oversight

Audit of the Federal Employees Health Benefits Program Operations at Kaiser Foundation Health Plan of the Northwest

Published by the Office of Personnel Management, Office of Inspector General on 2012-11-01.

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 Kaiser Foundation Health
                   Plan of the Northwest



                                          Report No. 1C-57-00-12-051

                                          Date: November 1, 2012




                                                       -- 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
                               Kaiser Foundation Health Plan of the Northwest
                                 Contract Number CS 1047 - Plan Code 57
                                             Portland, Oregon



               Report No. 1C-57-00-12-051                                          Date:         11/01/12




                                                                                      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
                     Kaiser Foundation Health Plan of the Northwest
                       Contract Number CS 1047 - Plan Code 57
                                   Portland, Oregon


         Report No. 1C-57-00-12-051                   Date: 11/01/12


The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at Kaiser Foundation Health Plan of the Northwest (Plan).
The audit covered contract years 2009 through 2011, and was conducted at the Plan’s office in
Portland, Oregon. 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.




                                              i
                                                    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
The Plan has participated in the FEHBP since 1960 and provides health benefits to FEHBP
members in the areas of Portland and Salem, Oregon; and Vancouver and Longview,
Washington. The last audit of the Plan conducted by our office was a full scope audit of contract
years 2005 through 2008 and did not identify any deficiencies.

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 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                      $160
auditing standards. Those standards require that                   $140




                                                      Millions
                                                                   $120
we plan and perform the audit to obtain
                                                                   $100
sufficient, appropriate evidence to provide a                       $80
reasonable basis for our findings and conclusions                   $60
based on our audit objectives. We believe that                      $40
                                                                    $20
the evidence obtained provides a reasonable                          $0
basis for our findings and conclusions based on                             2009      2010         2011
                                                                 Revenue   $145.5    $151.8       $157.2
our audit objectives.

This performance audit covered contract years
2009 through 2011. For those contract years, the FEHBP paid approximately $454.5 million in
premiums to the Plan. The premiums paid for each contract year audited 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 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 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
                                                 3
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 Portland, Oregon, during June 2012.
Additional audit work was completed at our offices in Washington, D.C.; Jacksonville, Florida;
and Cranberry Township, Pennsylvania.

Methodology

We examined the Plan’s federal rate submissions and related documents as a basis for validating
the market price rates. Further, we examined claim payments to verify that the cost data used to
develop the FEHBP rates was accurate, complete and valid. 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 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 OPM’s rating instructions to carriers 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

                r, Auditor


                  ., Chief

                 , Senior Team Leader




                                          6