,u.s. OFFICEOF PERSONNEL MANAGEMENT , " OFFICE OFTIIEINSPECTOR GENERAL' , , ,OFFICE OF AlJDITS .'.,'... ;.'. ,$liljject: Date: '<, SE:lP,t:~ITIb~r 8, 2009 ~"CAUTlON-- ,,' Thisaudil r:ep()rt~asbc~iJdjslri~\j.ted 10 Fedcridof/icials who are responsible Iorlh~adminjstralion of the ailditedpr-ogram', This audi! report may'conlaJn pr-oprietary(lata1:Vhiehisprofecte<l,byFederallaw(18lJ.S,c'19OS). Tberefore, while this aud"it reporlis , li'v,aiIab!eli~derlheFreedoill.offpform:atlonMt a,n,d made available fo die publkjln theQl(;,webpage,cauliori ,needs to,beexercised beI(lrereleasing 'therep0r't iothe general public asH mayc(lntain proprietary infQr-mationlhal was redactedIrornlhe publicly dislribuledcopy. ' " ,, , , UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington, DC 20415 Office of the Inspector General AUDIT REPORT Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization PacifiCare of Nevada Contract Number 2899 - Plan Code K9 Cypress, California Report No. 1C-K9-00-09-007 Da~: September 8, 2009 Michael R. Esser Assistant Inspector General for Audits www.opm.goll www.usajobs.gOIl 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 Nevada Contract Number 2899 - Plan Code K9 Cypress, California Report No. lC-K9-00-09-007 Da~: september 8, 2009 The Office of the Inspector General performed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at PacifiCare of Nevada (Plan). The audit covered contract years 2004 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 PerSOlmel Management's rating instructions for the years audited. www.optn.gov www.usajobs.gov CONTENTS Page EXECUTIVE SUMMARy i I. INTRODUCTION AND BACKGROUND 1 n. OBJECTIVES, SCOPE, AND METHODOLOGy 3 m. RESULTS OF 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 PacifiCare of Nevada (plan). The audit covered contract years 2004 through 2008 and was conducted at the Plan's office in Cypress, California. The audit was conducted pursuant to the provisions of Contract CS 2899; 5 U.S.c. Chapter 89; and 5 Code of Federal Regulations (CPR) 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, amlUitants, and dependents. The FEHBP is administered by OPM's Center for Retirement and Insurance Services. The provisions ofthe 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 earners to the Federal Employees Health Benefits Act and implementing regulations promulgated by OPM. The FEHBP should pay a market price rate, FEHBP ContractsJMembers which is defined as the best rate offered to March 31 either of the two groups closest in size to 5,000 the FEHBP. In contracting with 4,500 community-rated carriers, OPM relies on 4,000 3,500 carrier compliance with appropriate laws 3,000 and regulations and, consequently, does not 2,500 negotiate base rates. OPM negotiations 2,000 relate primarily to the level of coverage and 1,500 other unique features of the FEHBP. 1,000 500 The chart to the right shows the number of o 2004 2005 2006 2007 2008 FEHBP contracts and members reported by • Contracts 2,045 1,690 1,526 1,5281,374 the Plan as of March 31 for each contract o Members 4,672 3,514 3,171 3,125 2,785 year audited. 1 The Plan has participated in the FEHBP since 1983 and provides health benefits to FEHBP members throughout the Las Vegas and Clark County areas. The last audit conducted by our office covered contract years 1998 through 2000,2002, and 2003~ All questioned costs associated with that audit have been resolved. The preliminary results ofthis audit.were discussed with Plan officials at an exit conference and through subsequent correspondence. A draft report was also provided to the Plan for review and comment. The Plan's response to the audit report contained sufficient documentation to resolve the draft report's findings. 2 II. OBJECTIVES, SCOPE, AND METHODOLOGY Objectives The primary objectives of the audit were to verify that the Plan offered market price rate~ to the FEHBP and to verify that the loadings to the FEHBP rates were reas~nable 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. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and FEHBP Premiums Paid to Plan conclusions based on our audit objectives. $15 This performance audit covered contract years 2004 through 2008. For these years, the FEHBP paid $10 approximately $54 million in premiums to the Plan. The premiums paid for each contract year audited are shown on the chart to the right. $5 OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP contract, $0 applicable laws and regulations, and OPM rate .Revenue 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 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, ~n:follment, 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 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 ofthe United States. The audit fieldwork was performed at the Plan's office in Cypress, California, during January 2009. Additional audit work was completed at our 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 Caniers to deteffi1ine the propriety of the FEHBP premiums and the reasonableness and acceptability ofthe 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 perfoffi1ed other auditing procedures necessary to meet our audit objectives. 4 III. RESULTS OF AUDIT Our audit showed that the Plan's rating of the FEHBP was in accordance with the applicable laws, regUlations, and OPM's rating instructions to carriers for contract years 2004 through 2008. 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 Chief , Senior Team Leader 6
Audit of the Federal Employees Health Benefits Program Operations of PacifiCare of Nevada
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)