oversight

Audit of the Federal Employees Health Benefits Program Operations at Humana CoverageFirst - Kansas City

Published by the Office of Personnel Management, Office of Inspector General on 2016-01-21.

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

              AUDIT OF THE FEDERAL EMPLOYEES HEALTH
             BENEFITS PROGRAM OPERATIONS AT HUMANA
                    COVERAGEFIRST – KANSAS CITY

                                           Report Number 1C-PH-00-16-012
                                                   January 21, 2016



                                                             -- 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 (http://www.opm.gov/our-inspector-general), 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.
             EXECUTIVE SUMMARY 

         Audit of the Federal Employees Health Benefits Program Operations at Humana 

                                  CoverageFirst – Kansas City 

Report No. 1C-PH-00-16-012                                                                    January 21, 2016

Why Did We Conduct the Audit?             What Did We Find?

The primary objectives of the audit       We determined that the FEHBP rates were developed by the Plan
were to determine if Humana               in accordance with applicable laws, regulations, and the U.S.
CoverageFirst – Kansas City (Plan)        Office of Personnel Management’s Rate Instructions to
developed the Federal Employees           Community-Rated Carriers for the years audited. Therefore, we
Health Benefits Program (FEHBP)           did not issue a draft report and are not making any
premium rates using complete,             recommendations.
accurate, and current data, and that
the rates were equivalent to the Plan’s
Similarly Sized Subscriber Groups
(SSSGs), as provided in Federal
Employees Health Benefits
Acquisition Regulation 1652.215-
70(a). Additional tests were
performed to determine whether the
Plan was in compliance with the
provisions of the laws and regulations
governing the FEHBP.

What Did We Audit?

Under contract 2887, the Office of the
Inspector General completed a
performance audit of the FEHBP’s
rates offered for contract years 2010
through 2012. This desk audit was
conducted from October 5, 2015
through October 9, 2015, at our field
offices in Jacksonville, Florida and
Cranberry Township, Pennsylvania.




 _______________________
 Michael R. Esser
 Assistant Inspector General
 for Audits
                                                      i
               ABBREVIATIONS


FEHBAR   Federal Employees Health Benefits Program Acquisition Regulations
FEHBP    Federal Employees Health Benefits Program
OIG      Office of the Inspector General
OPM      U.S. Office of Personnel Management
Plan     Humana CoverageFirst – Kansas City
SSSG     Similarly Sized Subscriber Group
U.S.C.   United States Code




                               ii
IV. MAJOR CONTRIBUTORS  TO THIS REPORT
          TABLE OF CONTENTS

                                                                                                                       Page 

        EXECUTIVE SUMMARY ......................................................................................... i 


        ABBREVIATIONS ..................................................................................................... ii 


I.	     BACKGROUND ..........................................................................................................1 


II.	    OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................3 


III.	   RESULTS OF THE AUDIT .......................................................................................5 


IV.	    MAJOR CONTRIBUTORS TO THIS REPORT ....................................................6 


        REPORT FRAUD, WASTE, AND MISMANAGEMENT

 IV. MAJOR CONTRIBUTORS
            I. BACKGROUND
                        TO THIS REPORT

This final report details the audit results of the Federal Employees Health Benefits Program
(FEHBP) operations at Humana CoverageFirst – Kansas City (Plan). The desk audit covered
contract years 2010 through 2012 and was conducted at our field offices in Jacksonville, Florida
and Cranberry Township, Pennsylvania.

The audit was conducted pursuant to FEHBP contract CS 2887, 5 United States Code (U.S.C.)
Chapter 89; and 5 Code of Federal Regulations Chapter 1, Part 890. The audit was performed by
the U.S. Office of Personnel Management’s (OPM) Office of the Inspector General (OIG), as
established by the Inspector General Act of 1978, as amended.

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, and is administered by OPM’s
Healthcare and Insurance Office. Health insurance coverage is provided through contracts with
health insurance carriers that 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.                 FEHBP Contracts/Members
                                                                        March 31

The FEHBP should pay a premium rate
                                                    600
that is equivalent to the best rate given
to either of the two groups closest in
                                                    500
subscriber size to the FEHBP. In
contracting with community-rated                    400
carriers, OPM relies on carrier
                                                    300
compliance with appropriate laws and
regulations and, consequently, does not
                                                    200
negotiate base rates. OPM negotiations
relate primarily to the level of coverage           100
and other unique features of the FEHBP.
                                                      0
                                                             2010          2011          2012
The chart to the right shows the number         Contracts    243           241           224
                                                Members      517           536           506
of FEHBP contracts and members


                                                1                          Report No. 1C-PH-00-16-012
reported by the Plan as of March 31 for each contract year audited.

The Plan has participated in the FEHBP since 2004 and provides health benefits to FEHBP
members in the Kansas City area. This was our first audit of the Plan.

The preliminary results of this audit were discussed with Plan officials at an exit conference.
Since the audit concluded that the Plan’s rating of the FEHBP was in accordance with applicable
laws, regulations, and OPM Rate Instructions to Community-Rated Carriers (rate instructions), a
draft report was not issued.




                                                2                        Report No. 1C-PH-00-16-012
 IV. MAJOR CONTRIBUTORS
 II. OBJECTIVES, SCOPE, AND TO THIS REPORT
                            METHODOLOGY

Objectives
The primary objectives of the audit were to determine if the FEHBP premium rates were
developed using complete, accurate, and current data, and were equivalent to the Plan’s Similarly
Sized Subscriber Groups (SSSGs), as provided in Federal Employees Health Benefits
Acquisition Regulation (FEHBAR) 1652.215-70(a). Additional tests were performed to
determine whether the Plan was in compliance with the provisions of the laws and regulations
governing the FEHBP.

Scope
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
sufficient, appropriate evidence to provide a
                                                             FEHBP Premiums Paid to Plan
reasonable basis for our findings and
conclusions based on our audit objectives. We
believe that the evidence obtained provides a           $2.0
                                                        $1.8
reasonable basis for our conclusions based on           $1.6
                                                    Millions




our audit objectives.                                   $1.4
                                                                 $1.2
                                                                 $1.0
This performance audit covered contract years                    $0.8
                                                                 $0.6
2010 through 2012. For these years, the                          $0.4
FEHBP paid approximately $5.6 million in                         $0.2
                                                                 $0.0
premiums to the Plan.                                                    2010     2011       2012
                                                               Revenue   $1.6     $2.0       $2.0

OIG audits of community-rated carriers are
designed to test carrier compliance with the
FEHBP contract, applicable laws and
regulations, and the 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 had in place to ensure that:

       • The appropriate SSSGs were selected;




                                                3                               Report No. 1C-PH-00-16-012
       • the rates charged to the FEHBP were developed using complete, accurate, and current
       data, and were equivalent to the best rate given 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
audit 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 in October 2015 at our field offices in Jacksonville, Florida
and Cranberry Township, Pennsylvania.

Methodology
We examined the Plan’s Federal rate submission and related documents as a basis for validating
its Certificates of Accurate Pricing. In addition, we examined the rate development
documentation and billings to other groups, such as the SSSGs, to determine if the FEHBP rates
were reasonable and equitable. Finally, we used the contract, the FEHBAR, and the rate
instructions 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                           Report No. 1C-PH-00-16-012
 IV. MAJOR
        III.CONTRIBUTORS
             RESULTS OF THETO THIS REPORT
                            AUDIT

Our audit showed that the Plan’s rating of the FEHBP was in accordance with applicable laws,
regulations, and the rate instructions for contract years 2010 through 2012. Consequently, the
audit did not identify any questioned costs and no corrective action is necessary.




                                            5                             Report No. 1C-PH-00-16-012
 IV. MAJOR CONTRIBUTORS TO THIS REPORT

COMMUNITY-RATED AUDITS GROUP

          , Auditor-in-Charge


           , Senior Team Leader

            , Group Chief




                                  6   Report No. 1C-PH-00-16-012
                                                                                                                         



                                       Report Fraud, Waste, and 

                                           Mismanagement 

                                                  Fraud, waste, and mismanagement in
                                               Government concerns everyone: Office of
                                                   the Inspector General staff, agency
                                                employees, and the general public. We
                                              actively solicit allegations of any inefficient
                                                    and wasteful practices, fraud, and
                                               mismanagement related to OPM programs
                                              and operations. You can report allegations
                                                          to us in several ways:


                        By Internet:               http://www.opm.gov/our-inspector-general/hotline-to-
                                                   report-fraud-waste-or-abuse


                         By Phone:                 Toll Free Number:                              (877) 499-7295
                                                   Washington Metro Area:                         (202) 606-2423


                           By Mail:                Office of the Inspector General
                                                   U.S. Office of Personnel Management
                                                   1900 E Street, NW
                                                   Room 6400
                                                   Washington, DC 20415-1100
                     
                                                                                                                         
                                                                                                                         



                                                             -- 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 (http://www.opm.gov/our-inspector-general), 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.

                                                                                                                   Report No. 1C-PH-00-16-012