oversight

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)

                                                     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