r ' . . U.S~OFFICEOF PERSONNEL MANAGEMENT OFFICE OF THE INSPEctoRGENEm . :OPFICE QFAUDrrS SllbJ~ct:<· " ,.:':".:' , .-.:,> . ,' . . . ·RepoflN().lC~Gi~OO~09~:O06 ,:-". '"" >." " , . -CAUTION - This. audit repl,lJ-t hasbeen distributed 10 Federal offidals who are responslblef')r theadministratioil oftheaudiled program•.this .auditl-epOi1may contain pl'9prietary data which is protcCied by Fedel-ai law (iSU.S.C. 1905), Therefoi-e, whiie tllis iiuditrep9rt is 3vailal;* under the Freedom ')f1nrDrina~iml Attand madeavaiIablcto the pupli': on the ole webpage,cautioJl.Jlceds to be exerCise.d before r:eleasing the report io the generai public as it may ~on!ain proprietary information that was redacted from tile PilbliClY dis!j-ibutedeopy. . UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington, DC 20415 Office oUII'.". Inspector G(".I;\~ral AUDIT REPORT Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization PacifiCare of Texas Contract Number 2908- Plan Code GF Cypress, California Report No. lC-GF-OO-09-006 Date: September 8, 2009. Michael R. Esser Assistant Inspector General for Audits www.opm.gov www.usajobs.gov UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington, DC 20415 Office of the Inspector General EXECUTIVE SUMMARY Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization PacifiCare of Texas Contract Number 2908 - Plan Code GF Cypress, California Report No. lC-GF-OO-09-006 Date: September 8, 2009 The Office of the Inspector General perfonned an audit of the Federal Employees Health Benefits Program (FEHBP) operations at PacifiCare of Texas (Plan). The audit covered contract years 2006 through 2008 and was conducted at the Plan's office in Cypress, California. The audit showed that the Plan's rating of the FEHBP was in accordance with applicable laws, regulations, and the Office of Personnel Management's rating instructions for the years audited. www.opm.gov www.usaJobs.gov CONTENTS Page EXECUTNE SlJMMARy............................................................................................... i I. INTRODUCTION AND BACKGROUND ................................ ~ .................................... 1 II. OBJECTNES, SCOPE, AND METHODOLOGY ......................................................... 3 III. RESULTS OF AUDIT .................................................... ;............................................... 5 N. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 6 I. INTRODUCTION AND BACKGROUND In trod uction . We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at PacifiCare of Texas (Plan). The audit covered contract years 2006 through 2008. The audit was conducted pursuant to the provisions of Contract CS 29G8; 5 U.S.C. Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Part 890. The audit was perfonned 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, ammitants, and dependents. The FEHBP is administered by OPM's Center for Retirement and Insurance Services. 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 byOPM. FEHBP Contracts/Members March 31 The FEHBP should pay a market price rate, which is defined as the best rate offered to either of the two groups closest in size to the FEHBP. In contracting with community rated carriers, OPM relies on carrier compliance with appropriate laws and regulations and, consequently, does not negotiate base rates. OPM negotiations relate primarily to the level of coverage and other unique features of the FEHBP. The chart to the right shows the number of FEHBP contracts and members reported by the Plan as of March 31 for each contract year audited. 1 The Plan has participated in the FEHBP since 1983 and provides health benefits to FEHBP members throughout the Dallas and San' Antonio areas. The last audit conducted by our office covered contract years 2001 through 2005. The audit showed that the Plan's rating of the FEHBP was in accordance with the applicable laws, regulations, and OPM's rating instructions for the Yl:ars audited. The preliminary results of this audit were discussed with Plan officials at an exit conference and through subsequent correspondence. Since the audit showed that the Plan's rating of the FEHBP was in accordance with the applicable laws, regulations, and instructions, we did not issue a draft report. 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 FEHEP 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. r-----------------------------~ FEHBP Premiums Paid to Plan We conducted this perfOlmance audit in accordance with $40 generally accepted government auditing standards. Those standards require that we plan and perform the $30 II! I: audit to obtain sufficient., appropriate evidence to ~ provide a reasonable basis for our findings and ~ $20 conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis $10 for our findings and conclusions based on our audit objectives. $0 This performance audit covered contract years 2006 through 2008. For these years, the FEHBP paid approximately $106.7 million in premiums to the Plan. The premiums paid for each contract year audited are shown on the chart to the right. 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. 3 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 infonnation systems involved. However, nothing came to our attention during our audit testing utilizing the computer-generated data to cause us to doubt its rdiability. 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 perfonned at the Plan's office in Cypress, California, during January 2009. Additional audit work was completed at our field office in 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 ofthe internal controls in the Plan's rating system, we reviewed the Plan's rating system's policies and procedures, interviewed appropriate Plan officials, and perfonned other auditing procedures necessary to meet our audit objectives. 4 III. RESULTS OF AUDIT Our audit showed that the Plan's rating ofthe FEHBP was in accordance with the applicable laws, regulations, arid OPM's rating instructions for contract years 2006 through 2008. Consequently, we did not identify any questioned costs and no corrective action is necessary. 5 IV. MAJOR CONTRIBUTORS TO THIS REPORT Comniunity-Rated Agdits Group Auditor-In-Charge Lead Auditor Chief Senior Team Leader 6
Audit of the Federal Employees Health Benefits Program Operations of PacifiCare of Texas
Published by the Office of Personnel Management, Office of Inspector General on 2009-09-08.
Below is a raw (and likely hideous) rendition of the original report. (PDF)