oversight

Audit of the Federal Employees Health Benefits Program Operations at Independent Health Association

Published by the Office of Personnel Management, Office of Inspector General on 2012-03-28.

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 Independent Health

                          Association




                                          Report No. tC-QA-OO-ll-062

                                          Date:          March 28, 2012




                                                       -- 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 (18I T.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.
                                 UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                                                 Washington, DC 20415



   Office of the
Inspector General




                                                              AUDIT REPORT




                                         Federal Employees Health Benefits Program
                                      Community-Rated Health Maintenance Organization
                                              Independent Health Association
                                           Contract Number 1933 - Plan Code QA
                                                    Buffalo, New York



                      Report No. lC-QA-OO-ll-062                                               Date:       03/28/12




                                                                                                  L~.) /1            -/'(l
                                                                                               c::/~J/. f                ~.--z--~.. ~.-
                                                                                                Michael R. Esser
                                                                                                Assistant Inspector General
                                                                                                  for Audits

                                                               -- CAUTION -­
        This audit report has been distributed to Federal officials who arc responsible for the administration of the audited program. This audit
        report may contain proprietary data which is protected by Federal law (18 L.S,c. 1905). Therefore, while this audit report is available
        under tbe 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 rna)' contain proprietary information that was redacted from the publicly distributed copy,




        www.o p m.gov                                                                                                               www.us ajoba.gov
                          UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                              Washington, DC 20415



  Office of the
Inspector General




                                      EXECUTIVE SUMMARY





                                Federal Employees Health Benefits Program

                             Community-Rated Health Maintenance Organization

                                     Independent Health Association

                                  Contract Number 1933 - Plan Code QA

                                           Buffalo, New York




                    Report No. lC-OA-OO-ll-062                        Date: 03/28/12

       The Office of the Inspector General performed an audit of the Federal Employees Health
       Benefits Program (FEHBP) operations at Independent Health Association (Plan), The audit
       covered contract years 2008 through 2011 and was conducted at the Plan's office in Buffalo,
       New York. 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.




        www.opm.gov                                                                         www.usajobs.gov
                                                    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
The Plan has participated in the FEHBP since 1983 and provides health benefits to FEHBP
members in Western New York. The last audit of the Plan conducted by our office was in 2008.
All issues related to that audit have been resolved.




                                             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                      $110

auditing standards. Those standards require that                   $100




                                                      Millions
we plan and perform the audit to obtain                             $90
sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions                   $80

based on our audit objectives. We believe that                      $70
the evidence obtained provides a reasonable                         $60
basis for our findings and conclusions based on                            2008    2009    2010     2011
                                                                 Revenue   $81.1   $89.3   $94.6   $104.9
our audit objectives.

This performance audit covered contract years
2008 through 2011. For these contract years, the FEHBP paid approximately $369.9 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 and
enrollment 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 performed at the Plan’s office in Buffalo, New York, during August
2011. Additional audit work was completed at our offices in Cranberry Township,
Pennsylvania; Jacksonville, Florida; and Washington, D.C.

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 2008 through 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

                   , Lead Auditor


                   Chief

                 Senior Team Leader




                                          6