oversight

Audit of the Federal Employees Health Benefits Program Operations at Kaiser Foundation Health Plan, Inc. - Hawaii Region

Published by the Office of Personnel Management, Office of Inspector General on 2013-12-20.

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, Inc. – Hawaii Region



                                           Report No. 1C-63-00-13-045

                                           Date: December, 20, 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
                             Kaiser Foundation Health Plan, Inc. – Hawaii Region
                                  Contract Number CS 1060 - Plan Code 63
                                             Honolulu, Hawaii



               Report No. 1C-63-00-13-045                                          Date: December 20, 2013




                                                                                      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, Inc. – Hawaii Region
                        Contract Number CS 1060 - Plan Code 63
                                   Honolulu, Hawaii


        Report No. 1C-63-00-13-045                   Date: December 20, 2013


The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at Kaiser Foundation Health Plan, Inc. – Hawaii Region
(Plan). The audit covered contract years 2009 through 2012, and was conducted at the Plan’s
office in Honolulu, Hawaii. We found that the FEHBP rates were developed in accordance with
applicable laws, regulations, and the Office of Personnel Management’s Rate Instructions to
Community-Rated Carriers 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 Kaiser Foundation Health Plan, Inc. – Hawaii Region (Plan). The audit covered contract years
2009 through 2012, 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 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                             FEHBP Contracts/Members
                                                                       March 31
rate, which is defined as the best rate
offered to either of the two groups closest          16,000
in size to the FEHBP. In contracting with            14,000
community-rated carriers, OPM relies on
                                                     12,000
carrier compliance with appropriate laws
                                                     10,000
and regulations and, consequently, does
not negotiate base rates. OPM negotiations            8,000

relate primarily to the level of coverage             6,000
and other unique features of the FEHBP.               4,000
                                                      2,000
The chart to the right shows the number of                0
FEHBP contracts and members reported by                          2009     2010     2011     2012
                                                    Contracts    8,404    8,346    8,325    8,281
the Plan as of March 31 for each contract           Members      15,126   15,005   15,353   15,483
year audited.



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The Plan has participated in the FEHBP since 1960 and provides health benefits to FEHBP
members thoughout the islands of Kauai, Maui, Oahu, Molokai, Lanai, and Hawaii. The last
audit of the Plan conducted by our office was in 2009, and covered contract years 2006 through
2008. The prior audit 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 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

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate 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 conclusions based on our audit objectives.

This performance audit covered contract years                        FEHBP Premiums Paid to Plan
2009 through 2012. For these years, the FEHBP
paid approximately $268.8 million in premiums
                                                                    $80
to the Plan, as shown on the chart to the right.                    $70
                                                                    $60
                                                      Millions




OIG audits of community-rated carriers are                          $50
designed to test carrier compliance with the                        $40
                                                                    $30
FEHBP contract, applicable laws and
                                                                    $20
regulations, and the rate instructions. These                       $10
audits are also designed to provide reasonable                       $0
                                                                           2009    2010    2011    2012
assurance of detecting errors, irregularities, and               Revenue   $58.3   $63.4   $71.9   $75.2
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 performed at the Plan’s office in Honolulu, Hawaii during May 2013.
Additional audit work was completed at our offices located in Cranberry Township,
Pennsylvania and Jacksonville, Florida.

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 2012. 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

                  , Lead Auditor

                , Auditor


                  ., Chief

                  Senior Team Leader




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