oversight

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

Published by the Office of Personnel Management, Office of Inspector General on 2009-06-02.

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

                                                                                                                                                                    US OFFICE OF PERSONNEL MANAGEMENT
                                                                                                                                                                        OFFICE OF THE INSPE;CTOR GENERAL
                                                                                                                                                                                         OFFICE OF AUDITS .




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          . This audit report has been                                                                      dist~ibutedto'Federai
                                                               and non-Federal officials who are responsible for the .
           . administration of theauditedcontract. This report may contain proprietary data which is protected by
             Federal law (18 UXC, 1905); therefore, while this report is available under the Freedom of Inforination Act,
             caution needs to be exercised before releasing the report to the genenil public.
                      UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                       Washington, DC 20415



  Office of the
Inspector General




                                       AUDIT REPORT



                          Federal Employees Health Benefits Program

                       Community-Rated Health Maintenance Organization

                                  Health Alliance Health Plan

                            Contract Number 1092- Plan Code 52

                                       Detroit, Michigan




                       Report No. lC-52-00-09-027          Dak: June 2, 2009




                                                               Michael R. Esser
                                                               Assistant Inspector General
                                                                 for Audits



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

                                                 Washington, DC 20415



  Office of the
Inspector General




                                       EXECUTIVE SUMMARY





                                Federal Employees Health Benefits Program

                             Community-Rated Health Maintenance Organization

                                        Health Alliance Health Plan

                                  Contract Number 1092 - Plan Code 52

                                            Detroit, Michigan




                    Report No. lC-52-00-09-027                     Date: June 2, 2009

       The Office of the Inspector General performed an audit ofthe Federal Employees Health Benefits
       Program (FEHBP) operations at Health Alliance Health Plan (Plan). The audit covered contract
       years 2005, 2007, and 2008 and was conducted at the Plan's office in Detroit, Michigan. The.
       audit showed that the Plan's ratings of the FEHBP were developed in accordance with applicable
       laws, regulations, and the Office of Personnel Management's rating instructions for the years
       audited.




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                             CONTENTS



                                         Page

   EXECUTIVE SUMMARY     ~                ~.i

 I. INTRODUCTION AND BACKGROUND            1


II. OBJECTIVES, SCOPE, AND METHODOLOGy    .3


III. RESULTS OF AUDIT                      5


IV. MAJOR CONTRIBUTORS TO rnrs REPORT      6

                     I. INTRODUCTION AND BACKGROUND


Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at Health Alliance Health Plan (plan) in Detroit, Michigan. The audit covered contract years
2005,2007, and 2008. The audit was conducted pursuant to the provisions of Contract CS 1092;
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
Center for Retirement and Insurance Services. 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 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 market price rate,                FeiBP Contracts/Members
which is defined as the best rate offered to                     March 31
either of the two groups closest in size to
the FEHBP.            In contracting with
community-rated carriers, OPM relies on
carrier compliance with appropriate laws
and regulations and, consequently, does not
negotiate base rates. aPM negotiations
relate primarily to the level of coverage and
other unique features of the FEHBP.

The chart to the right shows the number of                            2007         2008
FEHBP contracts and members rep.orted by                             11,169        10,332
the Plan as of March 31 for each contract                            22,948        22,185
year audited.



                                                I

The Plan has participated in the FEHBP since 1962 and provides health benefits to FEHBP
members in Detroit and Southeastern Michigan. The last audit conducted by our office covered
contract year 2006. As a result ofthat audit, we found that the Plan's rating of the FEHBP was in
accordance with the applicable laws, regulations and aPM rating instructions for the years
audited.

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




                                                2

               II. OBJECTIVES, SCOPE, AND METHODOLOGY


Objectives

The primary objectives of the audit were to verify that the Plan offered market price rates to the
FEHBP and to verify that the loadings to the FEHBP rates were reasonable and equitable.
Additional tests were performed to determine whether the Plan was in compliance with the
provisions of the laws and regulations governing the FEHBP.



We conducted this performance audit in accordance
with generally accepted government auditing                      FEHBP Premiums Paid to Plan

standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate           $90
evidence to provide a reasonable basis for our
findings and conclusions based on our audit
objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and              $80
conclusions based on our audit objectives.

This performance audit covered contract years 2005,
2007, and 2008. Forthese contract years the FEHBP             $70
paid approximately $257 million in premiums to the      • Revenue
Plan. The premiums paid for each contract year
audited are shown on the chart to the right.

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP
contract, applicable laws and regulations, and OPM rate instructions. These audits are also
designed to provide reasonable assurance of detecting errors, irregularities, and illegal acts.

We obtained an understanding of the Plan's internal control structure, but we did not use this
information to determine the nature, timing, and extent of our audit procedures. However, the
audit included such tests of the Plan's rating system and such other auditing procedures
considered necessary under the circumstances. Our review of internal controls was limited to the
procedures the Plan has in place to ensure that:

       • The appropriate similarly sized subscriber groups (SSSG) were selected;

       •	 the rates charged to the FEHBP were the market price rates (i.e., equivalent to the best
          rate offered to SSSGs); and

       •	 the loadings to the FEHBP rates were reasonable and equitable.



                                                3

In conducting the audit, we relied to varying degrees on computer-generated billing) enrollment)
and claims data provided by the Plan. We did not verify the reliability of the data generated by
the various information systems involved. However, nothing came to our attention during our
audit testing utilizing the corriputer-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 ofthe United States.

The audit fieldwork was performed at the Plan's office in Detroit, Michigan during February
2009. Additional audit work was completed at our offices in Washington, D.C.

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 documentation and
billings to other groups, such as the SSSGs, to determine if the market price was actually charged
to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition
Regulations, and OPM's Rate Instructions to Community-Rated Carriers to determine the
propriety of the FEHBP premiums and the reasonableness and acceptability of the Plan's rating
system.

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




                                                  4

                               III. RESULTS OF AUDIT



Our audit showed that the Plan's rating of the FEHBP was in accordance with the applicable
laws, regulations, and OPM's rating instructions to carriers for contract years 2005, 2007, and
2008. Consequently, the audit did not identify any questioned costs and no corrective action is
necessary.




                                              5

             IV. MAJOR CONTRIBUTORS TO THIS REPORT


Community-Rated Audits Group

                   Auditor-In-Charge


                    Chief

                 Senior Team Leader




                                       6