U.S. OFFICE OF PERSONNEL MANAGEMENT OFFICE OF THE INSPECTOR GENERAL OFFICE OF AUDITS Final Audit Report AUDIT OF THE FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM OPERATIONS AT HUMANA COVERAGEFIRST – AUSTIN, TEXAS Report Number 1C-TV-00-14-072 June 18, 2015 -- 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 (http://www.opm.gov/our-inspector-general), 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 Audit of the Federal Employees Health Benefits Program Operations at Humana CoverageFirst – Austin, Texas Report No. 1C-TV-00-14-072 June 18, 2015 Why Did We Conduct The Audit? What Did We Find? The primary objectives of the audit This report questions $171,290 for inappropriate health benefit were to determine if Humana charges to the FEHBP in contract year 2010. The questioned CoverageFirst – Austin, Texas (Plan) amount includes $154,707 for defective pricing and $16,583 due developed the Federal Employees the FEHBP for lost investment income, calculated through Health Benefits Program (FEHBP) June 30, 2015. premium rates using complete, accurate and current data, and that the We found that the FEHBP rates were developed in accordance rates were equivalent to the Plan’s with applicable laws, regulations, and the U.S. Office of Personnel Similarly Sized Subscriber Groups Management’s Rate Instructions to Community-Rated Carriers for (SSSGs), as provided in Federal contract years 2008, 2009, 2011, and 2012. Employees Health Benefits Acquisition Regulation 1652.215- 70(a). Additional tests were performed to determine whether the Plan was in compliance with the provisions of the laws and regulations governing the FEHBP. What Did We Audit? Under contract 2887, the Office of the Inspector General completed a performance audit of the FEHBP’s rates offered for contract years 2008 through 2012. Our audit fieldwork was conducted from September 8, 2014 through September 19, 2014 at the Plan’s office in Louisville, Kentucky. _______________________ Michael R. Esser Assistant Inspector General for Audits i ABBREVIATIONS CFR Code of Federal Regulations FEHBAR Federal Employees Health Benefits Program Acquisition Regulations FEHBP Federal Employees Health Benefits Program FY Fiscal Year OIG Office of the Inspector General OPM U.S. Office of Personnel Management Plan Humana CoverageFirst – Austin, Texas SSSG Similarly Sized Subscriber Group U.S.C. United States Code ii IV. MAJOR CONTRIBUTORS TO THIS REPORT TABLE OF CONTENTS Page EXECUTIVE SUMMARY ......................................................................................... i ABBREVIATIONS ..................................................................................................... ii I. BACKGROUND ..........................................................................................................1 II. OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................3 III. AUDIT FINDINGS AND RECOMMENDATIONS.................................................5 1. Defective Pricing .....................................................................................................5 2. Lost Investment Income ...........................................................................................6 IV. MAJOR CONTRIBUTORS TO THIS REPORT ....................................................7 Exhibit A (Summary of Questioned Costs) Exhibit B (Defective Pricing Questioned Costs) Exhibit C (Lost Investment Income) Appendix (Humana CoverageFirst – Austin, Texas’s response to the draft report, received on March 20, 2015) REPORT FRAUD, WASTE, AND MISMANAGEMENT IV. MAJOR CONTRIBUTORS I. BACKGROUND TO THIS REPORT This final report details the audit results of the Federal Employees Health Benefits Program (FEHBP) operations at Humana CoverageFirst – Austin, Texas (Plan). The audit covered contract years 2008 through 2012, and was conducted at the Plan’s office in Louisville, Kentucky. The audit was conducted pursuant to FEHBP contract CS 2887; 5 United States Code (U.S.C.) Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Part 890. The audit was performed by the U.S. Office of Personnel Management’s (OPM) Office of the Inspector General (OIG), as established by the Inspector General Act of 1978, as amended. 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, and is administered by OPM’s Healthcare and Insurance Office. 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. FEHBP Contracts/Members The FEHBP should pay a premium rate March 31 that is equivalent to the best rate given to 900 either of the two groups closest in size to the FEHBP. In contracting with 800 community-rated carriers, OPM relies on 700 carrier compliance with appropriate laws 600 and regulations and, consequently, does 500 not negotiate base rates. OPM 400 negotiations relate primarily to the level of coverage and other unique features of 300 the FEHBP. 200 100 The chart to the right shows the number 0 of FEHBP contracts and members 2008 2009 2010 2011 2012 Contracts 390 374 387 346 331 reported by the Plan as of March 31 for Members 881 835 845 742 710 each contract year audited. The Plan has participated in the FEHBP since 2006 and provides health benefits to FEHBP members in the Austin metropolitan area. This is the first audit for this plan code. 1 Report No. 1C-TV-00-14-072 The preliminary results of this audit were discussed with Plan officials at an exit conference and in subsequent correspondence. A draft report was also provided to the Plan for review and comment. The Plan’s comments were considered in preparation of this report and are included, as appropriate, as the Appendix to the report. 2 Report No. 1C-TV-00-14-072 IV. MAJOR CONTRIBUTORS II. OBJECTIVES, SCOPE, AND TO THIS REPORT METHODOLOGY Objectives The primary objectives of the audit were to determine if the FEHBP premium rates were developed using complete, accurate and current data, and were equivalent to the Plan’s Similarly Sized Subscriber Groups (SSSG), as provided in Federal Employees Health Benefits Acquisition Regulation (FEHBAR) 1652.215-70(a). 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 FEHBP Premiums Paid to Plan accordance with generally accepted government auditing standards. Those standards require that $4 we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis Millions $3 for our findings and conclusions based on our $2 audit objectives. We believe that the evidence obtained provides a reasonable basis for our $1 findings and conclusions based on our audit $0 objectives. 2008 2009 2010 2011 2012 Revenue $2.3 $2.7 $3.1 $3.3 $3.2 This performance audit covered contract years 2008 through 2012. For these years, the FEHBP paid approximately $14.6 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 to Community-Rated Carriers (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 SSSGs were selected; 3 Report No. 1C-TV-00-14-072 the rates charged to the FEHBP were developed using complete, accurate and current data, and were equivalent to the best rate given 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. The audit fieldwork was performed from September 8, 2014 through September 19, 2014 at the Plan’s office in Louisville, Kentucky. Methodology We examined the Plan’s federal rate submission and related documents as a basis for validating its Certificates of Accurate Pricing. In addition, we examined the rate development documentation and billings to other groups, such as the SSSGs, to determine if the FEHBP rates were reasonable and equitable. Finally, we used the contract, the FEHBAR, 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 Report No. 1C-TV-00-14-072 III. AUDIT FINDINGS AND RECOMMENDATIONS 1. Defective Pricing $154,707 The Certificate of Accurate Pricing the Plan signed for contract year 2010 was defective. In accordance with federal regulations, the FEHBP is therefore due a rate reduction for this year. Application of the defective pricing remedy shows that the FEHBP is due a premium adjustment of $154,707 (see Exhibit A). We found that the FEHBP rates were developed in accordance with applicable laws, regulations, and OPM’s rules and regulations in contract years 2008, 2009, 2011, and 2012. FEHBAR 1652.215-70 provides that carriers proposing rates to OPM The FEHBP is due are required to submit a Certificate of Accurate Pricing certifying that a rate reduction of the proposed subscription rates are complete, accurate and current. $154,707 for Furthermore, FEHBAR 1652.216-70 states that the subscription rates defective pricing in agreed to in the contract shall be equivalent to the subscription rates contract year 2010. given to the community-rated carrier’s SSSGs as defined in FEHBAR 1602.170-13. SSSGs are the Plan’s two employer groups closest in subscriber size to the FEHBP. If it is found that the FEHBP rates were increased because of defective pricing or defective cost or pricing data, then the rates shall be reduced in the amount by which the price was increased because of the defective data or information. 2010 The Plan selected and as SSSGs for contract year 2010. We agree with these selections. Our analysis of the rates charged to the SSSGs shows that received a percent discount and received a percent discount. The Plan had originally applied a percent discount to the FEHBP rates in the reconciliation. However, the FEHBP is entitled to a discount equivalent to the largest discount given to an SSSG. We recalculated the FEHBP rates using the percent discount given to . A comparison of our audited rates to the Plan’s reconciled rates shows that the FEHBP was overcharged $154,707 in contract year 2010 (see Exhibit B). Plan’s Comments (see Appendix): The Plan agrees with the audit findings. Recommendation 1 We recommend that the contracting officer require the Plan to return $154,707 to the FEHBP for defective pricing in contract year 2010. 5 Report No. 1C-TV-00-14-072 2. Lost Investment Income $16,583 In accordance with FEHBP regulations and the contract between OPM and the Plan, the FEHBP is entitled to recover lost investment income on the defective pricing findings in contract year 2010. We determined the FEHBP is The FEHBP is due due $16,583 for lost investment income, calculated through June 30, lost investment 2015 (see Exhibit C). In addition, the FEHBP is entitled to lost income on defective investment income for the period beginning July 1, 2015, until all pricing findings in defective pricing amounts have been returned to the FEHBP. the amount of $16,583. FEHBAR 1652.215-70 provides that, if any rate established in connection with the FEHBP contract was increased because the carrier furnished cost or pricing data that was not complete, accurate, or current as certified in its Certificate of Accurate Pricing, the rate shall be reduced by the amount of the overcharge caused by the defective data. In addition, when the rates are reduced due to defective pricing, the regulation states that the government is entitled to a refund and simple interest on the amount of the overcharge from the date the overcharge was paid to the carrier until the overcharge is liquidated. Our calculation of lost investment income is based on the United States Department of the Treasury’s semiannual cost of capital rates. Plan’s Comments (see Appendix): The Plan agrees lost investment income should be calculated. Recommendation 2 We recommend that the contracting officer require the Plan to return $16,583 to the FEHBP for lost investment income, calculated through June 30, 2015. We also recommend that the contracting officer recover lost investment income on amounts due for the period beginning July 1, 2015, until all defective pricing amounts have been returned to the FEHBP. 6 Report No. 1C-TV-00-14-072 IV. MAJOR CONTRIBUTORS TO THIS REPORT COMMUNITY-RATED AUDITS GROUP , Auditor-in-Charge , Lead Auditor , Lead Auditor , Auditor , Senior Team Leader , Chief 7 Report No. 1C-TV-00-14-072 IV. MAJOR CONTRIBUTORS EXHIBIT A TO THIS REPORT Humana CoverageFirst – Austin, Texas Summary of Questioned Costs Defective Pricing Questioned Costs Contract Year 2010 $154,707 Total Defective Pricing Questioned Costs $154,707 Lost Investment Income` $16,583 Total Questioned Costs $171,290 Report No. 1C-TV-00-14-072 IV. MAJOR CONTRIBUTORS EXHIBIT B TO THIS REPORT Humana CoverageFirst – Austin, Texas Defective Pricing Questioned Costs Contract Year 2010 Self Family FEHBP Line 5 - Reconciled Rate $ $ FEHBP Line 5 - Audited Rate $ $ Bi-weekly Overcharge $ $ To Annualize Overcharge: March 31, 2010 enrollment Pay Periods 26 26 Subtotal $ $ $154,707 Total Defective Pricing Questioned Costs $154,707 Report No. 1C-TV-00-14-072 EXHIBIT C TO THIS REPORT IV. MAJOR CONTRIBUTORS Humana CoverageFirst - Austin, Texas Lost Investment Income Year 2010 2011 2012 2013 2014 30-Jun-15 Total Audit Findings: 1. Defective Pricing $154,707 $0 $0 $0 $0 $0 $154,707 Totals (per year): $154,707 $0 $0 $0 $0 $0 $154,707 Cumulative Totals: $154,707 $154,707 $154,707 $154,707 $154,707 $154,707 $154,707 Avg. Interest Rate (per year): 3.1875% 2.5625% 1.8750% 1.5625% 2.0625% 2.1250% Interest on Prior Years Findings: $0 $3,964 $2,901 $2,417 $3,191 $1,644 $14,117 Current Years Interest: $2,466 $0 $0 $0 $0 $0 $2,466 Total Cumulative Interest Calculated Through June 30, 2015: $2,466 $3,964 $2,901 $2,417 $3,191 $822 $16,583 Report No. 1C-TV-00-14-072 APPENDIX TO THIS REPORT IV. MAJOR CONTRIBUTORS HUMANA RESPONSE TO DRAFT AUDIT REPORT NO. 1C-TV-00-14-072 March 20, 2015 This document is submitted by Humana Health Plan of Texas, Inc./Humana Insurance Company (“Humana”) and responds to the Draft Audit Report dated January 21, 2015 issued by the Office of Inspector General of the Office of Personnel Management ("OPM") regarding the Humana FEHBP Contract Number 2887 – Plan Code TV for contract years 2008-2012. The Audit Report questions inappropriate charges for contract year 2010 totaling $169,647 consisting of defective pricing charges of $154,708 and $14,939 due the FEHBP for lost investment income through 12/31/2014. Humana concurs with the existence of defective pricing and agrees to remit payment including lost investment income with the subsequent release of the Final Audit report. Report No. 1C-TV-00-14-072 Report Fraud, Waste, and Mismanagement Fraud, waste, and mismanagement in Government concerns everyone: Office of the Inspector General staff, agency employees, and the general public. We actively solicit allegations of any inefficient and wasteful practices, fraud, and mismanagement related to OPM programs and operations. You can report allegations to us in several ways: By Internet: http://www.opm.gov/our-inspector-general/hotline-to- report-fraud-waste-or-abuse By Phone: Toll Free Number: (877) 499-7295 Washington Metro Area: (202) 606-2423 By Mail: Office of the Inspector General U.S. Office of Personnel Management 1900 E Street, NW Room 6400 Washington, DC 20415-1100 Report No. 1C-TV-00-14-072
Audit of the Federal Employees Health Benefits Program Operations at Humana CoverageFirst - Austin, Texas
Published by the Office of Personnel Management, Office of Inspector General on 2015-06-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)