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, Inc. - Southern California Report No. lC-62-00-10-029 Date: July 20, 2010 -- CAUTION - This audit report has been distributed to Federal and non-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 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. 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 Kaiser Foundation Health Plan, Inc. - Southern California Contract Number 1044 - Plan Code 62 Burbank, California Report No. lC-62-00-10-029 Date: July 20, 2010 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 Kaiser Foundation Health Plan, Inc. - Southern California Contract Number 1044 - Plan Code 62 Burbank, California Report No. lC-62-00-10-029 Date: July 20, 2010 The Office of the Inspector General performed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at Kaiser Foundation Health Plan, Inc, - Southern California (Plan). The audit covered contract years 2007 through 2009 and was conducted at the Plan's office in Burbank, California. We found that the FEHBP rates were developed in accordance with the applicable laws, regulations, and the Office of Personnel Management's rating instructions for the years audited. www.opm.gov www.usajoba.gov 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 ofthe Federal Employees Health Benefits Program (FEHBP) operations at Kaiser Foundation Health Plan, Inc. - Southern California (Plan). The audit covered contract years 2007 through 2009 and was conducted at the Plan's office in Burbank, California. The audit was conducted pursuant to the provisions of Contract CS 1044; 5 U.S.C. Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Part 890. The audit was performed by the Office of Personnel Management's (OPM) Office of the Inspector General (OIG), as established by the Inspector General Act of 1978, as amended. Background The FEHBP was established by the Federal Employees Health Benefits Act (Public Law 86-382), enacted on September 28, 1959. The FEHBP was created to provide health insurance benefits for federal employees, annuitants, and dependents. The FEHBP is administered by OPM's Retirement and Benefits 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 various 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 market price rate, FEHBP Contracts/Members which is defined as the best rate offered to March 31 either of the two groups closest in size to 120,000 the FEHBP. In contracting with 100,000 community-rated carriers, OPM relies on carrier compliance with appropriate laws 80,000 and regulations and, consequently, does not 60,000 negotiate base rates. OPM negotiations relate primarily to the level of coverage and 40,000 other unique features of the FEHBP. 20,000 The chart to the right shows the number of o FEHBP contracts and members reported by • Contracts the Plan as of March 31 for each contract o Members year audited. The Plan has participated in the FEHBP since 1960 and provides health benefits to FEHBP members throughout Southern California. The last full-scope audit covered contract years 2004 through 2006. All issues related to that audit have been resolved. 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 ofthe laws and regulations governing the FEHBP. FEHBP Premiums Paid to Plan We conducted this performance audit in accordance with $600 generally accepted government auditing standards. $500 Those standards require that we plan and perform the :!! $400 audit to obtain sufficient, appropriate evidence to ~ ~ $300 provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe $200 that the evidence obtained provides a reasonable basis $100 for our findings and conclusions based on our audit $0 objectives. • Revenue This performance audit covered contract years 2007 through 2009. For these contract years, the FEHBP paid approximately $1.5 billion in premiums to the 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 ofthe 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 ofthe 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 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 performed 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 Burbank, California, during February 2010. Additional audit work was completed at our offices 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. 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's 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 the applicable laws, regulations, and OPM's rating instructions to carriers for contract years 2007 through 2009. 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 6
Audit of Kaiser Foundation Health Plan Inc. Southern California - Burbank, California
Published by the Office of Personnel Management, Office of Inspector General on 2010-07-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)