oversight

Audit of the Federal Employees Health Benefits Program Operations at Coventry Health Care of Louisiana

Published by the Office of Personnel Management, Office of Inspector General on 2011-03-24.

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 Coventry Health Care of

                         Louisiana




                                         Report No. lC-BJ-OO-ll-008


                                          Date: March 24, 2011




                                                       -- 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 report is available
under the )"reedam 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 publici)' distributed
copy.
                             UNITED STATES OFfICE OF PERSONNEL MAKAGEMENT
                                                \Vashingl\lll. DC :!04J)"


   Ofti . .' c of the
Jn~p<.'Ltor    General




                                                AUDIT REPORT




                                     Federal Employees Health Benefits Program

                                  Community-Rated Health Maintenance Organization

                                         Coventry Health Care of Louisiana

                                       Contract Number 2050 - Plan Code BJ

                                                St. Louis, Missouri




                         Report No. IC-BJ-00-ll-008                         Date:   3/24/2011




                                                                             Michael R. Esser
                                                                             Assistant Inspector General
                                                                                for Audits




         www,opm.gov
                                                                                                 www.usajobs.gov
                          UNITED STATES OFFICE OF PERSONNEL '\1ANAGEMENT

                                                W;:.t:-,hinglon. DC 2().;1.15



  Oftice llf the
Impector General




                                     EXECUTIVE SUMMARY





                              Federal Employees Health Benefits Program

                           Community-Rated Health Maintenance Organization

                                  Coventry Health Care of Louisiana

                                Contract Number 2050 - Plan Code BJ

                                         St. Louis, Missouri




                   Report No. lC-BJ-00-ll-008                             Date:   3/24/2011


      The OUice of the Inspector General performed an audit of the Federal Employees Health Benefits
      Program (FEHBP) operations at Coventry Health Care of Louisiana (Plan). The audit covered
      contract years 2007 through 2010 and was conducted at the Plan's of1ice in SI. Louis, Missouri.
      We found that the FEHBP rates were developed in accordance with applicable laws, regulations,
      and the Ot1ice of Personnel Management's rating instructions for the years audited.




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                            CONTENTS



                                         Page

   EXECUTIVE SUMMARY                      .i


 I. INlRODUCTION AND BACKGROUND           1


11. 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 Coventry Health Care of Louisiana (Plan). The audit covered contract years 2007 through
2010 and was conducted at the Plan's office in St. Louis, Missouri. The audit was conducted
pursuant to the provisions of Contract CS 2050; 5 U.S.C. Chapter 89; and 5 Code of Federal
Regulations (CFR) Chapter I, Part 890. The audit was perfonned 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 I, Part 890 of Title 5, CFR.
Health insurance coverage is provided through contracts with various 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.

The FEHBP should pay a market price rate,                     FEHBP Contracts/Members
which is defined as the best rate offered to                         March 31

either of the two groups closest in size to          5,000
the FEHBP. In contracting with
community-rated carriers, OPM relies on              4.000
carrier compliance with appropriate laws
and regulations and, consequently, does not
negotiate base rates. OPM negotiations
relate primarily to the level of coverage and
other unique features of the FEHBP.

The chart to the right shows the number of
                                                              2007     2008     2009    2010
FEHBP contracts and members reported by
                                                • Contracts   1, 722   1,652    1,438   1,270
the Plan as of March 31 for each contract       o Members     4,028    3,776    3,149   2,646
year audited.
The Plan has participated in the FEHBP since 1986 and provides health benefits to FEHBP
members throughout the New Orleans area. The last audit conducted by our office was a rate
reconciliation audit for contract year 2006. We agreed with the Plan's 2006 proposed reconciled
rates.

The preliminary results of this audit were discussed with Plan officials at an exit conference and
through subsequent correspondence. Since the audit showed that the Plan's rating of the FEHBP
was in accordance with applicable laws, regulations, and instructions, we did not issue a draft
report.




                                                2

                     II. OBJECTIVES, SCOPE, AND METHODOLOGY


Objectives

The primary objectives of the audit were to verify that the Plan olTered 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.



We conducted this perforn1ance audit in accordance with                           FEHBP Premiums Paid to Plan
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 years 2007
through 2010. For contract years 2007 through 2009, the
                                                                         • Revenue
FEHBP paid approximately $43.8 million in premiums
to the Plan. I The premiums paid for each contract year
audited are shown on the chart to the right.

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 SSSGs); and

           •	 the loadings to the FEHBP rates were reasonable and equitable.

I   The premiums paid report for 2010 was not available at the time this report was completed.
                                                           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 performed in accordance with generally accepted governrnent auditing standards,
issued by the Comptroller General of the United States.

The audit fieldwork was performed at the Plan's office in St. Louis, Missouri, during November
20 IO. Additional audit work was completed at our offices in Jacksonville, Florida, and
Washington, D.C.

Methodology

We examined the Plan's federal rate submissions and related documents as a basis for validating
the market price rates. Further, we examined claim payments to verify that the cost data used to
develop the FEHBP rates was accurate, complete and valid. 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's 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 2007 through 2010.
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

                           eamLeader




                                        6