oversight

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

Published by the Office of Personnel Management, Office of Inspector General on 2013-10-10.

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
Subject:

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



                                           Report No. 1C-52-00-13-044

                                           Date: October 10, 2013




                                                      -- 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, 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.
                                                     AUDIT REPORT



                                Federal Employees Health Benefits Program
                             Community-Rated Health Maintenance Organization
                                          Health Alliance Plan
                                Contract Number CS 1092-A - Plan Code 52
                                            Detroit, Michigan



               Report No. 1C-52-00-13-044                                         Date: 10/10/13




                                                                                      Michael R. Esser
                                                                                      Assistant Inspector General
                                                                                        for Audits



                                                      -- 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, 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




                      Federal Employees Health Benefits Program
                   Community-Rated Health Maintenance Organization
                                Health Alliance Plan
                      Contract Number CS 1092-A - Plan Code 52
                                  Detroit, Michigan


         Report No. 1C-52-00-13-044                    Date: 10/10/13


The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at Health Alliance Plan (Plan). The audit covered
contract years 2009 through 2011. We found that the FEHBP rates 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 THE AUDIT ............................................................................................ 5

IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 6
                     I. INTRODUCTION AND BACKGROUND
Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at Health Alliance Plan (Plan). The audit covered contract years 2009 through 2011. 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 Healthcare and Insurance 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 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,                       FEHBP Contracts/Members
                                                                       March 31
which is defined as the best rate offered to
                                                     25,000
either of the two groups closest in
subscriber size to the FEHBP. In
                                                     20,000
contracting with community-rated carriers,
OPM relies on carrier compliance with                15,000
appropriate laws and regulations and,
consequently, does not negotiate base rates.         10,000
OPM negotiations relate primarily to the
level of coverage and other unique features           5,000
of the FEHBP.
                                                          0
                                                                   2009        2010       2011
The chart to the right shows the number of          Contracts     10,756      11,171      9,818
FEHBP contracts and members reported by             Members       22,389      22,984      19,179
the Plan as of March 31 for each contract
year audited.



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The Plan has participated in the FEHBP since 1962 and provides health benefits to FEHBP
members in the Detroit and Southeastern Michigan areas. The last audit of the Plan conducted
by our office was a rate reconciliation audit of contract year 2012. During that audit, we found
the FEHBP rates were developed in accordance with applicable laws, regulations, and the Office
of Personnel Management’s rate instructions.

The preliminary results of this audit were discussed with Plan officials at an exit conference and
in subsequent correspondence. Since the audit concluded that the Plan’s rating of the FEHBP
was in accordance with applicable laws, regulations, and OPM’s Rate Instructions to Community
Rated Carriers (rate instructions), a draft report was not issued.




                                                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.

Scope
                                                                    FEHBP Premiums Paid to Plan

We conducted this performance audit in
accordance with generally accepted government                      $120
auditing standards. Those standards require that                   $100




                                                      Millions
we plan and perform the audit to obtain                             $80
sufficient, appropriate evidence to provide a                       $60
reasonable basis for our findings and conclusions                   $40
based on our audit objectives. We believe that                      $20
the evidence obtained provides a reasonable                          $0
basis for our findings and conclusions based on                            2009       2010        2011
                                                                 Revenue   $94.4     $104.5       $99.9
our audit objectives.

This performance audit covered contract years
2009 through 2011. For these years, the FEHBP paid approximately $298.8 million in premiums
to the Plan, as 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. 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 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
                                                 3
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 conducted at the Plan’s office in Detroit, Michigan, during the months
of April and May 2013. Additional audit work was completed at our offices located in
Jacksonville, Florida and 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 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.




                                                 4
                            III. RESULTS OF THE AUDIT
Our audit showed that the Plan’s rating of the FEHBP was in accordance with applicable laws,
regulations, and the rate instructions for contract years 2009 through 2011. 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

                   , Auditor



                   Chief

                , Senior Team Leader




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