Office of Personnel Management, Office of Inspector General | U.S. Office of Personnel Management | Audit of the Federal Employees Health Benefits Program Operations at Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc.

Audit of the Federal Employees Health Benefits Program Operations at Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc.

Published by the Office of Personnel Management, Office of Inspector General on 2013-05-17.

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 Kaiser Foundation Health
Plan of the Mid-Atlantic States, Inc.

Report No. 1C-E3-00-13-008

Date: May 17, 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
Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc.
Contract Number CS 1763 - Plan Code E3
Rockville, Maryland

Report No. 1C-E3-00-13-008 Date: May 17, 2013

Michael R. Esser
Assistant Inspector General
for Audits

Report No. 1C-E3-00-13-008 Date: May 17, 2013

The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at Kaiser Foundation Health Plan of the Mid-Atlantic
States, Inc. (Plan). The audit covered contract year 2012 and was conducted at the Plan’s office
in Rockville, Maryland. We found that the FEHBP rates were developed in accordance with
applicable laws, regulations, and the Office of Personnel Management’s rating instructions for
contract year 2012.

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
1. INTRODUCTION AND BACKGROUND

Introduction

We comp leted an audi t of the Federal Employees Health Benefits Program (FE HB P) operations
at Kai ser Foundation Health Plan of the Mi d-Atlantic States, Inc. (Plan). TIle audit covere d
contract year 20 12. Th e audit was co nducted pursuant to the provisions of Co ntrac t CS 1763;
5 USc. Chapter 89; and 5 Co de of Fed eral Regulations (CFR) Cha pter I , Pa11 890. TIle audit
wa s performed by the Office of Personnel Ma nagement' s (OPM) Office of the Inspector Gene ral
(DIG), as established by the Inspector Gene ra l Ac t of 1978, as amended.

Background

The FE HEP wa s established by the Federal Employees Health Ben efi ts Ac t (Public Law 86

382), enac ted a ll September 28 , 1959. The FEHBP wa s crea ted to provide health insuran ce

benefits for federal employees, annuitants, and dependents . The FEHBP is administered by

Ol'M' s Healthcare and Insurance Office . TIle provisions of the Federal Employee s He alth

Benefits Ac t are implemented by O PM through regulations co dified in Chapter I , Part 890 of

Title 5, CFR . Health insurance co verage is provided thr ough co ntrac ts with health insurance

carriers who provide servi ce benefits, indemnity ben efi ts, or comprehensive m edical serv ices.

Community-rated ca rriers parti c ipating in the FEHBP are subject to various fede ral, state and

local laws, regul ations, and ordina nce s. While most carriers are subject to state j uri sdic tion,

many are further subj ect to the Health Ma intena nce Orga niza tion Ac t of 1973 (Public Law 93

222), as amended (i.e., many co mmunity-rated carriers are federa lly qualified ). In addition,

parti cipation in the FE HB P subjects the carriers to the Federal Employees Health Benefits Ac t

and implementing regula tions promulgated by

a PM .
FEHBP Contr acts/ Members
March 31

The FE HB P should pay a market pri ce rate,

which is de fine d as the best rate offered to either

140,000
of the two groups closest in size to the FEHBP.

120,000
In co ntracting with co mmunity-rated carrie rs,

100,000
a PM reli es on carrier co mpliance with

80,000
appro priate laws and regula tions and,

60,000
consequently , does not negoti ate base rates.

40,000
a PM negoti ations relate primaril y to the level

20,000
of coverage and othe r uni que features of the

FEHBP.

o
2012
. Con/racts 66,537
r::J Members 131,967
The cha rt to the right shows the number of

FEHBP co ntrac ts and members reported by the

Plan as of Ma rch 3 1, 20 12.

The Plan has participated in the FEHBP since 1975 and provides health benefits to FEHBP
members in the metropolitan Washington, D.C. and Baltimore, Maryland areas. The last audit of
the Plan conducted by our office was in 2011, and covered contract years 2009 through 2011.
The prior audit did not identify any deficiencies.

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.

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 contract year 2012. At the time of our report, the 2012
subscription income report was not available.

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 the SSSGs); 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
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.

3
The audit fieldwork was conducted at the Plan’s office in Rockville, Maryland, during January
2013. Additional audit work was completed at our office located in Cranberry Township,
Pennsylvania.

Methodology

We examined the Plan’s Federal rate submission and related documents as a basis for validating
the market price rate. 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 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 Rate Instructions to Community-Rated Carriers for contract year 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

Chief

, Senior Team Leader