oversight

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)

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                            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.




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                                                      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




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