Audit of the Federal Employees Health Benefits Program Operations at HMO Health,Ohio

Published by the Office of Personnel Management, Office of Inspector General on 2010-10-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                              us, OFFICE OF PERSOJ\t"NEL MANAGEMENT
                                                                           OfFiCE OF THE INSPECTOR GENEIV\L
                                                                                            OFFICE OF AUDITS

Final Audit Report

         Audit of the Federal Employees Health Benefits
           Program Operations at HMO Health Ohio

                                                  Report No. 1C-L4-00-1 0-040

                                                   Date:          Octohpr              20        2010

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                                              \VJshingtorJ. DC 204.15

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                                               AUDIT REPORT

                                    Federal Employees Health Benefits Program

                                 Community-Rated Health Maintenance Organization

                                               HMO Health Ohio

                                     Contract Number CS 20lS - Plan Code L4

                                                 Cleveland, Ohio

                        Report No. 1C-L4-00-1O-040                      D~le: October    20   ,   20 1   0

                                                                        Michael R. Esser
                                                                        Assistant Inspector General
                                                                          for Audits

                                U ITED STATES OFFICE OF PERSONNE1. MANAGEMENT

   Office of !he
I n~I!'S10'f 'Gcner ;11

                                             EXECUTIVE SUMMARY

                                      Federal Employees lIeallh Bellefits P"ogram

                                   Community-Rated Health Maintenance Organization

                                                 HMO Health Ohio

                                       Contract Number CS 2015 - PlaD Code L4

                                                   Cleveland, Ohio

                          Report No. lC-L4-00-10-040                Date: October 20,        2010

            The Office of the Inspector General performed an audit of the Federal Employees Heallh Benefits
            Program (FEHBP) operations at HMO Health Ohio (Plan). The audit covered contract years
            2006 through 2009 and was conducted at the Plan's office in Clevelalld. Ohio. We found that the
            FEHBP rates were developed in accordance with the applicable laws, regulations, and the Office
            of Personnel Management'~ rating instrLlctions for the years audited.



   EXECCTIVE SU\<lMARY                           1

 I. INTRODUCTION A):D   BACKGROU~O               1


III. RESULTS OF THE AUDIT..                     5


                      1.   INTRODUCTIO~           AND BACKGROUND


We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at HMO Health Ohio (Plan) in Cleveland. Ohio. The audit covered contract years 2006 through
2009. The audit was conductcd pursuant to the provlsions of Contract CS 2015: 5 U.S.c.
Chapter 89; and 5 Code of Federal Regulations (CFR) Chapte, I, Part 890. The audit was
perfonned by the Ofiice of Personne.l i\'!anagel11ent's (OPlvl) 0 ffi ce of the Inspector General
(OIG), as established by the Inspector Generai Act of 1978. as amended.


The FEHBP was established by the Federal Employees He,1lth Beneftts Act (Public La,,·; 86-382).
enacted on September 28, 1959. The FEHI3P \\'as crea,ed to provide health insurance benefits
for federal employees. annuitants. and dependents. The FEHEP is administered by OPM's
Retirement and Benefits Office. Tile provisions of the Federal Employees Health Benefits Act
are implemented by OP1"1 through regulations codified in Chapter ], Palt 890 of Title 5. CFR.
Health insurance coverage is provided through contracts with health insurance carriers \\'ho
provide service benefits, indel11n<ty benefits. or comprehensive medical services.

Cummunity-rated carriers panicipating in the FEHBP are sllbject to various federal, state and
local laws, regulations, and urdinances. \"ihile ,nost carriers are subject to Slate jurisdiction,
many are further subject to tne Health I'l/laintemmce Organization Act of [973 (Public Law 93­
222), as amendec (i.e .. many communi:y-rated carriers are federally qualified), In addttion,
participation in the FFHBP subjects the carriers (0 the l'ederal Employees Health Benefits ....ct
and implementing regulations promulgated by OPi\1.

The FEHBP should pay a market price rate.                         FEHBP Contracts/Members
whi",h is uefineu a, Llle best rate olrercLi tu                          March 31

either oflhe two groups closest in size to               5,000
tbe FEHBP. tn contTRcting with                           '.500
community-rated carriers. OP/vi relies on                ',000
carrier compliance with appropriale laws                 3.500
and regulations and. consequently, does not
negotiate base rales. OPM negolia1 ions                  2,000
relate primarily to the level of coverage and            1.500
other unique features oflhe FEHEP.                       1,000
The chan to the right shows the number of                     o
FEHBP contracts and members reponed by
                                                  • Con!racts
the Plan as of :--"'Iareh 31 [or each eOluraCI    o A1etr;·bers   d.SS2    3448     3,024
year audited.
The Plan has participated in the FEHBP since 1985 and provides bealth benefits to FEHBP
members throughout Nonheast Ohio. The last audit conducted by our offi.ce was a full scope
audit and covered contract years 200] through 2005. All issues related to that audit have been

The preliminary results ofth;s audil were discussed vlith Plan officials at an exit conference and
in subsequent conespondence. Since the a"dit showed that tbe Plan's rating of the FEHBP was
in accordance with the applicable laws, regulations, and instructions, \ve did not issue a draft


The primary objectives of the audit were to verify that the Plan offered matket price rates to the
FEHBP and to verify that the loadings to the FEHBP rates were reasonable and equitable.
Additional tests were performed to dctermir,e whether the Plan was in compliance with the
provisions of the laws and regulations governing the FEHBP.

                                                               FEH8P Premiums Paid to Plan

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
sufticient. 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 conclusions based on our
audir objectives.

This performance audit covered contract years 2006 through 2009. For these years. the FEHBP
paid approximately $6 1.5 million in premiums to the Plan. The premiums paid for each contract
year audited are shown on the chart above.

DIG 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 ,tmcture, but we did not use this
infonnation lo deternline the nature, timing, and extent of au, audit procedures. However, the
audi t included such tests of the Plan's rating system and such other auditing procedures
considered necessary under the circumstances, Our review of inlernal 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 \Vere the market plice rates (i.e., equivalent 10 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 c01l1puter-generated billing, ellroHmenL
and claims data provided by the Plan. We did not verify the reliability of the data generated by
the variolls il1fonnation systems involved. However, nothing came 10 our attention during our
audit testing utilizing the computer-generated data to cause LIS to doubt its reliability. Vv'e 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 Lnited States.

The audit fieldwork was performed at the Plan's office in Cleveland, Ohio, during April 2010.
Additional audit work was completed at our field offices in Jacksonville, Florida, and Cranbeny
Township. Pennsylvania,


We examined the Plan's federal rate submissions and related documents as a basis for validating
the market price rates. Further. we examined claim payments to verify that the cost data used to
develop the fEHBP rates was accurate, complete, and valid. In addition, we examined the rate
development documentation and billings to other groups, such as the SSSGs, to detennine if the
market price was actually charged to the FEHBP, Finally, v,'e used the contract, the Federal
Employees Health Benefits Acquisition Regulations (FEHBAR), 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 rati ng system,

To gain an understanding oCthe internal controls in the Plan's rating system, we reviewed the
Plan's rating system's policies and procedures, interviewed appropriate Plan offLciaJs, and
performed other auditing procedures necessary to meet our audit objectives,


                             Ill. RESULTS OF THE AUDIT

Our audit showed thm The Plan's rating of the FEHEP was in accordance with the applicable
laws, reguJaiions, and OrM's rating inSlruclions to caTTier;, for contract years 2006 through 2009,
Consequently, the audit did not idenrify any qUc;tiol1ed costs and no corrective action is



Coromunitv-Rated Audits Group

                   Auditor- rn-Charge

                    Staff Auditor

                 Staff Audi(Or

                  Staff Audi(o~


                    Senior Team Leader