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 Coventry Health Care of Iowa, Inc. Report No. 1C-SV-00-12-068 Date: January 10, 2013 -- 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 Coventry Health Care of Iowa, Inc. Contract Number CS 2902 - Plan Code SV Omaha, Nebraska Report No. 1C-SV-00-12-068 Date: 01/10/13 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 Coventry Health Care of Iowa, Inc. Contract Number CS 2902 - Plan Code SV Omaha, Nebraska Report No. 1C-SV-00-12-068 Date: 01/10/13 The Office of the Inspector General performed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at Coventry Health Care of Iowa, Inc. (Plan). The audit covered contract years 2008 through 2010. 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. 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 1. INTRODUCTION AND BACKGROUND Introduction We comp leted an audi t of the Federal Employees Health Benefits Program (FE HB P) operations at Co ventry Health Ca re ofIawa , Inc. (Plan) . TIle audi t co vered co ntrac t yea rs 2008 through 20 10. Th e audit wa s co nducted pursuant to the provisions of Co ntrac t CS ; 5 USc. Chapter 89; and 5 Co de of Fed eral Regulations (CFR) Cha pter I , Pa11 890 . The audit wa s performed by the Office of Personnel Ma nagement' s (OPM) Office of the Inspector Gene ral (DIG), as established by the Inspector Gene ra l Ac t of 1978, as amended. Background The FE HEP wa s established by the Federal Employees Health Benefits Ac t (Public Law 86 382), enac ted a ll September 28 , 1959. The FEHBP wa s crea ted to provide health insuran ce benefits for federal employees, annuitants, and dependents . The FEHBP is administered by OPM ' s Healthcare and Insur an ce Office . TIle provisions of the Federal Employee s He alth Benefits Ac t are implemented by O PM through regulations co dified in Chapter 1, Part 890 of Title 5, CPR . Health insurance co verage is provided through co ntracts with health insuran ce carriers who provide servi ce benefits, indemnity benefit s, or co mprehensive medical serv ices . Community-rated ca rriers parti c ipating in the FEHBP are subject to various fede ral, state and local laws, regul ations, and ordina nce s. While most carriers are subject to state j urisdic tion, many are further subj ect to the Health Ma intena nce Orga niza tion Ac t of 1973 (Public Law 93 222), as amended (i.e., many co mmunity-rated carriers are federa lly qualified ). In addition, parti cipation in the FE HB P subjects the carriers to the Federal Employees Health Ben efits Ac t and implementing re gula tions promulgated by OPM. The FE HB P should pay a market pri ce FEHBP Contracts/Member s March 31 rate , which is de fined as the best rate offered to either of the two groups closest 5,000 in size to the FEHBP. In co ntrac ting with 4,500 community-rated carriers, OPM re lies on 4,000 carrie r co mpliance with appro pria te laws 3,500 and regulations and, consequently, does 3,000 not negotiate base rates. OPM negoti ations 2,500 2,000 re late primaril y to the level of cove rage 1,500 and othe r unique features of the FEHBP. 1,000 500 The cha rt to the right shows the number of o FEHBP co ntrac ts and members reported by 2008 2009 20 10 • Contracts 2,226 2,024 1,678 the Plan as of Ma rch 3 1 for each co ntract IJ Members 4,757 4,139 3,199 yea r audited. ] I The Plan has participated in the FEHBP since 2004 and provides health benefits to FEHBP members in Central, Eastern, and Western Iowa. The last audit of the Plan conducted by our office was in 2008 and covered contract years 2005 through 2007. All issues from that audit have been resolved. 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 accordance with generally accepted government $25 auditing standards. Those standards require that $20 Millions we plan and perform the audit to obtain $15 sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions $10 based on our audit objectives. We believe that $5 the evidence obtained provides a reasonable $0 basis for our findings and conclusions based on 2008 2009 2010 Revenue $20.6 $17.8 $14.3 our audit objectives. This performance audit covered contract years 2008 through 2010. For these contract years, the FEHBP paid approximately $52.7 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 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 conducted during the month of August 2012, and additional audit work was completed at our offices located in Cranberry Township, Pennsylvania 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 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 , Auditor , Auditor Chief , Senior Team Leader 6
Audit of the Federal Employees Health Benefits Program Operations at Coventry Health Care of Iowa, Inc.
Published by the Office of Personnel Management, Office of Inspector General on 2013-01-10.
Below is a raw (and likely hideous) rendition of the original report. (PDF)