oversight

Audit of the Federal Employees Health Benefits Program Operations at Aetna Open Access Northern New Jersey

Published by the Office of Personnel Management, Office of Inspector General on 2011-02-17.

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 Aetna Open Access
                     Northern New Jersey



                                           Report No. lC-JR-OO-11-006

                                           Date:       February 17, 2011




                                                      -- CAUTION -­
This audit report has been distributed 10 Federal officials who are responsible for the administration of the audited program. This
audit report rna): contain proprietary data which is protected b)' Federalla"" (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 rna)' contain proprietary information that was redacted from the publicly
distributed copy.
                          L':--;ITED ST.\TES OFFICE 01' PERSOI\NEL \IA:\.\GE\I1'\T
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                                            AUDIT REPORT



                                   Federal Employees Health Benefits Program

                                Community-Rated Health Maintenance Organization

                                    Aetna Open Access - Northern New Jersey

                                    Contract Number CS 2914 - Plan Code JR

                                             Blue Bell, Pennsylvania




                       Report No. 1C-JR-OO-ll-006                            Date:   2/17 /2011




                                                                             / (,k) r: /-:_

                                                                             Michael R. Esser
                                                                             Assistant Inspector General
                                                                               for Audits




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                          I;NITED STATES 01' FleE OF PERSONNEL MANAGEMENT
                                              Wa . . hill~ton, DC 20-1.15


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                                       EXECUTIVE SUMMARY





                                Federal Employees Health Benefits Program

                             Community-Rated Health Maintenance Organization

                                 Aetna Open Access - Northern New Jersey

                                 Contract Number CS 2914 - Plan Code JR

                                          Blue Bell, Pennsylvania




                    Report No. lC-JR-OO-ll-006                          Date: 2/1 7/2011


        The Office of the Inspector General performed an audit of the Federal Employees Health Benefits
        Program (FEHBP) operations at Aetna Open Access - Northern New Jersey (Plan). The audit
        covered contract years 2006 through 2010 and was conducted at the Plan's office in Blue Bell,
        Pennsylvania. 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.




        www,opm.gov                                                                        www,usajobs.gov
                            CONTENTS



                                         Page

   EXECUTIVE SUMMARy                       i


 I. INTRODUCTION AND BACKGROUND           I


II. OBJECTIVES, SCOPE, AND METHODOLOGY    3


III. RESULTS OF THE AUDIT                 5


IV. MAJOR CONTRIBUTORS TO THIS REPORT     6

                     I. INTRODUCTION AND BACKGROUND


Introduction

We completed an audit ofthe Federal Employees Health Benefits Program (FEHBP) operations
at Aetna Open Access - Northern New Jersey (Plan). The audit covered contract years 2006
through 2010 and was conducted at the Plan's office in Blue Bell, Pennsylvania. The audit was
conducted pursuant to the provisions of Contract CS 2914; 5 U.S.c. Chapter 89; and 5 Code of
Federal Regulations (CFR) Chapter I, 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 I, 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 rate,                      FEHBP Contracts/Members
which is defined as the best rate offered to                            March 31

either of the two groups closest in size to         16,000
the FEHBP. In contracting with                      14,000    1.)----_.----------11
community-rated carriers, OPM relies on             12,000

carrier compliance with appropriate laws            10,000

and regulations and, consequently, does not
                                                     8,000

negotiate base rates. OPM negotiations
                                                     6.000

relate primarily to the level of coverage and
other unique features of the FEHBP.                  4,000

                                                     2,000

The chart to the right shows the number of                o
                                                              2006     2007     2008     2009     2010
FEHBP contracts and members reported by                       5,804    7,419    6,795    6,539    6,135
                                                • Contracts
the Plan as of March 31 for each contract
                                                o Members     13,280   14,270   12,886   12,439   11,549
year audited.
The Plan has participated in the FEHBP since 2002 and provides health benefits to FEHBP
members in Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic,
Somerset, Sussex, Union, and Warren Counties of Northem New Jersey. This was the first audit
of the Plan conducted by our office.

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 FEHBI' 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 gO\erning the FEHBp.


                                                                            FEHBP Premiums Paid to Plan

We conducted this performance audit in
accordance with generally accepted government                             $60


auditing standards. Those standards require that                          $50

we plan and perform the audit to obtain                                   $40

sufficient. appropriate evidence to provide a                             $30

reasonable basis for our findings and conclusions                         $20

based on our audit objectives. We believe that                            $10

the evidence obtained provides a reasonable basis                          $0

for our findings and conclusions based on our
audit objectives.                                                  • Revenue


This performance audit covered contract years 2006 through 20 I O. For contract years 2006
through 2009. the FEIIBp paid approximate!) S20.. million in premiums to the Plan. l The
premiums paid for each contract year audited arc shown on the chart above.

OIG audits of community-rated carriers arc designed to test carricr compliance with thc FU lBp
contract. applicable laws and regulations. and Op",l 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 FEIIBp were the market price rates (i.e.. equivalent to the best
              rate offered to the SSSGs): and

           •	 the loadings to the FEIIBP rates were reasonable and equitable.



I   The premiums paid report for 2010 \vas not available at the time this report was completed.
                                                            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 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 governrnent auditing standards,
issued by the Comptroller General of the United States.

The audit fieldwork was performed at the Plan's office in Blue Bell, Pennsylvania, during
November 20 I o. Additional audit work was completed at our field offices in Cranberry
Township, Pennsylvania, and Jacksonville, Florida.

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's 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 rating instructions to carriers for contract years 2006 through 2010.
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

                   Lead Auditor

                  Auditor

                   Auditor

                     Auditor


                    Chief

                 Senior Team Leader




                                        6