U.S. OFFlCE 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 Health Net of California, Inc. - Northern Region Report No. lC·LB·OO·Il·024 Date: octd ber 19, 2011 -- CAUTION -- Tltis alldil repotl h,u bu n dl slriiJuled 10 Federal officills who arc t U polisibl e fot th e admini slrAlion of Iht Mudilrd prugram. Thil a udit r~por[ may (Onlal n pruprlet ~ r)' data ....llIeh is protccted by Ft dtrallaw ( 18 U.S.C. 1905). Thcnforc. whil e Ih is audil report is a\' lIil~blt. llndrr the Frtcdum uf InronTl~1ion At l ll nd IIlMdt Mv. iI. hle 10 tht public on th t O IG webp.gr. tMullon nceds 10 be u crrbrd brfon Tclcuing the rtpOrllO Ih l" gt nerat publi c as il mMy cO lll llin proprieta ry in(urmMtinn Ihat ""IIS redacted rrnm Ih e publicly dl~lrihultd copy. UN ITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington. DC 20415 Offi~ of the Inspector General EXECUTIVE SUMMARY Federal Emp loyees Health Benefits Program Community.Rated Health Maintenance Organization Health Net of California, Inc. - Northern Region Contract Number 2002 - Plan Code LB Woodland Kills, California Report No. IC-LB-OO-I 1-024 Date: October 19, 20 11 The Office of the Inspector General performed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at Health Nel of Cali forrua, Inc. - Northern Region (Plan). The audit covered contract years 2008 through 2010 and was conducted at the Plan' s office in Woodland Hill s, Ca lifornia. We found that the FEI-IBP rates were developed in accordance with applicable laws, regulations, and the Office of Personnel Management ' s rating instructions for lhe years audited. ww ..... ollm .lov UN ITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington, DC 20415 Office of the InspeciOf General AUDIT REPORT Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization Health Net of California, Inc. - Northern Region Contract Number 2002 - Plan Code LB Woodland Hills, California Report No. lC-LB-OO-II-024 Date: Octob e r 1 9 . 2011 ;/y&Michael R. Esser Assistant Inspector General for Audits ...... opm •• o¥ WWW.U5l1jOtl S·I O¥ CONTENTS Page EXECUTIVE SUMMARY............................................................................................... i I. INTRODUCTION AND BACKGROUND ..................................................................... 1 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 of the Federal Employees Health Benefits Program (FEHBP) operations at Health Net of California, Inc. – Northern Region (Plan). The audit covered contract years 2008 through 2010 and was conducted at the Plan’s office in Woodland Hills, California. The audit was conducted pursuant to the provisions of Contract CS 2002; 5 U.S.C. Chapter 89; and 5 Code of Federal Regulations (CFR) 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, 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 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 by OPM. The FEHBP should pay a market price FEHBP Contracts/Members rate, which is defined as the best rate March 31 offered to either of the two groups closest 18,000 in size to the FEHBP. In contracting with 16,000 community-rated carriers, OPM relies on 14,000 carrier compliance with appropriate laws 12,000 and regulations and, consequently, does 10,000 not negotiate base rates. OPM 8,000 negotiations relate primarily to the level 6,000 of coverage and other unique features of 4,000 the FEHBP. 2,000 0 2008 2009 2010 The chart to the right shows the number 8,831 6,281 6,527 Contracts of FEHBP contracts and members Members 17,492 11,564 10,901 reported by the Plan as of March 31 for each contract year audited. 1 The Plan has participated in the FEHBP since 1980 and provides health benefits to FEHBP members in Northern California. The last audit conducted by our office was a full scope audit and covered contract years 2005 through 2007. There were no issues identified during that audit. 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 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. Scope FEHBP Premiums Paid to Plan We conducted this performance audit in $100 accordance with generally accepted government auditing standards. Those standards require that $75 Millions we plan and perform the audit to obtain sufficient, appropriate evidence to provide a $50 reasonable basis for our findings and conclusions $25 based on our audit objectives. We believe that the evidence obtained provides a reasonable basis $0 for our findings and conclusions based on our 2008 2009 2010 audit objectives. Revenue $87.8 $66.8 $73.2 This performance audit covered contract years 2008 through 2010. For these years, the FEHBP paid approximately $227.8 million in premiums to the Plan. The premiums paid for each contract year audited are shown on the chart above. 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. 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 3 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 government auditing standards, issued by the Comptroller General of the United States. The audit fieldwork was performed at the Plan’s office in Woodland Hills, California, during April 2011. Additional audit work was completed at our 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. 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 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 2008 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 , Auditor , Auditor , Auditor _______________________________________________________________________ ., Chief , Senior Team Leader 6
Audit of the Federal Employees Health Benefits Program Operations at Health Net of California, Inc. - Northern Region
Published by the Office of Personnel Management, Office of Inspector General on 2011-10-19.
Below is a raw (and likely hideous) rendition of the original report. (PDF)