oversight

Audit of the Federal Employees Health Benefits Program Operations at SelectHealth

Published by the Office of Personnel Management, Office of Inspector General on 2014-04-10.

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 SelectHealth


                                          Report No. 1C-SF-00-14-014

                                          Date: April 10, 2014




                                                      -- 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
                                              SelectHealth
                                 Contract Number CS 2925 - Plan Code SF
                                             Murray, Utah



              Report No. 1C-SF-00-14-014                                                   April 10, 2014
                                                                                    Date: _________________




                                                                                      Michael R. Esser
                                                                                      Assistant Inspector General
                                                                                        for Audits



                                                      -- 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.
                              EXECUTIVE SUMMARY




                      Federal Employees Health Benefits Program
                   Community-Rated Health Maintenance Organization
                                    SelectHealth
                       Contract Number CS 2925 - Plan Code SF
                                   Murray, Utah


        Report No. 1C-SF-00-14-014                     Date: April 10, 2014

The Office of the Inspector General performed a rate buildup audit (RBA) of the Federal
Employees Health Benefits Program (FEHBP) operations at SelectHealth (Plan). The Plan
elected to participate in the 2012 Medical Loss Ratio (MLR) Pilot Program offered to FEHBP
carriers. The RBA covered the 2012 FEHBP premium rate development, and was conducted at
the Plan’s office in Murray, Utah. We found that the FEHBP premium rates were developed
using accurate, complete and current data, and in accordance with the Plan’s standard rating
methodology. We also found that the FEHBP premium rates were developed in accordance with
the Office of Personnel Management’s rules and regulations in contract year 2012.




                                             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
                     I. INTRODUCTION AND BACKGROUND
Introduction

We completed a rate buildup audit (RBA) of the Federal Employees Health Benefits Program
(FEHBP) operations at SelectHealth (Plan). The Plan elected to participate in the 2012 Medical
Loss Ratio (MLR) Pilot Program offered to FEHBP carriers. The RBA covered the 2012
FEHBP premium rate development, and was conducted at the Plan’s office in Murray, Utah.
The RBA was conducted pursuant to the provisions of Contract CS 2925; 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.

Under OPM’s MLR methodology, the premium rates                     FEHBP Contracts/Members
                                                                          March 31
                                                               2,000
charged to the FEHBP are to be developed in
accordance with OPM Rules and Regulations and the              1,750
Plan’s state-filed standard rating methodology (or if          1,500
the rating method does not require state filing, the
Plan’s documented and established rating                       1,250

methodology). All FEHBP pricing data are to be                 1,000
supported by accurate, complete and current
                                                                 750
documentation. In contracting with community-rated
carriers, OPM relies on carrier compliance with                  500

appropriate laws and regulations and, consequently,              250
does not negotiate base rates. OPM negotiations relate
                                                                   0
primarily to the level of coverage and other unique                             2012
features of the FEHBP.                                       Contracts           568
                                                             Members            1,794
                                                1
The chart above shows the number of FEHBP contracts and members reported by the Plan as of
March 31, 2012.

The Plan has participated in the FEHBP since 2011, and provides health benefits to FEHBP
members in Northern and Southern Utah. This was our first audit of this Plan.

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




                                               2
                II. OBJECTIVES, SCOPE, AND METHODOLOGY

Objectives

The primary objective of this performance audit is to determine whether the Plan is in
compliance with the provisions of its contract and the laws and regulations governing the
FEHBP related to premium rate development. Specifically, we verified that the plan offered a
fair premium rate, based on its underwriting guidelines, rating methodology and OPM rules and
regulations. 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 reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.

This performance audit covered the FEHBP premium rate development charged for contract year
2012. The RBA did not include tests of the Plan’s MLR calculations and will remain subject to
future audit. For this year, the FEHBP paid approximately $8.0 million in premiums to the Plan.

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 has in place to ensure that the rates charged the FEHBP are developed in
accordance with the Plan’s standard rating methodology and the claims, factors, trends, and other
related adjustments are supported by complete, accurate and current source documentation.

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 conducted in accordance with generally accepted government auditing standards,
issued by the Comptroller General of the United States.



                                                 3
The audit fieldwork was performed at the Plan’s office in Murray, Utah during November 2013.
Additional audit work was completed at our office in Cranberry Township, Pennsylvania.

Methodology

We examined the Plan’s standard rating methodology and practices as a basis for validating its
federal rate submission and related documents. In addition, we verified that the factors, trends,
and other related adjustments used to determine the FEHBP premium rates were supported by
accurate, complete and current source data. Further, we also examined claim payments to verify
that the pricing data used to develop the FEHBP rates was accurate, complete and current.
Finally, we used the contract, the Federal Employees Health Benefits Acquisition Regulations,
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
                            III. RESULTS OF THE AUDIT
Our audit showed that the pricing data used to develop and support the FEHBP premium rates
were accurate, complete and current, and was in accordance with applicable laws, regulations,
rate instructions and the Plan’s standard rating methodology for contract year 2012.
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


                   Chief

                  Senior Team Leader




                                       6