oversight

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 2015-10-02.

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

                 AUDIT OF THE FEDERAL EMPLOYEES HEALTH
                    BENEFITS PROGRAM OPERATIONS AT
                 UNITED HEALTHCARE OF THE MIDWEST, INC.

                                            Report Number 1C-B9-00-15-029
                                                    October 2, 2015




                                                             -- 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 (http://www.opm.gov/our-inspector-general), 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 

               Audit of the Federal Employees Health Benefits Program Operations at                    

                               United Healthcare of the Midwest, Inc. 

Report No. 1C-B9-00-15-029                                                                      October 2, 2015



Why Did We Conduct the Audit?            What Did We Find?
The primary objectives of our audit      We determined that the 2013 FEHBP rates were developed by the
were to determine if United              Plan in accordance with applicable laws, regulations, and the U.S.
Healthcare of the Midwest, Inc. (Plan)   Office of Personnel Management’s Rate Instructions to
offered the Federal Employees Health     Community-Rated Carriers. We therefore did not issue a draft
Benefits Program (FEHBP) premium         report and are not making any recommendations.
rates using complete, accurate and
current data and that the loadings
applied to the FEHBP rates were
reasonable and equitable. Additional
tests were performed to determine if
the Plan was in compliance with the
provisions of the laws and regulations
governing the FEHBP.

What Did We Audit?
Under contract 2907, the Office of the
Inspector General completed a
performance audit of the FEHBP’s
rates offered for contract year 2013.
Our audit fieldwork was conducted
from March 30, 2015 through
April 10, 2015 at the Plan’s office in
Cypress, California.




 _______________________
 Michael R. Esser
 Assistant Inspector General
 for Audits
                                                      i
               ABBREVIATIONS



FEHBP    Federal Employees Health Benefits Program
OIG      Office of the Inspector General
OPM      U.S. Office of Personnel Management
MLR      Medical Loss Ratio
Plan     United Healthcare of the Midwest, Inc.
U.S.C.   United States Code




                               ii
IV. MAJOR CONTRIBUTORS  TO THIS REPORT
          TABLE OF CONTENTS

                                                                                                                       Page 

        EXECUTIVE SUMMARY ......................................................................................... i 


        ABBREVIATIONS ..................................................................................................... ii 


I.	     BACKGROUND ..........................................................................................................1 


II.	    OBJECTIVE, SCOPE, AND METHODOLOGY ....................................................3 


III.	   RESULTS OF THE AUDIT .......................................................................................5 


IV.	    MAJOR CONTRIBUTORS TO THIS REPORT ....................................................6 


        REPORT FRAUD, WASTE, AND MISMANAGEMENT

 IV. MAJOR CONTRIBUTORS
            I. BACKGROUND
                        TO THIS REPORT

This final report details the audit results of the Federal Employees Health Benefits Program
(FEHBP) operations at United Healthcare of the Midwest, Inc. (Plan). The audit covered
contract year 2013, and was conducted at the Plan’s office in Cypress, California.

The audit was conducted pursuant to FEHBP contract CS 2907; 5 U.S.C. Chapter 89; and 5 Code
of Federal Regulations Chapter 1, Part 890. The audit was performed by the U.S. Office of
Personnel Management’s (OPM) Office of the Inspector General (OIG), as established by the
Inspector General Act of 1978, as amended.

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 and is administered by OPM’s
Healthcare and Insurance Office. Health insurance coverage is provided through contracts with
health insurance carriers that 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.
                                                                         FEHBP Contracts/Members
                                                                                March 31
The chart to the right shows the number of FEHBP
contracts and members reported by the Plan as of
March 31 for the contract year audited.                        12,000

                                                               10,000
In contracting with community-rated carriers, OPM               8,000
relies on carrier compliance with appropriate laws and
                                                                6,000
regulations and, consequently, does not negotiate base
rates. OPM negotiations relate primarily to the level           4,000

of coverage and other unique features of the FEHBP.             2,000

                                                                    0
                                                                                      2013
The Plan has participated in the FEHBP since 2006            Contracts                4,581
and provides health benefits to FEHBP members in St.         Members                 10,845
Louis, Missouri. The last full scope audit conducted
by our office of the Plan covered contract years 2010
through 2012. There were no issues identified during that audit.


                                                1                             Report No. 1C-B9-00-15-029
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 Rate Instructions to Community-
Rated Carriers (rate instructions), a draft report was not issued.




                                                2                           Report No. 1C-B9-00-15-029
 IV.
  II. MAJOR CONTRIBUTORS
      OBJECTIVE,            TO THIS REPORT
                 SCOPE, AND METHODOLOGY

Objective
The primary objective of this performance audit was to determine whether the Plan was in
compliance with the provisions of its contract and the laws and regulations governing the
FEHBP. Specifically, we verified whether the Plan developed the FEHBP premium rates using
complete, accurate and current data and any loadings applied to the FEHBP rates were
reasonable and equitable.

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 the premium rates offered by the Plan for contract year 2013.
For this year, the FEHBP paid approximately $60 million in premiums to the Plan. No audit
review was performed on the Plan’s contract year 2013 Medical Loss Ratio (MLR) calculation.
The OIG reserves the right to audit the Plan’s 2013 MLR calculation in future years.

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP
contract, applicable laws and regulations, and the 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 rates charged to the FEHBP are developed in accordance with the Plan's standard
      rating methodology and the claims, factors, trends, and other related adjustments are
      supported by complete, accurate and current source documentation; 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



                                               3	                          Report No. 1C-B9-00-15-029
the various information systems involved. However, nothing came to our attention during our
audit 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 from March 30, 2015 through April 10, 2015 at the Plan's
office in Cypress, California. Additional audit work was completed at our office in Cranberry
Township, Pennsylvania.

Methodology
We examined the rate build-up of the Plan’s Federal rate submission and related documents as a
basis for validating the Plan’s standard rating methodology. We verified that the factors, trends,
and other related adjustments used to determine the FEHBP premium rate(s) were sufficiently
supported by source documentation. Further, we examined claim payments to verify that the
cost data used to develop the FEHBP rates was accurate, complete and valid. 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 objective.




                                                4                           Report No. 1C-B9-00-15-029
 IV. MAJOR
        III. CONTRIBUTORS
              RESULTS OF THETO THIS REPORT
                             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 year 2013. Consequently, the audit did not
identify any questioned costs and no corrective action is necessary.




                                            5                             Report No. 1C-B9-00-15-029
 IV. MAJOR CONTRIBUTORS TO THIS REPORT

COMMUNITY-RATED AUDITS GROUP

        , Auditor-in-Charge




           , Senior Team Leader

            , Group Chief




                                  6   Report No. 1C-B9-00-15-029
                                                                                                                         



                                       Report Fraud, Waste, and 

                                           Mismanagement 

                                                  Fraud, waste, and mismanagement in
                                               Government concerns everyone: Office of
                                                   the Inspector General staff, agency
                                                employees, and the general public. We
                                              actively solicit allegations of any inefficient
                                                    and wasteful practices, fraud, and
                                               mismanagement related to OPM programs
                                              and operations. You can report allegations
                                                          to us in several ways:


                        By Internet:               http://www.opm.gov/our-inspector-general/hotline-to-
                                                   report-fraud-waste-or-abuse


                         By Phone:                 Toll Free Number:                              (877) 499-7295
                                                   Washington Metro Area:                         (202) 606-2423


                           By Mail:                Office of the Inspector General
                                                   U.S. Office of Personnel Management
                                                   1900 E Street, NW
                                                   Room 6400
                                                   Washington, DC 20415-1100
                     
                                                                                                                         
                                                                                                                         




                                                             -- 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 (http://www.opm.gov/our-inspector-general), 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.

                                                                                                                   Report No. 1C-B9-00-15-029