oversight

Audit of Kaiser Foundation Health Plan Hawaii Region - Honolulu, Hawaii

Published by the Office of Personnel Management, Office of Inspector General on 2009-08-06.

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 Au.dlt Report
. Subject:



       Audit oftbeFederalEmployees fl~althBenefits ..               .   ",    c                                    , _ .'               .




    ···.Progr~m Operatio~lS of Kaiser FQl1Ii<l3 tionHealth . ·.
          . .... . PIall, Inc.H3waiiRegion           .   .




                                          Report No. 1<::-63-00~09~034


                                          Date:           Aug~st             6,2009




                                                         -- CAUTION,.­
.                          .

.Thislludit reporl has been distributed to Federlll.oflicials who ar~ responsible for the administration of the audited program. This
 audit report may contain proprietary data which isprotetted by Federal law (18 U.S.c. [905). Ther:efore, while this aUi:!il reporlh
 available under the Freedom of ~llformalion Act and made available to the public On the OIC webpage, caution needs to be exercised
 before releasing the report to the general public as it may contain rroprielary information that w'asrcdaCled from tlie pUblicly·
 dislti bUled copy.
                           UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                               Washington, DC 20415



   Office of the
rnspector General




                                              AUDIT REPORT




                                    Federal Employees Healtb Benefits Program
                                Commuuity-:Rated Health Maintenance Organization
                                 Kaisci' Foundatioll Health Plan, Inc. Hawaii Region
                                        Contract Numbcl' 1060 - Plan Code 63
                                                  Honolulu, Hawaii



                       Report No. 1C-63-00-09-034                  Date:     August    6, 2009




                                                                       2l?FrL-

                                                                       Michael R. Esser
                                                                       Assistant InspectOi' Gencl'al
                                                                         for Audits



                                        .. _---~-~~-_._----~----_._------_                           --_._----_.
                                                                                                  ....
         www.opm.goY                                                                            www.usajobs.goY
                           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 ))Ian, Inc. Hawaii Region

                                    Contract Number] 060 - Plan Code 63

                                              HOllolulu, Hawaii




                    Repol-t No. IC-63-00-09-034                    Date:   Aug}]   st   6,   2009



       The Office of the Inspector General performed an audit of the Federal Employees Health Benefits
       Program (FEHBPl operations at Kaiser Foundation Health Plan, Inc. Hawaii Region (Plan). The
       audit covered contract years 2006 through 2008 and was conducted at the Plan's office in
       Honolulu, Hawaii. The audit sho\ved that the Plan's rating of the FEHBP was in accordance
       with applicable laws, regulations, ancl the Office of Personnel Management's rating instructions
       for the years audited.




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                           CONTENTS


                                           Page

   EXECUTIVE SUMMARY       ~           ,    .i


 1. INTRODUCTION AND BACKGROUND             1


II. OBJECTIVES, SCOPE, AND METHODOLOGY      3


III. RESULTS OF AUDIT                       5


N. 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. Hawaii Region (Plan). The audit covered contract years
2006 through 2008 and was conducted at the Plan's office in Honolulu, Hawaii. The audit was
conducted pursuant to the provisions of Contract CS 1060; 5 U.S.C. Chapter 89; and 5 Code of
Federal Regulations (CFR) Chapter 1, Part 890. The audit was pelformed 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 I, 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 caniers 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 Contracts/Members
FEHBP subjects the carriers to the Federal Employees                            March 31
Health Benefits Act and implementing regulations                16,000
promulgated by OPM.                                             14,000
                                                                 12,000
The FEHBP should pay a market price rate, which is
defined as the best rate offered to either of the two            10,000

groups closest in size to the FEHBP. In contracting with          8,000
community-rated carriers, aPM relies on carrier                    6,000
compliance with appropriate laws and regulations and,              4,000
consequently, does not negotiate base rates. OPM                   2,000
negotiations relate primarily to the level of coverage and             a
                                                                           2006     2007         2008
other unique features of the FEHBP.
                                                             • Contracts   8,696    8,496        8,089

TIle chart to the right shows the number of FEHBP            o Members     15,822   15,418       15,242

contracts and members reported by the Plan as of March
31 for each contract year audited.
The Plan has participated in the FEHBP since 1960 and provides health benefits to FEHBP
members throughout the islands .of Kauai, Maui, Oahu, and Hawaii. The last full-scope audit
covered contract years 2000 through 2005. There were no findings.

The prcIirninary 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 ofthe audit were to verify that the Plan offered market price rates to the
FEHBP and to verify that the loadings to the FEHBP rates wen~ 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.
                                                                     FEHBP Premiums Paid to Plan



We conducted this performance audit in accordance with             $75
generally accepted government auditing standards.
Those standards require that we plan and perform the
audit to obtain sufficient, appropriate evidence to                $50

provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe
                                                                   $25
that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit
objectives.                                                         $0

                                                         • Revenue
This performance audit covered contract years 2006
through 2008. For these contract years, the FEHBP paid
approximately $172.6 million 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 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.

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
                                                 3
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 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 Honolulu, Hawaii, during March 2009.
Additional audit work was completed at our office 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 ne<;:essary 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 2006 through 2008.
Consequently, the audit did not identitY any questioned costs and no corrective action is
necessary.




                                                5

            IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

                Auditor-In-Charge

                     Lead Auditor


                    CRAG Group Chief

               Senior Team Leader




                                       6