oversight

Audit of the Federal Employees Health Benefits Program Operations at HealthAmerica Pennsylvania, Inc.

Published by the Office of Personnel Management, Office of Inspector General on 2014-05-07.

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
               HealthAmerica Pennsylvania, Inc.



                                          Report No. 1C-SW-00-14-004

                                          Date:             May 7, 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
                                        HealthAmerica Pennsylvania, Inc.
                                   Contract Number CS 2078-A - Plan Code SW
                                            Harrisburg, Pennsylvania



                 Report No. 1C-SW-00-14-004                                           Date:          May 7, 2014




                                                                                      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
                           HealthAmerica Pennsylvania, Inc.
                      Contract Number CS 2078-A - Plan Code SW
                               Harrisburg, Pennsylvania


                                                                 May 7, 2014
         Report No. 1C-SW-00-04-004                     Date:


The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at HealthAmerica Pennsylvania, Inc. (Plan). The audit
covered contract year 2012, and represents a close-out audit of plan code SW. Based on our
audit, we have no questioned costs; however, we found the Plan applied inappropriate loadings
to the FEHBP rates in 2012.

In contract year 2012, the Plan applied autism and mental health parity loadings to the FEHBP
rates. The costs associated with these loadings are included in the claims experience used to
develop the FEHBP premium rates; therefore, no additional loadings are necessary. In
developing the audited FEHBP rates, we removed the autism and mental health parity loadings.
Due to other adjustments to our audited FEHBP rates, there was no cost impact in contract year
2012.




                                               i
                                                     CONTENTS
                                                                                                                        Page

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

 I. INTRODUCTION AND BACKGROUND..................................................................... 1

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

III. AUDIT FINDINGS AND RECOMMENDATION ........................................................ 5

     1. Premium Rate Review ............................................................................................... 5

     2. Inappropriate Benefit Loadings ................................................................................. 5

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

     Appendix (HealthAmerica Pennsylvania’s March 12, 2014 response to the draft report)
                     I. INTRODUCTION AND BACKGROUND

Introduction

We completed an audit of the Federal Employees Health Benefi ts Program (FEHBP) operations
at HealthAmerica Pennsylvania, Inc. (Plan). The audit covered contract year 20 12, and was
conducted from our office located in Cranben y Township, Pennsylvania. The audit was
conducted pursuant to the provisions of Conu·act CS 2078-A; 5 U.S.C. Chapter 89; and 5 Code
of Federal Regulations (CFR) Chapter 1, Pmi 890. The audit was perf01m ed 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 Benefi ts Act (Public Law 86­
382), enacted on September 28, 1959. The FEHBP was created to provide health insurance
benefi ts for federal employees, annuitants, an d dependents. The FEHBP is administered by
OPM's Healthcare and Insurance Office. The provisions of the Federal Employees Health
Benefits Act m·e implemented by OPM through regulations codified in Chapter 1, Pmi 890 of
Title 5, CFR. Health insurance coverage is provided through conu·acts with health insurance
caniers who provide service benefits, indemnity benefi ts, or comprehensive medical services.

Community-rated cmTiers pati icipating in the FEHBP m·e subj ect to vm·ious federal, state and
local laws, regulations, and ordinances. While most caniers are subject to state jurisdiction,
many m·e fi.uther subject to the Health Maintenan ce Organization Act of 1973 (Public Law 93­
222), as amended (i.e., many cormmmity-rated cmTiers m·e federally qualified). In addition,
pmiicipation in the FEHBP subjects the caniers to the Federal Employees Health Benefi ts Act
and implementing regulations promulgated by OPM .


The FEHBP should pay a market price rate,                     FEHBP Contracts/Members
which is defined as the best rate offered to                          March 31
                                                       4,000 . - - - - - - - - - - - - - - - - 1
either of the two groups closest in size to the
FEHBP. In contracting with commlmity­
                                                       3,500                  ...     .....
                                                                               . . . .. . . .. . . .. .
                                                       3,000                  ........
                                                                               . . . ... ... . . ...
rated caniers, OPM relies on catTier                                          ...     .....
                                                       2,500                  ........

                                                                               .......
compliance with appropriate laws and
                                                       2,000
regulations and, consequently, does not
negotiate base rates. OPM negotiations relate          1,500

primm·ily to the level of coverage and other           1,000
unique features of the FEHBP.                           500
                                                          0    +---­
The chati to th e right shows the number of
FEHBP conu·acts and members reported by
th e Plan as ofMarch 31,2012.


                                                  1

The Plan has participated in the FEHBP since 2005 and provides health benefits to FEHBP
members in the Central Pennsylvania area. This audit represents a close-out of FEHBP coverage
under plan code SW effective January 1, 2013. The last audit of the Plan conducted by our
office covered contract years 2010 and 2011. All issues from 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

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 contract year 2012. For this year, the FEHBP paid
approximately $20 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 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
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 conducted from our office located in Cranberry Township,
Pennsylvania.

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 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. AUDIT FINDINGS AND RECOMMENDATION
1. Premium Rate Review

  Based on our audit, we have accepted the Plan’s rating of the FEHBP for contract year 2012,
  and have no questioned costs.

2. Inappropriate Benefit Loadings

  In contract year 2012, the Plan inappropriately applied mental health parity and autism
  loadings to the FEHBP rates.

  The mental health parity loading relates to the Mental Health Parity and Addiction Equity Act
  that became effective January 1, 2010. However, the FEHBP’s benefits have included mental
  health parity for several years and the cost is reflected in the claims experience used to
  develop the FEHBP rates. Therefore, this additional loading is unnecessary.

  The autism loading relates to the cost for diagnostic assessment and treatment of individuals
  with Autism Spectrum Disorders (ASD). The FEHBP consistently provided medically
  necessary services for enrollees as part of its OPM-approved benefit package. The cost of
  allowable ASD services is reflected in the claims experience used to develop the FEHBP
  rates. Therefore, this additional loading is unnecessary.

  As a result, we removed the loadings from our audited FEHBP rates. Due to other
  adjustments to our audited FEHBP rates, the removal of the mental health parity and autism
  loadings had no cost impact to the FEHBP rates.

  Plan’s Comments (see Appendix):

  The Plan agrees to exclude mental health parity and ASD loadings in the FEHBP rate
  development should they decide to contract with the FEHBP in the future.

  Recommendation 1

  We recommend that the contracting officer require that the Plan agree to exclude mental
  health parity and autism loadings in FEHBP rate developments, should the Plan decide to
  contract with the FEHBP in the future.




                                               5
            IV. MAJOR CONTRIBUTORS TO THIS REPORT
Community-Rated Audits Group

                 , Auditor-in-Charge


                  ., Chief

                 , Senior Team Leader




                                        6
                                     H    EAlTHAMERICA
                                     A COYf:'ntrlj Hf:'alth rorf:' Pion




March 12, 2014

U.S . Office of Personnel Management
Office of Inspector General
800 Cranbeny Woods Drive
Suite 270
Cranbeny Township , Pennsylvania 16066


RE:     2012 Draft Report- Report No. 1C-SW-0-14-004

Office of the Actuaries :

In response to the draft audit repo1t for Plan Code SW, Repo1t No. 1C-SW-00-14-004 we
acknowledge that there are no questioned cost. We also acknowledge the inapprop1iate loadings
to the FEHBP rates in 2012 . In contract year 2012 , the Plan applied autism and mental health
parity loadings to the FEHBP rates . The costs associated with these loadings were included in the
claims experience used to develop the FEHBP premium rates; therefore, no additional loadings
are necessary. When the Office of Personnel Management developed the audited FEHBP rates,
the autism and mental health pa1ity loadings were removed. Due to the other adjustments for the
audited FEHBP rates , there was no cost impact in contract year 2012. This finding was pointed
out to the Health Plan in the 2011 audit and we have acted on the recommendation that was made
that the Plan would exclude mental health parity and autism loadings in FEHBP rate
developments, should we decide to contract with the FEHBP in the future .

-              ve any questions, please                                        or me at



Sincerely,




~fFinancial Officer and Controller
HealthAmeiica/Covently Health Car·e



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