oversight

Audit of the Federal Employees Health Benefits Program Operations at Humana, Inc. -Tampa

Published by the Office of Personnel Management, Office of Inspector General on 2011-06-22.

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 Humana, Inc. - Tampa 




                                            Report No. IC-M.J-OO-II-02S

                                            Date: June 22, 2011




                                                         -- CAllTION -­

-I his audit report has been distributed tn I·'cdend uHil'ilils who al"e respmlsible for the lldminislralion of the audited program. This
audit report ma~ l'unlain "roprit'lar~' data ~~hich is prnlccted h~ hdt'ralla\\ OS l~.S.C 1905). Therefure. "hill' this lIutiit rt'j}(Jrl is
a\'ailablr under th(' ""feedorn of lorOl'malinn Act and made a\'ailable to the public on the OIG wcbpagC'. Ciwtioll needs to be nnciseti
before releasing the report to thl." general pubJil' as it may contain proprietary information that was n'dactcd from ftlt' publid~'
distributt,tI cop~.
                          l:NITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                             Wa"hin~ton.   DC 20415


   Office (If the
in"pector General




                                           AUDIT REPORT 




                                  Federal .:mployees Health Benefits Program 

                               Community-Rated Health Maintenance Organization 

                                             Humana, Inc. - Tampa 

                                    Contract Number 2887 - Plan Code M.J 

                                              Louisville, Kentucky 




                      Report No. IC-M.J-OO-II-02S                      Date:    6/22/11




                                                                      Michael R. Esser
                                                                      Assistant Inspector General
                                                                        for Audits




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                              UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                                 \Va"hington. DC   ~()~15



  OffiCe uf the
InSpCC1()r   General




                                          EXECUTIVE SUMMARY 





                                    Federal Employees Health Benefits Pro!(ram 

                                Communi~'-Rated Health Maintenance Organization 

                                              Humana, Inc. - Tampa 

                                      Contract Number 2887 - Plan Code MJ 

                                               Louisville, Kentucky 




                       Report No. \C-M.J-OO-\\-02S                      DMc:   6/ 22/ 11

        The Ofticc of the Inspector Ckneral perfomled an audit orthe Federal Employees Hcalth Iknclits
        Program (ITIIBP) operations at Ilumana. Inc. - Tampa. "'lorida (Plan), The audit covcred
        contract years :'O()6 through :'010 and was conducted at the Plan's onice in Louisville. Kentucky.
        We f(Hlnd that the n'IIl3P rates were developed in accordance with applicable laws. regulations.
        and the Onice of Personnel Management's rating instructions f()r the years audited.




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                                                    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 Humana, Inc. - Tampa (Plan). The audit covered contract years 2006 through 2010 and was
conducted at the Plan’s office in Louisville, Kentucky. The audit was conducted pursuant to the
provisions of Contract CS 2887; 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          1,200
in size to the FEHBP. In contracting with
                                                     1,000
community-rated carriers, OPM relies on
carrier compliance with appropriate laws              800
and regulations and, consequently, does
                                                      600
not negotiate base rates. OPM
negotiations relate primarily to the level            400
of coverage and other unique features of
                                                      200
the FEHBP.
                                                        0
                                                             2006    2007    2008   2009   2010
The chart to the right shows the number                      635     588     529    452    402
                                               Contracts
of FEHBP contracts and members                 Members       1,188   1,076   979    851    755
reported by the Plan as of March 31 for
each contract year audited.

                                                1

The Plan has participated in the FEHBP since 2004 and provides health benefits to FEHBP
members in Tampa, Florida. This is the first audit of the Plan conducted by our office since the
start of its participation in the FEHBP.

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
                                                                   $4
accordance with generally accepted government
auditing standards. Those standards require that                   $3




                                                        Millions
we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a                      $2
reasonable basis for our findings and conclusions
                                                                   $1
based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis                  $0
for our findings and conclusions based on our                           2006   2007   2008   2009   2010

audit objectives.                                            Revenue    $2.9   $3.2   $2.8   $3.1   $3.4


This performance audit covered contract years 2006 through 2010. For contract years 2006
through 2010, the FEHBP paid approximately $15.4 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 Louisville, Kentucky, during February
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 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

   _______________________________________________________________________

                  , Chief

                , Senior Team Leader




                                         6