission and related documents as a basis for validating
the Plan’s Certificates of Accurate Pricing. In addition, we examined the rate development
documentation and billings to other groups, such as the SSSGs, to determine if the FEHBP rates
were reasonable and equitable. Finally, we used the contract, the FEHBAR, and the rate
instructions to determine the propriety of the FEHBP premiums and the reasonableness and
acceptability of the Plan’s rating system.

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

To test whether the Medicare status of the Plan’s FEHBP annuitants was accurate, we randomly
selected a sample of 25 FEHBP annuitants out of 1,144 annuitants from the Plan’s 2013
Medicare Match report. Based on this sample, we found that 18 of the 25 FEHBP annuitants
reviewed had “no Medicare” in the Plan’s enrollment files, but had some part of Medicare
coverage as found in the Plan’s coordination of benefits (COB) files. We interviewed
appropriate Plan officials and determined that the Plan’s COB files were used to coordinate
claim payments with Medicare and were accurate and reliable. We then instructed the Plan to re-
run its 2013 and 2014 Medicare Match reports and add the annuitant information from its
Medicare COB files. The detailed results of these new reports were used in our audited
Medicare Loading for 2013 and 2014. Our sample was not statistically based. Consequently, the
results could not be projected to the universe since it is unlikely that the results are representative
of the universe as a whole.

                                                  4                             Report No. 1C-51-00-14-066
III. AUDIT FINDINGS AND RECOMMENDATIONS
Premium Rate Review

1. Defective Pricing                                                                $16,633,324

  The Certificates of Accurate Pricing the Plan signed for contract years 2013 and 2014 were
  defective. In accordance with Federal regulations, the FEHBP is therefore due a rate
  reduction for these years. Application of the defective pricing remedy shows that the FEHBP
  is due a premium adjustment of $16,633,324 (see Exhibit A).

     The FEHBP is due a        FEHBAR 1652.215-70 provides that carriers proposing rates to
      rate reduction of        OPM are required to submit a Certificate of Accurate Pricing
       $16,633,324 for         certifying that the proposed subscription rates are complete,
     defective pricing in      accurate and current. Furthermore, FEHBAR 1652.216-70 states
     contract years 2013       that the subscription rates agreed to in the contract shall be
          and 2014.            equivalent to the subscription rates given to the community-rated
                               carrier’s SSSGs, as defined in FEHBAR 1602.170-13. SSSGs
  are the Plan’s two employer groups closest in subscriber size to the FEHBP. If it is found that
  the FEHBP rates were increased because of defective pricing or defective cost or pricing data,
  then the rates shall be reduced in the amount by which the price was increased because of the
  defective data or information.

  2013

  We agree with the Plan’s selection of                                          (          )
  and          as SSSGs for contract year 2013. The FEHBP,              and        were all
  rated using a Traditional Community Rating (TCR) methodology. The Plan did not apply a
  discount to the FEHBP rates. Our analysis of the rates charged to the SSSGs shows that
            and          also did not receive a discount.

  During our review of the FEHBP rates, we determined that the Plan’s Medicare loading was
  based on incomplete, inaccurate, and noncurrent Medicare enrollment data. Failure to
  maintain and use complete, accurate, and current Medicare enrollment data may cause
  significant overcharges to the FEHBP’s Medicare loading. As Medicare loading support, the
  Plan provided coverage information maintained in its enrollment files. However, these files
  did not match the information the Plan used in its COB with Medicare. In comparison, there
  were significant differences between the Plan’s enrollment files and its COB files, even
  though both files were derived from the Plan’s          system.




                                            5                              Report No. 1C-51-00-14-066
We were unable to validate the accuracy of the Plan’s enrollment files; however, we
determined that the Plan’s COB files contain complete and current pricing data for the
payment of Medicare claims. As a result, we relied on the Medicare COB file data provided
by the Plan to determine the FEHBP Medicare enrollment used in our audited FEHBP
Medicare loading.

In addition, we determined the Plan applied incorrect copay level values in the Medicare
loading calculation, as follows:

                                                           High Option      Standard Option
 Primary Care/Specialty Care Copays – Used by Plan
 Primary Care/Specialty Care Copays – Actual                  $20/$40            $20/$50
 Prescription Drug Copay – Used by Plan
 Prescription Drug Copay – Actual                          $20/$30/$50        $20/$30/$50

The Plan also inappropriately included a cost value for Medicare Part D coverage in its
Medicare loading calculation. A 2012 audit, conducted by our office, reported a similar
finding of incorrect copay levels being used by the Plan in its Medicare loading calculation.
The Plan corrected the 2012 rates, but did not take the steps necessary to ensure that future
Medicare loading calculations were correct.

We recalculated the FEHBP Medicare loading by using the COB file enrollment to determine
the FEHBP Medicare enrollees. Additionally, we calculated the 2013 FEHBP Medicare
loading based on the benefit design supported by the benefits listed in the 2013 FEHBP
brochure. A comparison of our audited line 5 rates to the Plan’s reconciled line 5 rates shows
that the FEHBP was overcharged by $8,704,019 and $565,529, for the high and standard
options, respectively (see Exhibit B).

Plan’s Response:

Medicare Load (Enrollment Data): The Plan agrees that the COB file contains more accurate
and current Medicare status and pricing data and will use the COB file exclusively for the
development of the Medicare load for the FEHBP.

Incorrect Copay Levels (Medicare Loading): The Plan agrees that it used the incorrect copay
levels for 2013 which need to be corrected. However, the Plan also responded that they had
neglected to update the spreadsheet used to price the benefit difference and that there are
other benefit differences other than primary care, specialty care and prescription drug copays.
In response to this finding, the Plan believes the entire FEHBP benefit design should be used




                                             6                           Report No. 1C-51-00-14-066
to determine the cost associated with the FEHBP Medicare population. The Plan submitted
revised calculations to support its changed pricing methodology.

2013 Questioned Costs: The Plan disagrees with the questioned costs in 2013. Based on
their position, the Plan states that they owe the FEHBP $1,187,002 and $73,719 for the high
and standard options respectively, in contract year 2013. These questioned costs are due
specifically to the overstatement of the Medicare load.

OIG Comment:

Medicare Load (Enrollment Data): We determined that the Plan’s 2013 FEHBP Medicare
population submitted in its response to the draft report was not accurate or complete. The
FEHBP Medicare population we used in our audited Medicare loading was based on the
detailed COB file previously provided by the Plan during our audit which was determined to
be accurate and complete. A comparison of the Plan’s Medicare numbers submitted in its
response to the draft report and our audited Medicare numbers is as shown below.

                         Plan’s High     OIG’s High      Plan’s Standard    OIG’s Standard
                           Option          Option            Option             Option
                          Medicare        Medicare          Medicare           Medicare
                         Enrollment      Enrollment        Enrollment         Enrollment
 Contract Year 2013
 Medicare A&B
 Medicare A Only
 Medicare B Only
 No Medicare
 Medicare Risk
       Total

Incorrect Copay Levels (Medicare Loading): We accept the Plan’s revised FEHBP Medicare
benefit design loading methodology and agree to include differences in the entire FEHBP
benefit design. However, we reviewed the Plan’s revised FEHBP Medicare benefit design
that was submitted in its response to the draft report and found errors. Specifically, the Plan
did not sufficiently credit the FEHBP Medicare members for outpatient physical therapy and
outpatient mental health benefits. The Plan also loaded the FEHBP Medicare members for a
Part B drug rider at                      , which was not the correct benefit level. Finally, the
Plan applied a prescription drug rider to the FEHBP Medicare members that was not
consistent with similar Part D riders filed with the Centers for Medicare and Medicaid
Services (CMS), and used to price the Medicare component of the SSSGs. We corrected
these benefit design differences in our audited Medicare Loading.


                                              7                            Report No. 1C-51-00-14-066
2013 Questioned Costs: Our 2013 questioned costs were based on the above noted
exceptions and are shown on page 6.

2014

We agree with the Plan’s selection of        and                                   (    ) as
SSSGs for contract year 2014. The FEHBP,             and       were all rated using a TCR
methodology. The Plan did not apply a discount to the FEHBP rates. Our analysis of the
rates charged to the SSSGs shows that         and        also did not receive a discount.

Once more, we determined that the Plan’s Medicare loading was based on incomplete,
inaccurate, and noncurrent Medicare enrollment data. Failure to maintain and use complete,
accurate, and current Medicare enrollment data may cause significant overcharges to the
FEHBP’s Medicare loading. As Medicare loading support, the Plan provided coverage
information maintained in its enrollment files. However, these files did not match the
information the Plan used in its COB with Medicare. In comparison, there were significant
differences between the Plan’s enrollment files and its COB files, even though both files were
derived from the Plan’s           system.

We were unable to validate the accuracy of the Plan’s enrollment files; however, we
determined that the Plan’s COB files contain complete and current pricing data for the
payment of Medicare claims. As a result, we relied on the Medicare COB file data provided
by the Plan to determine the FEHBP Medicare enrollment in our audited FEHBP Medicare
loading.

Again, we determined the Plan applied incorrect copay level values in the Medicare loading
calculation, as follows:

                                                           High Option      Standard Option
 Primary Care/Specialty Care Copays – Used by Plan              -
 Primary Care/Specialty Care Copays - Actual                    -                $30/$50
 Prescription Drug Copay – Used by Plan
 Prescription Drug Copay – Actual                          $15/$35/$75        $15/$35/$75

The Plan also inappropriately included a cost value for Medicare Part D coverage in its
Medicare loading calculation. A 2012 audit, conducted by our office, reported a similar
finding of incorrect copay levels being used by the Plan in its Medicare loading calculation.
The Plan corrected the 2012 rates, but did not take the steps necessary to ensure that future
Medicare loading calculations were correct.



                                             8                           Report No. 1C-51-00-14-066
Section 1341 of the Affordable Care Act establishes a Transitional Reinsurance Program fee
that requires all health insurance issuers to pay a fee under this program to support payments
to individual market issuers that cover high-cost individuals. However, fee payments for
individuals who are enrolled in any part of Medicare are not required, so long as Medicare is
the primary payer of services. In the 2014 reconciliation, the Plan stated that it was aware
that the Transitional Reinsurance Program fee was not applicable to Medicare business;
however, the FEHBP rates did not reflect a credit to Medicare primary members for this cost.
Since we are unable to rely on the Plan’s Medicare enrollment data to calculate this credit, we
applied a credit based on the entire 2014 FEHBP enrollment.

Finally, the Plan incorrectly adjusted the high and standard option rates for a outpatient
substance abuse benefit. The FEHBP purchased a $20/$40 (high option) and a $30/$50
(standard option) outpatient substance abuse benefit. We adjusted the FEHBP rates to
account for the actual benefit purchased.

We recalculated the FEHBP Medicare loading by using the COB file enrollment to determine
the FEHBP Medicare enrollees. Additionally, we calculated the 2014 FEHBP Medicare
loading based on the benefit design supported by the benefits listed in the 2014 FEHBP
brochure, adjusting for the correct outpatient substance abuse benefit, and applying a credit
for the Transitional Reinsurance Program fee in our audited rates. A comparison of our
audited line 5 rates to the Plan’s reconciled line 5 rates shows that the FEHBP was
overcharged by $6,654,758 and $709,018, for the high option and standard option,
respectively (see Exhibit B).

Plan’s Response:

Medicare Load (Enrollment Data): The Plan agrees that the COB file contains more accurate
and current Medicare status and pricing data and will use the COB file exclusively for the
development of the Medicare load for the FEHBP.

Incorrect Copay Levels (Medicare Loading): The Plan agrees that it used the incorrect copay
levels for 2014; however, the Plan disagrees that the only benefits that should be measured
are the primary care, specialty care and prescription drug copays. Instead, the Plan states that
the entire FEHBP benefit design should be used to determine the cost associated with the
FEHBP Medicare population. The Plan submitted revised calculations to support their
position.

Transitional Reinsurance Fee Program: The Plan did not respond to this finding, but included
a calculation for the fee in their revised high and standard option reconciliations.




                                              9                           Report No. 1C-51-00-14-066
Substance Abuse Benefit: The Plan disagrees with this finding and states that the established
benefit is a    copay for the 2014 high and standard options. The Plan attached the OPM
2014 closeout letter in support of their position.

2014 Questioned Costs: The Plan disagrees with the questioned costs in 2014. Based on
their position, the Plan states that they owe the FEHBP $202,516 for the standard option in
2014 and that the FEHBP owes the Plan $33,162 for the high option in 2014. These
questioned costs are due specifically to the overstatement of the 2014 Medicare load.

Total Questioned Costs Owed FEHBP: The Plan states that the total owed to the FEHBP for
contract years 2013 and 2014 is $1,585,845.04.

OIG Comment:

Medicare Load (Enrollment Data): We determined that the Plan’s 2014 FEHBP Medicare
population submitted in its response to the draft report was not accurate or complete. The
FEHBP Medicare population we used in our audited Medicare loading was based on the
detailed COB file previously provided by the Plan during our audit which was determined to
be accurate and complete. A comparison of the Plan’s Medicare numbers submitted in its
response to the draft report and our audited Medicare numbers is as show below.

                        Plan’s High     OIG’s High     Plan’s Standard    OIG’s Standard
                          Option          Option           Option             Option
                         Medicare        Medicare         Medicare           Medicare
                        Enrollment      Enrollment       Enrollment         Enrollment
 Contract Year 2014
 Medicare A&B
 Medicare A Only
 Medicare B Only
 No Medicare
 Medicare Risk
       Total

Incorrect Copay Levels (Medicare Loading): We accept the Plan’s revised FEHBP Medicare
benefit design loading methodology and agree to include differences in the entire FEHBP
benefit design. However, we reviewed the Plan’s revised FEHBP Medicare benefit design
that was submitted in its response to the draft report and found errors.

Specifically, the Plan did not sufficiently credit the FEHBP Medicare members for specialist
care and outpatient mental health benefits (standard option only) and outpatient substance



                                            10                           Report No. 1C-51-00-14-066
  abuse benefits (high and standard options). The Plan also loaded the FEHBP Medicare
  members for a Part B drug rider at                        , which was not the correct benefit
  level. Finally, the Plan applied a prescription drug rider to the FEHBP Medicare members
  that was not consistent with similar Part D riders filed with CMS, and used to price the
  Medicare component of the SSSGs. We corrected these benefit design differences in our
  audited Medicare Loading.

  Transitional Reinsurance Fee Program: We reviewed the Plan’s calculation for the
  transitional reinsurance fee included in its response. We agree with the calculation; however,
  due to the differences in the Medicare enrollment numbers, the OIG’s audited transitional
  reinsurance fee credit varies from the Plan’s calculated credit.

  Substance Abuse Benefit: The information provided by the Plan did not support its position
  that the established benefit is a    copay for the 2014 high and standard options. Our
  position remains that the Plan incorrectly adjusted the high and standard option rates for a
  outpatient substance abuse benefit. The FEHBP actually purchased a $20/$40 (high option)
  and a $30/$50 (standard option) outpatient substance abuse benefit. We adjusted the FEHBP
  rates to account for the actual benefit purchased.

  2014 Questioned Costs: Our 2014 questioned costs were based on the above noted 

  exceptions and are shown on page 9. 


  Recommendation 1

  We recommend that the contracting officer require the Plan to return $16,633,324 to the 

  FEHBP for defective pricing in contract years 2013 and 2014. 


2. Lost Investment Income                                                                $557,854

  In accordance with FEHBP regulations and the contract between OPM and the Plan, the
  FEHBP is entitled to recover lost investment income on the defective pricing findings in
  contract years 2013 and 2014. We determined the FEHBP is due $557,854 for lost
  investment income, calculated through July 31, 2015 (see Exhibit C). In addition, the FEHBP
  is entitled to lost investment income for the period beginning August 1, 2015, until all
  defective pricing amounts have been returned to the FEHBP.




                                               11                           Report No. 1C-51-00-14-066
  FEHBAR 1652.215-70 provides that, if any rate established in                The FEHBP is due
  connection with the FEHBP contract was increased because the                   lost investment
  carrier furnished cost or pricing data that was not complete, accurate,         income on the
  or current as certified in its Certificate of Accurate Pricing, the rate      defective pricing
  shall be reduced by the amount of the overcharge caused by the                  findings in the
  defective data. In addition, when the rates are reduced due to                    amount of
  defective pricing, the regulation states that the government is entitled           $557,854.
  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 semiannual cost of capital rates.

  Plan’s Response:

  The Plan agrees that an adjustment to lost investment income should be made based on the
  adjusted findings; however, the Plan calculated and agreed to $47,340 in lost investment
  income.

  Recommendation 2

  We recommend that the contracting officer require the Plan to return $557,854 to the FEHBP
  for lost investment income, calculated through July 31, 2015. We also recommend that the
  contracting officer recover lost investment income on amounts due for the period beginning
  August 1, 2015, until all defective pricing amounts have been returned to the FEHBP.

3. Rating System Controls                                                             Procedural

  The Plan does not have adequate rating system controls to assure that prior audit findings are
  corrected in future rate years and that the Medicare loading applied to the FEHBP rates is
  developed using consistent, accurate, and current data.

  In 2012, we performed an audit that determined the Plan used incorrect prescription benefit
  levels when developing the Medicare loading charged to the FEHBP. The Plan agreed to the
  finding and recalculated its Medicare loading. This resulted in a reduction of the FEHBP
  rates and cost savings of $7,966,352 for contract year 2012. In our current audit, we
  determined the Plan did not take the necessary steps to ensure that the same, or similar, errors
  would not occur in the 2013 and 2014 Medicare loading calculations. In fact, as reported
  above, the errors were repeated in both years and resulted in increased cost to the FEHBP.




                                               12                           Report No. 1C-51-00-14-066
The Certificates of Accurate Pricing that the Plan signed in 2013 and 2014 were once again
defective.

Furthermore, the Plan does not have sufficient system control checks and balances to identify
areas of risk within its         system. While onsite, we determined that the Plan is tracking
inaccurate Medicare status in its          enrollment files and using this data to load the
FEHBP. The Plan is also tracking Medicare status in its             COB files, which
significantly varies from the data tracked in its enrollment files. We found multiple instances
of terminated Medicare coverage in the COB files, but continued enrollment/Medicare
coverage per the enrollment files. Regardless of the numerous requests we made to the Plan
to clarify the Medicare coverage discrepancies, it did not provide any substantial support or
explanation to resolve the serious issues we encountered with its system and the Medicare
loading calculation.

The issues we encountered over the course of our audit are attributable to the Plan’s
negligence in correcting past audit findings and a lack of system control checks to validate the
data. Failure to correct these issues and adopt adequate rating system controls will result in
continued non-compliance with the contract and future defective pricing of the FEHBP rates.

Recommendation 3

We recommend that the contracting officer direct the Plan to take corrective actions so that
past audit findings are not repeated in future FEHBP rates.

We also recommend that the contracting officer require the Plan to submit a corrective action
plan that addresses the necessary steps to mitigate internal control weaknesses related to its
development of the Medicare loading and the FEHBP rating system.

Plan’s Response:

The Plan agrees and has submitted a corrective action plan.




                                             13                           Report No. 1C-51-00-14-066
  IV. MAJOR CONTRIBUTORS TO THIS REPORT

COMMUNITY-RATED AUDITS GROUP

          , Auditor-in-Charge


          , Senior Team Leader

          , Chief




                                 15   Report No. 1C-51-00-14-066
                                      EXHIBIT A




                      Health Insurance Plan of Greater New York 

                            Summary of Questioned Costs 




Defective Pricing Questioned Costs


         Contract Year 2013                             $9,269,548
         Contract Year 2014                             $7,363,776


         Total Defective Pricing Questioned Costs                         $16,633,324


Lost Investment Income                                                      $557,854


Total Questioned Costs                                                    $17,191,178




                                                                Report No. 1C-51-00-14-066
                                          EXHIBIT B



                       Health Insurance Plan of Greater New York
                           Defective Pricing Questioned Costs


Contract Year 2013 - High Option
                                                   Self       Family
FEHBP Line 5 - Reconciled Rate                 $              $
FEHBP Line 5 - Audited Rate                    $              $

Bi-weekly Overcharge                           $              $

To Annualize Overcharge:
   March 31, 2013 enrollment
   Pay Periods                                     26             26
Subtotal                                                  $                       $8,704,019

Contract Year 2013 - Standard Option
                                                   Self       Family
FEHBP Line 5 - Reconciled Rate                 $              $
FEHBP Line 5 - Audited Rate                    $              $

Bi-weekly Overcharge                           $              $

To Annualize Overcharge:
   March 31, 2013 enrollment
   Pay Periods                                     26             26
Subtotal                                       $          $                        $565,529

Total Defective Pricing Questions Costs 2013                                      $9,269,548




                                                                       Report No. 1C-51-00-14-066
                                             EXHIBIT B



                          Health Insurance Plan of Greater New York
                              Defective Pricing Questioned Costs

Contract Year 2014 - High Option

                                                       Self       Family
FEHBP Line 5 - Reconciled Rate                     $              $
FEHBP Line 5 - Audited Rate                        $              $

Bi-weekly Overcharge                               $              $

To Annualize Overcharge:
   March 31, 2014 enrollment
   Pay Periods                                         26             26

Subtotal                                       $              $                      $6,654,758

Contract Year 2014 - Standard Option
                                                       Self       Family
FEHBP Line 5 - Reconciled Rate                     $              $
FEHBP Line 5 - Audited Rate                        $              $

Bi-weekly Overcharge                               $              $

To Annualize Overcharge:
   March 31, 2014 enrollment
   Pay Periods                                         26             26

Subtotal                                                      $                       $709,018

Total Defective Pricing Questioned Costs -
2014                                                                                 $7,363,776




                                                                           Report No. 1C-51-00-14-066
                                                EXHIBIT C

                                    Health Insurance Plan of Greater New York 

                                              Lost Investment Income 




                                                2013             2014             July 31, 2015     Total
Year Findings:
Audit

1. Defective Pricing                          $9,269,548      $7,363,776               $0         $16,633,324


                        Totals (per year):    $9,269,548      $7,363,776              $0          $16,633,324
                       Cumulative Totals:     $9,269,548      $16,633,324         $16,633,324     $16,633,324

             Avg. Interest Rate (per year):    1.5625%         2.0625%               2.25%

          Interest on Prior Years Findings:      $0            $191,184             $218,313       $409,497

                   Current Years Interest:     $72,418         $75,939                 $0          $148,357

     Total Cumulative Interest Calculated
                 Through July 31, 2015:        $72,418         $267,123             $218,313       $557,854
                                         APPENDIX

                                                         Senior Vice President, Underwriting and Account
                                                         Management Tel                 Fax
EmblemHealth' 	                                                   @emblemhealth.com

55 Water Street, New York, NY 10041-8190	                wwwemblemhealth.com


 March 31, 2015



 Chief, Community-Rated
 Audits Group
 United States Office of Personnel Management
 Office of Inspector General
 800 Cranberry Woods Drive - Suite 270
 Cranberry Township, Pennsylvania 16066



 RE: Response to

 Report No. 1C-51-00-14-066

 Dear          :

 Enclosed is Health Insurance Plan of Greater New York's (Plan) response to The Draft
 Audit Report that was released on February 5, 2015. The report contains three findings
 and three recommendations. We have responded to each finding and provided the Plan's
 backup. The Plan also has created a corrective action plan to address the procedural
 fording.

 With respect to the $25,635,776 in charges to the plan as identified in the audit
 report, the following is a summary of the Plan's findings:

      1. The Plan disagrees with the defective pricing finding for $25,132,660. The
         Plan is submitting a revised pricing that indicates a $1,585,845.04 credit is
         due the FEHBP.

      2. The Plan disagrees with the lost investment income finding of $503,116.
         The Plan has recalculated the lost investment income based on the
         $1,585,845.04 amount due FEHBP and believes it should be $47,340.08.

      3. The Plan agrees with the rating system	 controls findings and has
         submitted a corrective action plan in our response.




                                                                      Report No. 1C-51-00-14-066
The Plan asks that you review our responses as well as all supporting documentation
before preparing the final report. It is our goal to be in full compliance with the
FEHB contract at all times.

Should you have any questions regarding the response to this audit report, please
feel free to contact me or               .




                                                                  Report No. 1C-51-00-14-066
                                                     Contents

  I.   Defective Pricing — Audit Finding #1 ...................................................................... 1 

           A. Medicare Load
           B. Incorrect copay levels
           C. Incorrectly adjusting for $25 outpatient substance abuse
 II.   Lost Investment Income Audit Finding #2 ................................................................ 9 

III.   Rating systems Controls — Audit Finding #3 ........................................................... 9 





                                                                              Report No. 1C-51-00-14-066
I. Pricing Audit Finding OIG Finding:

The Certificate of Accurate Pricing Health Insurance Plan of Greater New York signed for contract
years 2013 and 2014 were defective. Application of the defective pricing remedy shows that the
FEHBP is due a premium adjustment of $25,132,660.

           A. Medicare Load - OIG was unable to validate the accuracy of the Plan's enrollment
              file or its COB file. As a result, DIG did not rely on the Medicare data provided by
              the Plan. Due to lack of reliance placed on the Plan's Medicare data, OIG is
              questioning the validity of the entire Medicare loading for contract year 2013 and
              2014
           B. Incorrect Copay Levels — The Plan applied incorrect copay levels in the
              Medicare loading calculation
           C. Incorrect Substance Abuse Copay: The Plan incorrectly adjusted the high and
              standard option rates for a       outpatient substance abuse benefit. The FEHBP
              purchased a $201$40 (high option) and a $30/$50 (Standard option) outpatient
              substance abuse benefit. We adjusted the FEHBP rates to account for the actual
              benefit purchased.

Plan Response on Medicare Load:

The Plan disagrees with the removal of the entire Medicare Load. The Medicare Load represents
the additional cost taken on by the Plan with respect to the Medicare eligible population. CMG-has
raised valid concerns about the accuracy of the Plan's enrollment file and the use of this file to
establish the Medicare Load for FEHBP. After an internal review of the process of establishing the
Medicare Load, the Plan has determined that the use of the enrollment file is not preferred for
establishing the Medicare Load because the Plan's enrollment file is only intended as the point-of-
entry for new enrollments, age-ins and reporting from CMS and is primarily used for billing
purposes.

The Plan also maintains a COB file. This file contains the same data as the enrollment file and is
preferred for establishing the Medicare Load because it is also updated with additional information
such as, other carrier information. When the Plan's enrollment team receives new Medicare
information they update both the enrollment file and COB file. However, when the COB team
receives additional information, they update the COB file and not the enrollment file. The COB
file, however, is used by the Plan to pay claims because it contains all of the information that is
used in processing claims.




                                                                       Report No. 1C-51-00-14-066
The Plan's COB file along with the enrollment file is initially populated with new enrollments. All
other insurance information that is reported when members join the Plan is investigated through a
questionnaire process. Thereafter on an on-going basis, the COB file is updated with information
that we receive through:
      COB Questionnaires
      Other carrier information reported on submitted claims
      Written and phone inquiries from members and providers
      Other carrier data reported by CMS and Medicaid
      Data exchange as part of Section 111 reporting
      Data exchange with other carriers via external vendors

On a daily basis the COB team receives pended claims from the Claim Processing Unit where
the presence of other carrier involvement may exist. This could be that the member/provider
may have indicated that the patient has other coverage or there may be a prior payment
reported on the claim. Claims may also pend to the COB team when information on the claim
form doesn't match the information on our COB file. These cases are investigated via telephone
calls to the reported primary carrier or with a COB questionnaire sent to the member.

Our Service areas, upon receipt of an inquiry involving COB, will forward these request to the COB
team for investigation. Typical request are reports of terminated coverage with the primary carrier
or a lead to investigate other carrier liability.

Internally, the COB team will run queries to identify members who are 65 years old or older and
Medicare is not indicated as their primary carrier. Investigations are performed to see if these
members or their spouses are actively working, their group size, and how recently the Plan updated
the COB record.

On a monthly basis, the COB team downloads files available from CMS and Medicaid. These
files indicate other commercial coverage that has been reported to their agencies. The Plan
investigates and reconciles these reports and updates the COB files as needed.

On a quarterly basis, the Plan provides CMS with our population of working aged members so that
they may maintain their COB records. Additionally, the Plan submits a file of members who may be
eligible for Medicare based on age and working status parameters. CMS responds by informing the
Plan who is enrolled in Medicare. The Plan updates the COB files where applicable.

Finally, on an annual basis, CMS submits a full replacement file to the Plan that contains
other insurance information they have on file. The purpose of this file is to ensure that the
Plan's records match up to the CMS files. When the Plan receives this file, a systemic query is
run to compare other insurance information from CMS against the Plan's COB records.

                                                                       Report No. 1C-51-00-14-066
Matched records are ignored and those that don't match are investigated. Any changes to
existing records are communicated back to CMS via the Electronic Correspondence Referral
System (ECRS), so that CMS may update their records if needed.

Going forward, the Plan will use the COB file exclusively for the development of the Medicare
Load for the FEHBP.

Plan Response on Incorrect Copay Levels:

                 2013                         Incorrect                         Correct
                                       High Option Standard            High Option Standard
                                                    Option                           Option
 Primary Care/Specialty Care                                           $20/$40       $20/$50
 Prescription Drug Copay                                               $20/$30/$50 $20/$30/$5

                 2014                           Incorrect                       Correct
                                       High Option Standard            High Option Standard
                                                     Option                          Option
 Primary Care/Specialty Care           N/A                             N/A           $30/$50
 Prescription Drug Copay                                               $15535/575    $15/$35/$75

The Plan has reviewed the copay levels and agrees it used the incorrect levels for 2013 and 2014,
however the Plan disagrees that the only benefits that should be measured is copay levels. The
Plan has revised the rates using the full benefits available to the member. Below are the factors
used in developing the Plan's Medicare loading pricing model.

The Plan's cost is the total estimated cost less the Medicare responsible cost. Medicare being the
primary payer once the member signs up for Medicare. The total estimated cost of the FEHBP
Medicare population is based on the following:

      The Plan's estimated cost for the Medicare Advantage population
      The additional cost of the FEHBP benefit design, priced off the manual rate sheets

Note the benefit design of the FEHBP population and the Plan's base Medicare plan has greatly
varied over the years. Early on in the Load pricing (beginning of Medicare Advantage), the
benefits were much more similar. Due to the design of the spreadsheets that the Plan uses, as
benefits began to significantly change between the two plans, the spreadsheets were not updated
to include pricing for facility copayment differences. Specifically, the Plan has only been
pricing the PCP/Specialist copay differences instead of the entire benefit design. As described in
the detail below, the pricing is based on the entire benefit design.

The Plan's estimated cost is based on the CMS rate filing for the VIP plan with over          lives
spanning       service counties. The VIP plan is chosen for the following reasons:
                                                                        Report No. 1C-51-00-14-066
      Largest Direct Pay plan
      Similar provider network as the FEHBP
      Stable non-dual SNP population
      Base plan used when developing the manual rate sheets for which employer group plans
       are priced off

The entire FEHBP benefit design is used to determine the cost associated with the plan design.
Specifically, the individual service category copay is priced off of the manual rate sheets used to
price the Plan's employer group Medicare business. The base plan in the manual rate sheet is the
VIP plan. So there is a cost associated with cost sharing which is different than the base plan.
Since the estimated cost is based on the base plan design, the differential in cost between plan
designs needs to be included in the estimated cost of the population.

The CMS rate filing splits cost between Medicare covered (allowed and cost share) and
supplemental (non-covered benefits and reduced cost share). The estimated cost share is the
Medicare covered cost plus the cost associated with the non-covered benefits plus the cost
associated with the FEHBP benefit design. This represents the estimated cost of the FEHBP
Medicare population.

The Plan's portion of the cost is the Medicare covered cost sharing, the cost associated with the
FEHBP benefit design, and the cost associated with the non-covered benefits. The difference
between the estimated cost of the FEHBP Medicare population and the Plan's portion of the cost
is the CMS potion of the cost.


Plan Response on Incorrect Substance Abuse Copay:

The Plan disagrees with this finding. The copay level for substance abuse in 2014 was        not
$40. The closeout letter for 2014 is attached for your review.



Repricing Based on Use of COB File and Correct Benefits

The Medicare Load calculation has been revised based on the use of the COB file and correct
benefits. The membership has been updated to match the COB files used in paying medical
claims. Also, the benefit design has been updated to match the FEHBP benefit design for that
given year. The result of this repricing is the Plan overstated the Medicare Load by $1,430,075
for the two plan years 2013 and 2014. The $1,430,075 is broken out as follows:
     2013 Standard Option: the Plan owes FEHBP $73,719
     2013 High Option: the Plan owes FEHBP $1,187,002
     2014 Standard Option: the Plan owes FEHBP $202,516
     2014 High Option: FEHBP owes the Plan ($33,162)


                                                                        Report No. 1C-51-00-14-066
When the revised Medicare Loads are put into to the rate models (see attached 2013 and 2014
"Rate Reconciliation Files" for rate development), the total amount owed to FEHBP is
$1,585,845.04.

Below are the original and revised rate work-ups for 2013 and 2014 that illustrate how the Plan
developed the new Medicare Load based on the use of the COB file:


2013 Standard Option

The Plan owes FEHBP: $73,719. The original rate work-up calculated the load dollars as
$         . The current rate work-up with the corrected membership and benefit design calculates
the load dollars as $         . The difference is $73,719.

ORIGINAL RATE WORK-UP

MEDICARE LOADING CALCULATIQN 2013 Medicare lives
Type of                      Number of          Community        Loading            Loading
Coverage                     Members              Rate           Factors *           Dollars
A&B
A Only
B Only
No Medicare
Medicare Risk
Total

LOADING (LOADING DOLLARS/PROJECTED INCOME)                                                     %





                                                                     Report No. 1C-51-00-14-066
 REVISED RATE WORK-UP 


 MEDICARE LOADING CALCULATION 2013 Medicare lives
 Type of                      Number of        Community        Loading           Loading
 Coverage                     Members            Rate           Factors*           Dollars
 A&B
 A Only
 B Only
 No Medicare
 Medicare Risk
 Total

 LOADING (LOADING DOLLARS/PROJECTED INCOME)                                                  %



 2013 High Option

 The Plan owes FEHBP: $1,187,002. The original rate work-up calculated the load dollars as
 $            . The current rate work-up with the corrected membership and benefit design
 calculates the load dollars as $        . The difference is $1,187,002.

ORIGINAL RATE WORK-UP

MEDICARE LOADING CALCULATION 2013 Medicare lives
 Type of                      Number of          Community        Loading            Loading
 Coverage                     Members              Rate           Factors *           Dollars
 A&B
 A Only
 B Only
 No Medicare
 Medicare Risk
 Total

 LOADING (LOADING DOLLARS/PROJECTED INCOME)                                                  %




                                                                    Report No. 1C-51-00-14-066
REVISED RATE WORK-UP 


MEDICARE LOADING CALCULATION 2013 Medicare lives
Type of                     Number of         Community        Loading           Loading
Coverage                    Members             Rate           Factors *          Dollars
A&B
A Only
B Only
No Medicare
Medicare Risk
Total

LOADING (LOADING DOLLARS/PROJECTED INCOME)                                                  %

2014 Standard Option

The Plan owes FEHBP: $202,516. The original rate work-up calculated the load dollars as
$           . The current rate work-up with the corrected membership and benefit design
calculates the load dollars as $        . The difference is $202,516.

ORIGINAL RATE WORK-UP

MEDICARE LOADING CALCULATION 2014 Medicare lives
Type of                     Number of         Community       Loading            Loading
Coverage                    Members             Rate          Factors *           Dollars
A&B
A Only
B Only
No Medicare
Medicare Risk
Total

LOADING (LOADING DOLLARS/PROJECTED INCOME)                                                  %




                                                                  Report No. 1C-51-00-14-066
REVISED RATE WORK-UP 


MEDICARE LOADING CALCULATION 2014 Medicare lives

Type of                      Number of            Community         Loading                Loading
Coverage                     Members                Rate            Factors *               Dollars
A&B
A Only
B Only
No Medicare
Medicare Risk
Total

LOADING (LOADING DOLLARS/PROJECTED INCOME)                                                            %



2014 High Option

FEHBP owes the Plan: $33,162. The original rate work-up calculated the load dollars as
$            . The current rate work-up with the corrected membership and benefit design
calculates the load dollars as $         . The difference is $33,162.

ORIGINAL RATE WORK-UP

MEDICARE LOADING CALCULATION 2014 Medicare lives



Type of                        Number of          Community          Loading               Loading
Coverage                       Members               Rate            Factors                Dollars
A&B
A Only
B Only
No Medicare
Medicare Risk
Total

LOADING (LOADING DOLLARS/PROJECTED INCOME)                                                            %




                                                                          Report No. 1C-51-00-14-066
REVISED RATE WORK-UP 


 MEDICARE LOADING CALCULATION 2014 Medicare live
 Type of                       Number of         Community         Loading            Loading
 Coverage                      Members             Rate            Factors *           Dollars
 A&B
 A Only
 B Only
 No Medicare
 Medicare Risk
 Total

 LOADING (LOADING DOLLARS/PROJECTED INCOME)                                                      %



II. Lost Investment Income

OIG Finding:

OIG has determined the FEHBP is due $503,116 for lost investment income, calculated
through January 31, 2015. In addition, the FEHBP is entitled to lost investment income for the
period beginning February 1, 2015 until the defective pricing amounts have been returned to
the FEHBP

Plan Response:

The Plan disagrees with this finding. Based on the new pricing the Plan has recalculated the lost
invest income based on OIG's formula and will remit the monies once OIG agrees on the new
pricing. The new calculation is $47,340.08. Backup documentation is attached.


III. Rating Systems Controls

OIG Finding:

The Plan does not have adequate rating system controls to assure that prior audit findings are
corrected in future years and that the Medicare loading applied to the FEHBP rates is developed
using consistent, accurate and current data.




                                                                       Report No. 1C-51-00-14-066
Plan Response:

The Plan agrees with this finding and has submitted a corrective action plan to address the
following:

  1. Using incorrect benefit levels to rate the FEHBP plans
  2. New procedures for rating the Medicare load
  3. Eliminating the use of the Medicare enrollment file when rating the FEHBP plans




                                                               Report No. 1C-51-00-14-066
                                                                               




               Report Fraud, Waste, and 

                   Mismanagement 

                          Fraud, waste, and mismanagement in
                       Government concerns everyone: Office of
                           the Inspector General staff, agency
                        employees, and the general public. We
                      actively solicit allegations of any inefficient
                            and wasteful practices, fraud, and
                       mismanagement related to OPM programs
                      and operations. You can report allegations
                                  to us in several ways:


     By Internet: 	        http://www.opm.gov/our-inspector-general/hotline-to-
                           report-fraud-waste-or-abuse


       By Phone: 	         Toll Free Number:                  (877) 499-7295
                           Washington Metro Area:             (202) 606-2423


        By Mail:           Office of the Inspector General
                           U.S. Office of Personnel Management
                           1900 E Street, NW
                           Room 6400
                           Washington, DC 20415-1100
  
                                                                               
                                                                               




                                                                   Report No. 1C-51-00-14-066