oversight

Audit of the Federal Employees Health Benefits Program Operations at ConnectiCare,Inc

Published by the Office of Personnel Management, Office of Inspector General on 2010-10-19.

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 ConnectiCare, Inc.




                                 Report No. lC-TE-OO-lO-039


                                 Date: October 19, 2010




                                            •• CAUTlON-­

This audit report has been distributed to Federal and non-Federal officials who are responsible for the
administration ofthe audited program. This audit report may contain proprietary data which is protected by
Federal law (18 U.S.c. 1905). Therefore, while this report is available under the Freedom of Information Act
and made available to the public on the OIG web page, 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
l[)Spector General




                                              AUDIT REPORT




                                    Federal Employees Health Benefits Program

                                 Community-Rated Health Maintenance Organization

                                                ConnectiCare, Inc.

                                      Contract Number 2662 - Plan Code TE

                                             Farmington, Connecticut




                        Report No. lC-TE-OO-lO-039                   Date:   October 19, 2010




                                                                      Michael R. Esser
                                                                      Assistant Inspector General
                                                                       for Audits



          www.Qpm.gov                                                                       Vlww.usaJobs.gov
                            UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                              Washlllgloll, DC 20415



   Office of the
InspeclQ[ General




                                         EXECUTIVE SUMMARY





                                  Federal Employees Health Benefits Program

                               Community-Rated Health Maintenance Organization

                                              ConnectiCare, Inc.

                                    Contract Number 2662 - Plan Code TE

                                           Farmington, Connecticut




                       Report No. IC-TE-OO-IO-039                   Date: October 19, 2010


         The Office of the Inspector General perfonned an audit of the Federal Employees Health Benefits
         Program (FEHBP) operations at ConnectiCare, Inc. (Plan). The audit covered contract years
         2007 through 2009 and was conducted at the Plan's office in Fannington, Connecticut. We
         found that the FEHBP rates were developed in accordance with the applicable laws, regulations,
         and the Office of Personnel Management's rating instructions for the years audited.




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                            CONTENTS



                                        Page

   EXECUTIVE SUMMARy                      i


 1. INTRODUCTION AND BACKGROUND          1


U. OBJECTIVES, SCOPE, AND METHODOLOGy    3


Ill. RESULTS OF AUDIT                    5


IV. MAJOR CONTRIBUTORS TO THIS REPORT    6

                     I. INTRODUCTION AND BACKGROUND


Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at ConnectiCare, Inc. (Plan). The audit covered contract years 2007 through 2009 and was
conducted at the Plan's office in Farmington, Connecticut. The audit was conducted pursuant to
the provisions of Contract CS 2662; 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
Retirement and Benefits Office. The provisions of the Federal Employees Health Benefits Act
are implemented by OPM through regulations codified in Chapter I, Part 890 of Title 5, CFR.
Health insurance coverage is provided through contracts with various health insurance carriers
that 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.

The FEHBP should pay a market price rate,                     FaI3P Contracts/Mem beTs
which is defined as the best rate offered to                             March 31

either of the two groups closest in size to         25,000
the FEHBP. In contracting with
community-rated carriers, OPM relies on             20,000

carrier compliance with appropriate laws
                                                    15,000
and regulations and, consequently, does not
negotiate base rates. OPM negotiations
relate primarily to the level of coverage and
other unique features of the FEHBP.

The chart to the right shows the number of
FEHBP contracts and members reported by         • Contracts     9,704          8,513     6,658
the Plan as of March 31 for each contract       D Members       21,010        17,944     13,518
year audited.
The Plan participated in the FEHBP from 1994 through 2009, and provided health benefits to
FEHBP members throughout Connecticut and Franklin, Hampden, and Hampshire counties in
Massachusetts. The last full-scope audit of the Plan covered contract years 2003, 2004, and
2006. There are no outstanding issues from that audit.

The preliminary results of this audit were discussed with Plan officials at an exit conference and
through subsequent correspondence. Since the audit showed that the Plan's rating of the FEHBP
was in accordance with the applicable laws, regulations, and instructions, we did not issue a draft
report.




                                                 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.



We conducted this performance audit in accordance with               FEHBP Premiums Paid to Plan
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 fmdings and
conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis
for our findings and conel usions based on our audit
objectives.

This performance audit covered contract years 2007
through 2009. For these years, the FEHBP paid
approximately $239.2 million in premiums to the Plan.
The premiums paid for each contract year audited are
shown on the chart to the right.

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 SSSGs); and

       •	 the loadings to the FEHBP rates were reasonable and equitable.


                                                 3
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 performed 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 Farmington, Connecticut, during May
2010. Additional audit work was completed at our offices in Jacksonville, Florida, and
Cranberry Township, Pennsylvania.

Methodology

We examined the Plan's federal rate submissions and related documents as a basis for validating
the market price rates. Further, we examined claim payments to verify that the cost data used to
develop the FEHBP rates was accurate, complete, and valid. 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's policies and pwcedures, interviewed appropriate Plan officials, and
performed other auditing procedures necessary to meet our audit objectives.




                                                 4

                                III. RESULTS OF AUDIT


Our audit showed that the Plan's rating of the FEHBP was in accordance with the applicable
laws, regulations, and OPM's rating instructions to carriers for contract years 2007 tbrough 2009.
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

                  'enior Team Leader




                                       6