oversight

Audit of the Federal Employees Health Benefits Program Operations at Kaiser Foundation Health Plan of Georgia, Inc.

Published by the Office of Personnel Management, Office of Inspector General on 2013-03-28.

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 Georgia, Inc.



                                           Report No. 1C-F8-00-13-009

                                           Date: March 28, 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 Georgia, Inc.
                                    Contract Number CS 2163 - Plan Code F8
                                                Atlanta, Georgia



                 Report No. 1C-F8-00-13-009                                          Date:        March 28, 2013




                                                                                      Michael R. Esser
                                                                                      Assistant Inspector General
                                                                                        for Audits



                                                      -- 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.
                              EXECUTIVE SUMMARY




                      Federal Employees Health Benefits Program
                   Community-Rated Health Maintenance Organization
                     Kaiser Foundation Health Plan of Georgia, Inc.
                       Contract Number CS 2163 - Plan Code F8
                                   Atlanta, Georgia


         Report No. 1C-F8-00-13-009                    Date: March 28, 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 Georgia, Inc. (Plan).
The audit covered contract years 2011 and 2012. 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.




                                              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 (FEHBP) operations
at Kai ser Foundati on Health Plan of Georgia , Inc. (Plan). TIle audit covere d contract yea rs 20 11
and 20 12. The audit was co nducted pursuant to the provisions of Co ntrac t CS 2 163; 5 U.s.c.
Chapter 89; and 5 Code of Federal Regul ations (CFR) Chapter 1, Part 890 . The audit wa s
performed by the Office of Persomtel Ma nage ment' s (OPM) Office of the Inspector Ge nera l
(DIG), as established by the Inspector Genera l Act of 1978, as amended.

Background

The FEHEP wa s estab lished by the Federal Employees Health Benefi ts Act (Public Law 86 ­
382), enac ted a ll September 28 , 1959. The FEHBP wa s crea ted to provid e health insurance
benefits for federal employees, annuitants, and dependents . The FEHBP is administered by
OPM ' s Healthcare and Insurance Office . TIle provisions of the Federal Employees Health
Benefits Act are implemented by OPM through regul ations codified in Chapter 1, Part 890 of
Title 5, CFR . Health insurance coverage is provided through co ntract s with health insurance
carriers who provid e service benefit s, indemnity benefits, or comprehensive m edical serv ices.

Commun ity-rated ca rriers parti cipating in the FEHBP are subject to various fede ral, state and
local laws, regul ations, and ordinance s. While most carriers are subject to state j uri sdic tion,
many are further subj ect to the Health Ma intenance Orga nization Act of 1973 (Public Law 93­
222), as amended (i.e., many commun ity-rated carriers are federa lly qualified). In addition,
parti cipation in the FEHBP subjects the carriers to the Fede ral Employees Health Benefits Act
and impl ementing regulations promulgated by OPM.

The FEHBP should pay a market price                                   FEHBP Contracts/Member s
                                                                             March 31
rate , which is de fined as the best rate
offered to either of the two groups closest
in size to the FEHBP. In co ntrac ting with                30,000

community-rated carriers, OPM re lies on                   25,000
carrie r co mpliance with appro pria te laws
                                                           20,000
and regul ations and, consequently, does
not negotiate base rates. OPM negoti ations                15,000
re late primaril y to the level of coverage                10,000
and other unique features of the FEHBP.
                                                            5,000
The chart to the right shows the number of                      o
FEHBP co ntrac ts and member s report ed by                                 2011                 2012
                                                        . Con/racts        13,198            12,983
the Plan as of Ma rch 3 1 for eac h co ntract           c Members          29,988            29,398
yea r audited.




                                                   I

The Plan has participated in the FEHBP since 1987 and provides health benefits to FEHBP
members in the Atlanta, Georgia metropolitan area and Athens, Columbus, Macon and Savannah
service areas. The last audit of the Plan conducted by our office was a full scope audit of
contract years 2008 through 2010. During that audit, we found the FEHBP rates were developed
in accordance with applicable laws, regulations, and the Office of Personnel Management’s rate
instructions.

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
                                                                              FEHBP Premiums Paid to Plan

We conducted this performance audit in
accordance with generally accepted government
auditing standards. Those standards require that




                                                                  Millions
we plan and perform the audit to obtain                                        $150

sufficient, appropriate evidence to provide a                                  $100
reasonable basis for our findings and conclusions
based on our audit objectives. We believe that                                   $50
the evidence obtained provides a reasonable                                      $0
basis for our findings and conclusions based on                                               2011
                                                                             Revenue         $136.7
our audit objectives.

This performance audit covered contract years
2011 and 2012. For contract year 2011, the FEHBP paid approximately $136.7 million in
premiums to the Plan, as shown on the chart above 1.

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

1
    At the time of the report, the 2012 subscription income was not available.
                                                            3
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.

The audit fieldwork was conducted at the Plan’s office in Atlanta, Georgia, during the month of
November 2012. Additional audit work was completed at our offices located in Jacksonville,
Florida, and Cranberry Township, Pennsylvania.

Methodology

We examined the Plan’s Federal rate submissions and related documents as a basis for validating
the market price rates. 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 years 2011 and
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

                , Auditor



                  ., Chief

                 , Senior Team Leader




                                        6