Office of Personnel Management, Office of Inspector General | U.S. Office of Personnel Management | Audit of the Federal Employees Health Benefits Program Operations at United Healthcare of the Midwest, Inc.

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)

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

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.

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