oversight

Audit of the Federal Employees Health Benefits Program Operations at MVP Health Care - Eastern Region

Published by the Office of Personnel Management, Office of Inspector General on 2013-02-21.

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 MVP Health Care - Eastern

                          Region




                                                   Report No. l C-GA-OO-12-063

                                                    Date: February 21, 2013




                                                                  -- CAUTION ­

This ~udit r..po r t h a s bf...n di ,tribul..d to F ..der:tl official. w ho are nspo n sib l.. for the administration olth.. audited program. This a u di t
. ..p ort ID3) " c on ta in propri..ta IT d a ta which i . p r ot ect..d b)"F..duallaw (18 L S.C. 1905). Thu ..for .., ... hi!.. t bi. a udit report i . a , "ailabl..
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r ..lu gng the po rt to t b .. g..o..ra l public :1.S il may co nta in propriet ary informa tio n th ai wa s redacted from th .. publici)"distributed copy.
                                                     AUDIT REPORT



                                Federal Employees Health Benefits Program

                             Community-Rated Health Maintenance Organization

                                    MVP Health Care – Eastern Region

                                 Contract Number CS 2362 - Plan Code GA

                                          Schenectady, New York




              Report No. 1C-GA-00-12-063                                                      February 21,2013 

                                                                                        Date: _______________




                                                                                      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

                          MVP Health Care – Eastern Region

                       Contract Number CS 2362 - Plan Code GA

                                Schenectady, New York



         Report No. 1C-GA-00-12-063                       Date: February 21, 2013

The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at MVP Health Care – Eastern Region (Plan). The audit
covered contract years 2008 through 2010, and 2012, and was conducted at the Plan’s office in
Schenectady, New York. Based on our audit of contract years 2008 through 2010, and 2012, we
have no questioned costs. However, we found the Plan applied an inappropriate loading to the
FEHBP rates in contract year 2012.

In contract year 2012, we found the Plan applied a Health Dollars benefit loading to the FEHBP
rates. The Health Dollars benefit is used by members to purchase health and wellness programs
to promote healthy living. Because it is not an FEHBP contracted benefit and cannot be charged
to the FEHBP, we disallowed the loading. We found that by removing the disallowed loading,
there was no material cost impact to the 2012 FEHBP rates.

We found that the FEHBP rates were developed in accordance with applicable laws, regulations,
and the Office of Personnel Management’s rules and regulations for contract years 2008 through
2010.




                                               i
                                                     CONTENTS 


                                                                                                                      Page

     EXECUTIVE SUMMARY .............................................................................................. i


 I. INTRODUCTION AND BACKGROUND..................................................................... 1 


II. OBJECTIVES, SCOPE, AND METHODOLOGY ......................................................... 3 


III. AUDIT FINDINGS AND RECOMMENDATIONS ...................................................... 5 


     1. Premium Rate Review............................................................................................... 5 


     2. Inappropriate Benefit Loading .................................................................................. 5 


IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 6 


     Appendix - (MVP Health Care – Eastern Region’s November 19, 2012 response to the
     Draft Report)
                      I. INTRODUCTION AND BACKGROUND

Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at MVP Health Care – Eastern Region (Plan). The audit covered contract years 2008 through
2010, and 2012, and was conducted at the Plan’s office in Schenectady, New York. The audit
was conducted pursuant to the provisions of Contract CS 2362; 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                              FEHBP Contracts/Members
rate, which is defined as the best rate                                 March 31
offered to either of the two groups closest
                                                       9,000
in size to the FEHBP. In contracting with
                                                       8,000
community-rated carriers, OPM relies on
                                                       7,000
carrier compliance with appropriate laws
                                                       6,000
and regulations and, consequently, does
                                                       5,000
not negotiate base rates. OPM
                                                       4,000
negotiations relate primarily to the level of
                                                       3,000
coverage and other unique features of the              2,000
FEHBP.                                                 1,000
                                                           0
The chart to the right shows the number of                        2008     2009     2010    2012
                                                     Contracts    3,802    3,889    3,579   4,041
FEHBP contracts and members reported
                                                     Members      8,596    8,573    7,453   7,238
by the Plan as of March 31 for each
contract year audited.



                                                1

The Plan has participated in the FEHBP since 1988 and provides health benefits to FEHBP
members in the Upstate New York’s Eastern Region area. The last full scope audit of the Plan
conducted by our office was in 2007 and covered contract years 2004 through 2007. All issues
from that audit have been resolved. In addition, we conducted a rate reconciliation audit for
contract year 2011 and found the rates charged to the FEHBP were appropriate.




                                               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                       $40
auditing standards. Those standards require that                    $35
                                                                    $30




                                                      Millions
we plan and perform the audit to obtain
                                                                    $25
sufficient, appropriate evidence to provide a                       $20
reasonable basis for our findings and conclusions                   $15
based on our audit objectives. We believe that                      $10
                                                                     $5
the evidence obtained provides a reasonable                          $0
basis for our findings and conclusions based on                            2008      2009         2010
                                                                 Revenue   $34.4     $39.7        $37.9
our audit objectives.

This performance audit covered contract years
2008 through 2010, and 2012. For the 2008 through 2010 contract years, the FEHBP paid
approximately $112 million in premiums to the Plan, as shown on the chart above. Contract year
2012 premiums were unavailable at the time of this report.

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

                                                 3

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 performed at the Plan’s office in Schenectady, New York, during
August 2012. Additional audit work was completed at our offices 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. AUDIT FINDINGS AND RECOMMENDTIONS

1. Premium Rate Review

   Based on our audit, we have accepted the Plan’s rating of the FEHBP for contract years 2008
   through 2010, and 2012, and have no questioned costs.

2. Inappropriate Benefit Loading

   In contract year 2012, the Plan included the cost of rider “MED 531L” in the FEHBP
   premium rates. The rider represents a $50 Health Dollar benefit offered to subscribers to
   spend on health, wellness and fitness programs. We reviewed the 2012 FEHBP brochure and
   determined the Health Dollar benefit was listed in the Non-FEHBP benefits available to Plan
   members section of the brochure. As stated in the brochure, “the benefits in this section are
   not part of the FEHBP contract or premium”. The inclusion of this rider inappropriately
   increased the FEHBP premium rates. We removed the loading from our audited FEHBP rate
   development. However, the removal did not have a material cost impact to the FEHBP rates.

   Plan’s Comments (see Appendix):

   The Plan agrees to exclude the Health Dollars loading from their 2013 FEHBP reconciliation,
   and from FEHBP rate developments going forward.

   Recommendation 1

   We recommend that the contracting officer require the Plan to exclude the Health Dollar
   loading in the FEHBP rate developments going forward.




                                               5

            IV. MAJOR CONTRIBUTORS TO THIS REPORT
Community-Rated Audits Group

               , Auditor-In-Charge 


                   , Lead Auditor


                 , Auditor



                 ., Chief

                , Senior Team Leader




                                       6

                                                                                                 APPENDIX

November 19, 2012


                                                                                 VIA e-mail
U.S. Office of Personnel Management
Office of the Inspector General
800 Cranberry Woods Dr, Suite 270
Cranberry Township, PA 16066


Re:	      MVP Health Plan, Inc. Audits Retrospective/Reconciliation Rate Audit
          GA: 2008, 2009, 2010, 2012


Dear

Thank you for your draft audit report. MVP has no issues or concerns with this report. As
recommended, we will exclude the loading for the Health Dollars from our 2013 reconciliation
and future rates accordingly.



Sincerely,




Associate Director of Actuarial
MVP Health Plan, Inc.


Cc:       David W. Oliker, President & CEO
                   OPM




      MVP Health Care 625 State Street / P.O. Box 2207 / Schenectady, NY 12301-2207 / (518) 370-4793 / www.mvphealthcare.com