oversight

Audit of the Federal Employees Health Benefits Program Operations at Humana Health Plan, Inc. Chicago

Published by the Office of Personnel Management, Office of Inspector General on 2012-06-21.

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 "umana Health Plan, Inc.
                        Chicago



                                           Report No. lC-7S-00-12-038

                                          Date:         June 21, 2012




                                                      -- CAUTION -­
This audit report has been distributed to hderal 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 V.S.c. 1905). Therefore, while this audit report is available
under the heedom of Information :\ct and made available to the public on the OIG wcbpagc. caution needs to be exercised before
relcasing 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
Impedor General




                                                             AUDIT REPORT 




                                           Federal Employees Health Benefits Program 

                                        Community-Rated Health Maintenance Organization 

                                              Humana Health Plan, Inc. - Chicago 

                                            Contract Number CS 1570 - Plan Code 75 

                                                      Louisville, Kentucky 




                         Report No. lC-75-00-12-038                                          Date:        06/2 1 / 1 2




                                                                                                 ,;; /7 ./ /l
                                                                                                ,//~--1£/ ~ ,           <--"-G.o_-_·
                                                                                              Michael R. Esser
                                                                                              Assistant Inspector General
                                                                                                for Audits



                                                              -- CAUTION -­
       This audit report has been distributed to Federal officials who are responsihle for the administration of the audited program. This audit
       report may contain proprietary data which is protected by Federal law (18li.S.C. 1905). Therefore, while thi~ audit report i~ availahle
       under the Freedom of Information Act and made available to the public on the OIG web page, caution needs to be exercised before
       rclea~ing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed eop~'.

        www.opm.goy                                                                                                               www.usajobs.goy
                          UNITED STATES OfFICE OF PERSONNEL MANAGEMENT 

                                                 Washinglon, DC 20415 



   Office of the
Inspector General




                                       EXECUTIVE SUMMARY 





                                Federal Employees Health Benefits Program 

                             Community-Rated Health Maintenance Organization 

                                   Humana Health Plan, Inc. - Chicago 

                                 Contract Number CS 1570 - Plan Code 75 

                                           Louisville, Kentucky 




                    Report No. lC-75-00-12-038                    Date:   06/21 /1 2


        The Office of the Inspector General perfonned an audit of the Federal Employees Health
        Benefits Program (FEHBP) operations at Humana Health Plan, Inc. - Chicago (Plan). The audit
        covered contract years 2008 through 2011. 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.




        www.opm.gov                                                                       www.usajobs.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
The Plan has participated in the FEHBP since 1975 and provides health benefits to FEHBP
members in the Chicago metropolitan area. The last audit of the Plan conducted by our office
was a full scope audit of contract years 2005 through 2007 and identified $788,247 in defective
pricing. All issues identified in the previous audit have been resolved.

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                      $100
                                                                    $90
auditing standards. Those standards require that                    $80




                                                      Millions
we plan and perform the audit to obtain                             $70
                                                                    $60
sufficient, appropriate evidence to provide a                       $50
reasonable basis for our findings and conclusions                   $40
                                                                    $30
based on our audit objectives. We believe that                      $20
                                                                    $10
the evidence obtained provides a reasonable                          $0
basis for our findings and conclusions based on                            2008    2009    2010    2011
                                                                 Revenue   $84.2   $81.4   $92.4   $90.0
our audit objectives.

This performance audit covered contract years
2008 through 2011. For these contract years, the FEHBP paid approximately $348 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 conducted during the month of March 2012, and additional audit work
was completed at our offices located in Washington, D.C. 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 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 2008 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

                 Lead Auditor

                , Staff



                  ., Chief

                 , Senior Team Leader




                                        6