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 2013-10-10.

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
              Humana Health Plan, Inc. – Chicago



                                           Report No. 1C-75-00-13-041

                                           Date: October 10, 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
                                      Humana Health Plan Inc. – Chicago
                                    Contract Number CS 1570 - Plan Code 75
                                              Louisville, Kentucky



                 Report No. 1C-75-00-13-041                                           Date:       10/10/13




                                                                                      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
                          Humana Health Plan Inc. - Chicago
                       Contract Number CS 1570 - Plan Code 75
                                 Louisville, Kentucky


         Report No. 1C-75-00-13-041                    Date: 10/10/2013


The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at Humana Health Plan, Inc. – Chicago (Plan). The audit
covered contract year 2012, and was conducted at the Plan’s office in Louisville, Kentucky. 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 year 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 Humana Health Plan, Inc. – Chicago (Plan). The audit covered contract year 2012, and was
conducted at the Plan’s office in Louisville, Kentucky. The audit was conducted pursuant to the
provisions of Contract CS 1570; 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 rate, which is defined as the best rate offered to either of
the two groups closest in subscriber 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
                                                                 FEHBP Contracts/Members
negotiations relate primarily to the level of                           March 31
coverage and other unique features of the FEHBP.
                                                            16,000
The chart to the right shows the number of FEHBP
                                                            14,000
contracts and members reported by the Plan as of            12,000
March 31, 2012.                                             10,000
                                                             8,000
                                                             6,000
The Plan has participated in the FEHBP since 1975
                                                             4,000
and provides health benefits to FEHBP members in             2,000
the Chicago metropolitan area. The last audit of                 0
                                                                            2012
the Plan conducted by our office was in 2012, and          Contracts        7,624
covered contract years 2008 through 2011. The              Members          15,242
prior audit did not identify any deficiencies.

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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 year                     FEHBP Premiums Paid to Plan
2012. For this year, the FEHBP paid
approximately $89.5 million in premiums to the
Plan, as shown on the chart to the right.
                                                     Millions




                                                                  $100
OIG audits of community-rated carriers are                         $80
designed to test carrier compliance with the                       $60
FEHBP contract, applicable laws and                                $40
regulations, and the rate instructions. These                      $20
audits are also designed to provide reasonable                      $0
                                                                                 2012
assurance of detecting errors, irregularities, and              Revenue          $89.5
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 conducted at the Plan’s office in Louisville, Kentucky during April
2013. Additional audit work was completed at our offices located in Washington, D.C. and
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 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 rating instructions for contract year 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



                  , Chief

                , Senior Team Leader




                                       6