US 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. - "Kansas City
Report No. lC-MS-OO-09-056
Date: February 19, 2010
--CAUTION-
This audit rtlJOr( has been distributed to Fedl.'"ral offi6als who :n-c resilonsible for till.'" administraliOll of the audited
IJrogram. This audit report lJIay contain Ilropriclary data which is (lrot.ccled b~" Fcdcrallaw (18 U.S.c. 1905).__Therefore,
while this report is available under the Frcedolll of Information Act and made a~";lilable to the public on the OIG
• '. '- - ~--'-~~~MI h.,.forf' releasing the rellort to the generat public as it my contain prOIJricty
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Washington, DC 20415
Office of the
Inspector General
AUDIT REPORT
Federal Employees Health Benefits Program
Comprehensive .Medical Plan - Community-Rated
Humana Health Plan, Inc. - Kansas City
Contract Number 1773 - Plan Code MS
Louisville, Kentucky
Repoli No. 1C-MS-OO-09-056 Dak February 19, 2010
Michael R. Esser
Assistant Inspector General
for Audits
-_ ..
_._.~-_._~_.
www.opm.gov
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www.u5a)obs.gov
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Washington, DC 20415
Office of the
Inspector General
EXECUTIVE SUMMARY
Federal Employees Health Benefits Program
Comprehensive Medical Plan - Community-Rated
Humana Health Plan, Inc. - Kansas City
Contract Number 1773 - Plan Code MS
Louisville, Kentucky
Report No. lC-MS-OO-09-0S6 Dak February 19, 2010
The Office of the Inspector General perfomled an audit ofthe Federal Employees Health
Benefits Program (FEHBP) operations of Humana Health Plan, Inc. - Kansas City (Plan). The
audit covered contract years 2005 through 2009 and was conducted at the Plan's office in
Louisville, Kentucky. We found that the FEHBP rates were developed in accordance with the
applicable laws, regulations, and the Office of Personnel Management's rating instructions for
the years audited.
www.opm.gov www.usEljobs.gov
CONTENTS
EXECUTIVE SUMMARY i
I. INTRODUCTION AND BACKGROUND 1
II. OBJECTIVES, SCOPE, AND METHODOLOGy .3
III. RESULTS OF THE AUDIT 5
IV. MAJOR CONTRlBUTORS TO THIS REPORT 6
I. INTRODUCTION AND BACKGROUND
Introduction
We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at Humana Health Plan, Inc. - Kansas City (Plan). The audit covered contract years 2005
through 2009 and was conducted at the Plan's office in Louisville, Kentucky. The audit was
conducted pursuant to the provisions of Contract CS 1773; 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 (GIG), 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 Retirement and Benefits Office. The provisions of the Federal Employees Health
Benefits Act are implemented by aPM through regulations codified in Chapter 1, Part 890 of
Title 5, CFR. Health insurance coverage is provided through contracts with various health
insurance carriers that provide service benefits, indemnity benefits, or comprehensive medical
serVIces.
Community-rated carriers pmiicipating in the FEHBP are subject to various federal, state and
local laws, regulations, and ordinances. While most can-iers 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.
FEHBP Contracts/Members
March 31
The FEHBP should pay a market price rate,
9,000
which is defined as the best rate offered to either
8,000
of the two groups closest in size to the FEHBP.
7,000
In contracting with community-rated can-iers,
6,000
aPM relies on carrier compliance with
5,000
appropriate laws and regulations and,
4,000
consequently, does not negotiate base rates.
aPM negotiations relate prim31ily to the level 3,000
of coverage and other unique features of the 2,000
FEHBP. 1,000
o
2005 2006 2007 2008 2009
• Contracts 3,939 3,471 2,982 2,792 2,735
o Members 8,555 7,359 6,169 5.715 5,539
1
The chmi to the right shows the number of FEHBP contracts and members repOlied by the Plan
as of March 31 of each contract year audited.
The Plan has participated in the FEHBP since 1987 and provides health benefits to FEHBP
members throughout the Kansas City metropolitan area. The last audit of the Plan conducted by
our office was a full scope audit of contract years 2000 through 2004. AU issues related to that
audit have been resolved.
The preliminary results of this audit were discussed with Plan officials at an exit conference and
through subsequent correspondence. Since the audit showed that the Plan's rating of the FEHBP
was in accordance with applicable laws, regulations, and instructions, we did not issue a draft
report.
2
II. OBJECTIVES, SCOPE, AND METHODOLOGY
Objectives
The primary objectives ofthe 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 perfonned to detennine whether the Plan was in compliance with the
provisions of the laws and regulations governing the FEHBP.
We conducted this perfonnance audit in accordance FEHBP Premiums Paid to Plan
with generally accepted governmental auditing
standards. Those standards require that we plan and
$30
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 $25
provides a reasonable basis for our findings and
conclusions based on our audit objectives.
This perfonnance audit covered contract years 2005 $20
through 2009. For 2005 through 2008, the FEHBP
paid approximately $108.3 million in premiums to t--_R_e_ve_n_u_e--'----_ _J-.-_---'_ _----L_ _--'
the Plan. I The premiums paid for each contract
year audited are shown on the Chat1 to the right.
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
infornlation to detennine the nature, timing, and extent of our audit procedures. However, the
audit included such tests of the Plan's rating systems 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:
• Tbe 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 an SSSG); and
• the loadings to the FEHBP rates were reasonable and equitable.
] The Subscription Income Report for contract year 2009 was not available at the time lhe report was completed.
3
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
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 performed 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 August
2009. Additional audit work was completed at our offices in Washington, D.C. 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 rate was actually charged to the FEHBP. Finally, we used the contract, the Federal
Employees Health Benefits Acquisition Regulations, and OPM's Rate Instructions to
Connnunity-Rated Carriers to determine the propriety of the FEHBP premiwns and the
reasonableness and acceptability of the Plan's rating systems.
To gain an understanding of the intemal 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 <If the FEHBP was in accordance with the applicable
laws, regulations and OPM'sTating instructions to carriers for contract years 2005 Lhrough 2009.
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
Chief
Senior Team Leader
6
Audit of the Federal Employees Health Benefits Program Operations at Humana Health Plan Inc - Kansas
Published by the Office of Personnel Management, Office of Inspector General on 2010-02-19.
Below is a raw (and likely hideous) rendition of the original report. (PDF)