oversight

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

Published by the Office of Personnel Management, Office of Inspector General on 2009-01-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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      .	 Federlillaw (IS UoS.C.190S); therefore, while this report is. available under the Freedoll1of Information Act,
         caution needs to be exercised before releasing the re~ort to the general public.                               .
                          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 of Colorado

                                     Contract Number 1268 ~ Plan Code 65

                                               Aurora, Colorado




                       Report No. lC-65-00-08-057                    Date:   January 30 ( ·2009




                                                                     ~ez.-
                                                                      Michael R. Esser
                                                                      Assistant Inspector General
                                                                        for Audits



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                         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 of Colorado

                                 Contract Number 1268 - Plan Code 65

                                           Aurora, Colorado




                    Report No. lC-65-00-08-057                   Date:   January 30 ( 2009


         The Office of the Inspector General perfonned an audi10fthe Federal Employees Health Benefits
         Program (FEHBP) operations at Kaiser Foundation Health Plan of Colorado (Plan). The audit
         covered contract years 2005 through 2008 and was conducted at the Plan's office in Aurora)
         Colorado. The audit showed that the Plan's rating of the FEHBP was 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                   I


II. OBJECTIVES, SCOPE, AND METHODOLOGy            3


III. RESULTS OF 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 of Colorado (Plan). The audit covered contract years 2005
through 2008 and was conducted at the Plan's office in Aurora, Colorado. The audit was
conducted pursuant to the provisions of Contract CS 1268; 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 ofthe 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 ofthe Federal Employees Health
Benefits Act are implemented by aPM 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
which is defined as the best rate offered to                       March 31

either of the two groups closest in size to
the FEHBP. In contracting with
community-rated carriers, OPM relies on
carrier compliance with appropriate laws
and regulations and, consequently, does not
negotiate base rates. OPM negotiations
relate primarily to the level of coverage and
other unique features of the FEHBP.

The chart to the right shows the number of                                    2007    2008
FEHBP contracts and members reported by                                      15,283   14,979
the Plan as of March 31 for each contract                                    30,938   30,162
year audited.
The Plan has participated in the FEHBP since 1969 and provides health benefits to FEHBP
members throughout the Metropolitan Denver/Boulder and Colorado Springs areas. The last
full-scope audit covered contract years 2000 through 2003. All questionedcosts associated with
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 of the laws and regulations governing the FEHBP.
                                                                         FEHBP Premiums Paid to Plan



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 2005
through 2008. For contract years 2005 through 2007, the

FEHBP paid approximately $380.7 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 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.


I   The 2008 premiums were not available as ofthe date of this report.
                                                           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 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 Aurora, Colorado, during September
and October 2008. Additional audit work was completed at our office in Cranberry Township,
Pennsylvania.

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 necessary 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 2005 through 2008.
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

                  Auditor


                  , Chief

                Senior Team Leader




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