oversight

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)

                                                   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