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 United Healthcare of the Midwest, Inc. Report No. 1C-B9-00-13-020 Date: September 26, 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 United Healthcare of the Midwest, Inc. Contract Number CS 2906 - Plan Code B9 Cypress, California Report No. 1C-B9-00-13-020 Date: September 26, 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 United Healthcare of the Midwest, Inc. Contract Number CS 2906 - Plan Code B9 Cypress, California Report No. 1C-B9-00-13-020 Date: September 26, 2013 The Office of the Inspector General performed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at United Healthcare of the Midwest, Inc. (Plan). The audit covered contract years 2010 through 2012. The audit was conducted at the Plan’s office in Cypress, California. We found that the FEHBP rates were developed in accordance with the Office of Personnel Management’s rules and regulations for the years audited. i 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 th e Federal Employees Health Benefi ts Program (FEHBP) operations at United Healthcare of the Midwest, Inc. (Plan) . The audit covered contract year s 2010 through 2012, and was conducted at th e Plan 's office in Cypress, Califomia. The audit was conducted pursuant to the provisions of Contract CS 2906; 5 U.S.C. Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Pmi 890. The audit was perf01m ed by the Office of Personnel Management 's (OPM) Office of th e 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 an d Insurance Office. The provisions of the Federal Employees Health Benefits Act are implemented by OPM through regulations codified in Chapter 1, Pm1890 of Title 5, CFR. Health insurance coverage is provided through contracts with health insurance can iers who provide service benefits, indemnity benefi ts, or comprehensive medical services. Community-rated caniers pa1i icipating in the FEHBP are subject to vm·ious federal, state and local laws, regulations, an d ordinan ces. While most cmTiers are subject to state j urisdiction, many are further subject to the Health Maintenance Organization Act of 1973 (Public Law 93 222), as am ended (i.e., many community-rated cmTiers are federally qualified) . In addition, pmiicipation in the FEHBP subjects the caniers to the Federal Employees Health Benefits Act and implementing regulations promulgated by OPM . The FEHBP should pay a mm·ket price rate, which is defined as the best rate offered to FEHBP Contracts/Members March 31 either of the two groups closest in size to the FEHBP. In contracting with community rated can iers, OPM relies on can ier compliance with appropriate laws and regulations and, consequently, does not negotiate base rates. OPM negotiations relate primarily to the level of coverage an d oth er unique features of the FEHBP. The chali to the right shows the number of FEHBP contracts an d members rep01ied by the Plan as of March 31 for each contract year audited. 1 The Plan has participated in the FEHBP since 2005 and provides health benefits to FEHBP members in St. Louis, Missouri. A previous full scope audit of the Plan covered contract years 2006 through 2009. All issues related to that audit have been resolved. The preliminary results of this audit were discussed with Plan officials at an exit conference and in subsequent correspondence. A draft report was also provided to the Plan for review and comment. The Plan responded adequately to the draft report and we consider the issues resolved. 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 $60 auditing standards. Those standards require that $50 Millions we plan and perform the audit to obtain $40 sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions $30 based on our audit objectives. We believe that $20 the evidence obtained provides a reasonable $10 basis for our findings and conclusions based on 2010 2011 2012 Revenue $54.0 $58.7 $58.4 our audit objectives. This performance audit covered contract years 2010 through 2012. For these contract years, the FEHBP paid approximately $171.1 million in premiums to the Plan, as 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’s Rate Instructions to Community Rated Carriers (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 SSSGs 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. 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 Cypress, California during December 2012. Additional audit work was completed at our offices 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 rate instructions for contract years 2010 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 , Auditor Chief , Senior Team Leader 6
Audit of the Federal Employees Health Benefits Program Operations at United Healthcare of the Midwest, Inc.
Published by the Office of Personnel Management, Office of Inspector General on 2013-09-26.
Below is a raw (and likely hideous) rendition of the original report. (PDF)