Office of Personnel Management, Office of Inspector General | U.S. Office of Personnel Management | Audit of the Federal Employees Health Benefits Program Operations at Blue Care Network of Michigan, Inc.

Audit of the Federal Employees Health Benefits Program Operations at Blue Care Network of Michigan, Inc.

Published by the Office of Personnel Management, Office of Inspector General on 2013-02-21.

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 Blue Care Network of
Michigan, Inc.

Report No. 1C-LX-00-12-071

Date: February 21, 2013

-- CAUTION --
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (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 may contain proprietary information that was redacted from the publicly distributed copy.
AUDIT REPORT

Federal Employees Health Benefits Program
Community-Rated Health Maintenance Organization
Blue Care Network of Michigan, Inc.
Contract Number CS 2011 - Plan Code LX
Southfield, Michigan

Report No. 1C-LX-00-12-071 Date: 02/21/13

Michael R. Esser
Assistant Inspector General
for Audits

Federal Employees Health Benefits Program
Community-Rated Health Maintenance Organization
Blue Care Network of Michigan, Inc.
Contract Number CS 2011 - Plan Code LX
Southfield, Michigan

Report No. 1C-LX-00-12-071 Date: 02/21/13

The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at Blue Care Network of Michigan, Inc. (Plan). The audit
covered contract years 2010 and 2011. 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.

i
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
1. INTRODUCTION AND BACKGROUND

Introduction

We completed an audit of the Federal Employees He alth Benefits Program (FEHBP) operations
at Blue Care Network of M ichigan, Inc. (Plan). The audit cove red contract years 20 10 and 20 11.
The audi t was conducted pursuant to the provisions of Contract CS 20 11; 5 U.S .C. Chapter 89 ;
and 5 Code of Fed eral Re gulations (CFR) Cha pter 1, Part 890 . TIle audit was performed by the
Offic e of' Personnel Ma nagement' s (OPM) Office of the Inspe ctor General (DIG) , as established
by the Inspector Ge ne ral Ac t of 1978, as amended .

Background

The FEHBP wa s establi shed by the Federal Employees Health Ben efits Ac t (Public Law 86
382), enac ted a ll September 28, 1959. TIle FEHBP wa s crea ted to provide health insur ance
benefits for federal employee s, annuitants, and dependents . The FEHBP is administered by
OPM' s Healthcare and Insuran ce Office. TIle provi sions of the Fed eral Emp loyees Health
Benefits Ac t are implemented by OPM through regulations codified in Chapter 1, Part 890 of
Title 5, CFR. Health insuran ce coverage is provided thr ough contracts with health insur ance
carriers who provide serv ice bene fits, indemnity benefits, or co mprehe nsive m edical serv ices.

Community-rated carriers participating in the FE HBP are subj ect to various federal, state and
local laws, regul ations, and ordinances . While most carr iers are subject to state jurisd iction ,
man y are furth er subject to the He alth Ma intena nce Organization Ac t of 1973 (Public Law 93
222), as amended (i.e ., man y comm unity- rated carriers are fede rally qua lified). In addition,
parti cipation in the FEHBP subjects the carriers to the Fed eral Emp loyee s Health B enefits Ac t
and implementing regulations promulgated by OP1.1.

The FEHBP should pay a marke t pr ice FEHBP Contracts/Members
March 31
rate, which is defined as the best rate
offered to eithe r of the two gro ups closest
in size to the FEHBP. In co ntrac ting with 25,000

community-ra ted carriers, OPM relies on 20,000
carrier comp liance with appropriate laws
and regulations and, consequently, does 15,000
not negotiate base rates. OPM negotiations
relate primaril y to the level of cove rage 10,000
and other unique fea tur es of the FEHBP.
5,000

The cha rt to the right shows the number of o
FEHBP co ntrac ts and members report ed by
. Con/racts
the Plan as of Ma rch 3 1 for eac h contract c Members
year audited .

The Plan has participated in the FEHBP since 1984 and provides health benefits to FEHBP
members in the East, Southeast, and West Michigan areas. The last audit of the Plan conducted
by our office was a full scope audit of contract years 2006 through 2009. During that audit, we
found the FEHBP rates were developed in accordance with applicable laws, regulations, and the
Office of Personnel Management’s rate instructions.

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
accordance with generally accepted government
$100
auditing standards. Those standards require that

Millions
we plan and perform the audit to obtain $80

sufficient, appropriate evidence to provide a $60
reasonable basis for our findings and conclusions $40
based on our audit objectives. We believe that $20
the evidence obtained provides a reasonable $0
basis for our findings and conclusions based on 2010 2011
Revenue $78.6 $96.3
our audit objectives.

This performance audit covered contract years
2010 and 2011. For these contract years, the FEHBP paid approximately $174.9 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
the various information systems involved. However, nothing came to our attention during our
3
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 conducted during the month of October 2012, and additional audit work
was completed at our offices located in Jacksonville, Florida, and 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 of the internal controls in the Plan’s rating system, we reviewed the
Plan’s rating system 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 2010 and 2011.
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

., Chief

, Senior Team Leader