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 Blue Cross and Blue Shield of Rhode Island Report No. lC-DA-OO-lO-060 Date: January 21, 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 audit report is available under the Freedom of Information Act and made available to the public on the DIG web page, 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. UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington , DC 20415 Office of the Inspector General AUDIT REPORT Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization Blue Cross and Blue Shield of Rhode Island Contract Number CS 2328 - Plan Code DA Providence, Rhode Island Report No. lC-DA-OO-lO-060 Date: January 21,2011 Michael R. Esser Assistant Inspector General for Audits www .op m .gov www.u saj obs .g oY UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington , DC 204 15 Office of the Inspec tor General EXECUTIVE SUMMARY Federal Employees Healt h Benefits Program Community-Rated Health Maintenance Organization Blue Cross and Blue Shield of Rhode Island Contract Number CS 2328 - Plan Code DA Providence, Rhode Island Report No. lC-DA-OO-1O-060 Date: January 21, 2011 The Office of the Inspector General performed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at Blue Cross and Blue Shield of Rhode Island (Plan). The audit covered contract years 2006 through 2010 and was conducted at the Plan 's office in Providence, Rhode Island. 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 years audited. www. opm .g ov www.usajobs.gov 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 Blue Cross Blue Shield of Rhode Island (Plan). The audit covered contract years 2006 through 20 10 and was conducted at the Plan 's office in Providence, Rhode Island. The audit was conducted pursuant to the provisions of Contract CS 2328; 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, FEHBP Contracts/Members which is defined as the best rate offered to March 31 either of the two groups closest in size to 3,000 the FEHBP. In contracting with 2,500 community-rated carriers, OPM relies on carrier compliance with appropriate laws 2,000 and regulations and, consequently, does not 1,500 negotiate base rates. OPM negotiations relate primarily to the level of coverage and 1,000 other unique features of the FEHBP. 500 The chart to the right shows the number of 2006 2007 2008 2009 2010 FEHBP contracts and members reported by I!!IlConlracts 2,220 1,933 1,640 1,317 1,094 the Plan as of March 31 for each contract o Members 2,998 2,560 2,111 2,024 1,599 year audited. The Plan participated in the FEHBP from 1988 through 2010 and provided health benefi ts to FEHBP members in Rhode Island and portions of Southeastern Massachusetts. The Plan ceased participation in the FEHBP on December 31, 20 I O. 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 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. FEHBP Premiums Paid to Plan We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that $16 we plan and perform the audit to obtain sufficient, appropriate evidence to provide a $11 reasonab le basis for our findings and conclusions $6 based on our audit objectives. We believe that the evidence obtained provides a reasonable basis $1 for our findings and conclusions based on our audit objectives. • Revenue This performance audit covered contract years 2006 through 2010. For contract years 2006 through 2009, the FEHBP paid approximately $65 million in prem iums to the Plan I. The premiums paid for each contract year audited are 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 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 simi larly sized subscriber groups (SSSG) were selected; • the rates charged to the FEHBP were the market price rates (i.e., equi valent to the best rate offered to the SSSGs); and • the loadings to the FEHBP rates were reasonable and equitable. I Premiums paid to FEHBP carriers for 20 I0 were not available at the time of this report. 3 In conducting the audit, we relied to varying degree s 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 achie ve 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 Providence, Rhode Island , during September 20 10. Additional audit work was completed at our field offices in Cranberry Township, Pennsylvania , and Jacksonville, Florida. Methodology We examined the Plan's federal rate submissions and related documents as a bas is for validati ng the market price rates. Further, we examined claim payments to verify that the cost data used to develop the FEHBP rates were accura te, compl ete and valid. In addition, we examined the rate development docum entat ion and billings to other groups , such as the SSSGs, to determine if the market price was actually charged to the FEHB P. Finally , we used the contract, the Federal Emplo yees 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 acceptabil ity of the Plan 's rating system . To gain an unders tanding of the internal controls in the Plan' s rating system , we reviewed the Plan' s rating system's polici es 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 2006 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 Audito r-in-Charge Lead Auditor Lead Audi tor Chief Sen ior Team Leader 6
Audit of FEHBP at Blue Cross and Blue Shield, Rhode Island
Published by the Office of Personnel Management, Office of Inspector General on 2011-01-21.
Below is a raw (and likely hideous) rendition of the original report. (PDF)