U.S. OFFICE OF PERSONNEL MANAGEMENT OFFICE OF THE INSPECTOR GENERAL OFFICE OF AUDITS AUDIT OF THE FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM OPERATIONS AT THE HEALTH PLAN 0 F THE UPPER 0 HI0 VALLEY, IN C. Rep o rt Numbe r 1C-U4-00-14-038 February 20, 2015 --CAUTION - This audit r epot·t has been distributed to Federal officials who are n sponsible for the administration of the audited program. T his audit report may contain pt·opl'ietat·y data which is protected by Federal l aw (18 U.S.C. 1905). Therefot·e, while this audit report is available undet· the Freedom of Information Act and made available to the public on t he OIG webpage (http:lhmmv.opm.govl our-iu spector-geuernl), caution needs t o be exer cised before releasing the t·epot·t to the general public as it may contain proprietary information that was redacted from the publicly distributed copy. EXECUTIVE SUMMARY Audit ofthe Federal Employees Health Benefits Program Operations at The Health Plan Ohio Vc Inc. Why Did We Conduct the Audit? What Did We Find? The objectives of om audit were to This report questions $2,144,107 for inappropriate health benefit detennine if The Health Plan of the charges to the FEHBP in contract years 2008 an d 2010. The Upper Ohio Valley, Inc. (Plan) questioned am mmt includes $ 1,940,249 for defective pricing and offered the Federal Employee Health $203 ,858 due the FEHBP for lost investment income, calculated Benefits Program (FEHBP) market through Janumy 31, 2015. While rating discrepancies were price rates and that the loadings identified in contract year 2009, we fmmd that there was no applied to the FEHBP rates were material cost impact to th e FEHBP rates for that yem·. reasonable and equitable. Additional tests were perf01m ed to dete1mine Additionally, in contract yem·s 2008 through 2010, we found that whether the Plan was in compliance the Plan did not maintain original somce documentation to supp01t with the provisions of the laws and its rate developments of the Similarly Sized Subscriber Groups regulations goveming the FEHBP. (SSSGs) as required by Section 3.4 of its FEHBP contract. What Did We Audit? Finally, the Plan does not have adequate rating system controls to ensme that the SSSGs an d the FEHBP are rated consistently and Under contract 2616, the Office of the that the FEHBP receives a mm·ket price rate. Inspector General (OIG) completed a perf01mance audit of the FEHBP's rates offered for contract years 2008 through 2010. Om audit was conducted from April 28, 20 14 through May 9, 2014 at the Plan's office in St. Clairsville, Ohio. Michael R. Esser Assistant Inspector General for A udits ABBREVIATIONS ACR Adjusted Community Rating CFR Code of Federal Regulations FEHBP Federal Employees Health Benefits Program FEHBAR Federal Employees Health Benefits Acquisition Regulations FY Fiscal Year HMO Health Maintenance Organization OIG Office of the Inspector General OPM U.S. Office of Personnel Management PPO Preferred Provider Organization PLAN The Health Plan of the Upper Ohio Valley, Inc. SSSG Similarly Sized Subscriber Group U.S.C. United States Code ii TABLE OF CONTENTS Page EXECUTIVE SUMMARY ......................................................................................... i ABBREVIATIONS ..................................................................................................... ii I. BACK GROUND .......................................................................................................... 1 II. OBJECT IVES, SCOPE, AND METHODOLOGY ..................................................3 III. AUDIT FINDINGS AND RECO MMENDATIONS.................................................5 Prenlimn Rate Review ......................................... .......................................................... 5 1. Defective Pricing .....................................................................................................5 2. Lost Investrnen t Income ......................................................................................... 11 3. Record Retention ................................................................................................... 12 4. Rat ing System Contr·ols ......................................................................................... 12 IV. MAJOR C ONTRIBUTORS TO TillS REPORT .................................................. 15 Exhibit A (Summruy of Questioned Costs) ....................................................... .......... 16 Exhibit B (Defective Pricing Questioned Costs) ......................................................... 17 Exhibit C (Lost Investment Income) ................ ............................................................ 18 Appendix (The Health Plan 's November 25 , 2014 response to the draft rep01t) ........ 19 REPORT FRAUD, WAST E, AND MI SMANAGEMENT ....................................25 I. BACKGROUND This final rep01t details the findings, conclusions, and recommendations resulting from om audit of the Federal Employees Health Benefits Program (FEHBP) operations at The Health Plan of the Upper Ohio Valley, Inc. (Plan). The audit covered contract years 2008 through 2010, an d was conducted at the Plan 's office in St. Clairsville, Ohio. The audit was conducted pmsuant to FEHBP contract CS 26 16; 5 U.S .C. Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Part 890. The audit was perf01med 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 insmance benefits for Federal employees, annuitants, and dependents. The FEHBP is administered by OPM's Healthcar e and Insmance Office. Health insman ce coverage is provided through contracts with health insmance caniers that provide service benefits, indemnity benefits, or comprehensive medical services. Commlmity-rated can iers participating in the FEHBP are subject to various Federal, state and local laws, regulations, and ordinances. While most caniers are subject to state j m isdiction, many are fmther subject to the Health Maintenance Organization Act of 1973 (Public Law 93 222), as amended (i.e. , many community-rated can iers are Federally qualified) . In addition, pmt icipation in the FEHBP subjects the cmTiers to the Federal Employees Health Benefits Act and implementing regulations promulgated by OPM . FEHBP Contracts/Members Marc h 31 The FEHBP should pay a mm·ket price rate, 2,500 ,/ r= which is defmed as the best rate offered to either of the two groups closest in size to the 2,000 v -- ~ r- FEHBP. In conu·acting with comrmmity rated cmTiers, OPM relies on catTier 1,500 v- 1- complian ce with appropriate laws an d regulations an d, consequently, does not 1,000 v ,. . 1- negotiate base rates. OPM negotiations 500 v 1-- - r- relate primm·ily to the level of coverage and other lmique features of the FEHBP. 0 / 1-- r-- 7 2008 2009 2010 ID Contracts 955 964 1,052 The chmt to the right shows the number of Ia Members 2,089 2, 095 2, 297 FEHBP conu·acts and members rep01t ed by 1 Rep01t N o. 1C-U4-00-14-038 the Plan as of March 31 for each contract year audited. The Plan has participated in the FEHBP since 1991 and provides health benefits to FEHBP members in Northeast and Eastern Ohio, and Northern and Central West Virginia. The last audit conducted by our office was a rate reconciliation audit and covered contract year 2011. There were no issues identified during that audit. 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-U4-00-14-038 II. OBJECTIVES, SCOPE, AND METHODOLOGY Objective The primaty objectives of the audit were to detennine if the Plan offered the FEHBP market price rates and that the loadings to the FEHBP rates were reasonable and equitable. Additional tests were perf01med to detetmine whether the Plan was in complian ce with the provisions of the laws and regulations goveming the FEHBP. Scope We conducted this perfon nance audit in FEHBP Premi ums Paid to Plan accordance with generally accepted govemment auditing stan dards. Those standar ds require that $12 we plan and perf01m the audit to obtain sufficient, ,......__ $10 appropriate evidence to provide a reasonable basis - ~ $8 for our findings an d conclusions based on our audit objectives. We believe th at th e evidence .Q :ll $6 1 - obtained provides a reasonable basis for our $4 r - $2 r - findings an d conclusions based on our audit ....._ r- objectives. $0 2008 2009 I 2010 lc Revenue $8.4 $8.4 I $10.3 This perfon nance audit covered contract years 2008 through 2010. For th ese years, th e FEHBP paid approximately $27 million in premiums to th e Plan. OIG audits of community-rated can iers are designed to test catTier compliance with the FEHBP contract, applicable laws and regulations, and the rate instructions . These audits are also designed to provide reasonable assurance of detecting en ors, inegularities, an d illegal acts. We obtained an understanding of the Plan 's intem al contr·ol structure, but we did not use this inf01mation to detetmine the nature, timing, and extent of our audit procedures. However, the audit included such tests of the Plan 's rating system and such oth er auditing procedures considered necessaty lmder th e circmnstan ces. Our review of intem al contr·ols 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 mru·ket price rates (i.e., equivalent to the best rate offered to the SSSGs); an d 3 Rep01i No. 1C-U4-00-14-038 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 at the Plan’s office in St. Clairsville, Ohio in April and May 2014. Methodology We examined the Plan’s Federal rate submission 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 Report No. 1C-U4-00-14-038 III. AUDIT FINDINGS AND RECOMMENDATIONS Premium Rate Review 1. Defective Pricing $1,940,249 The Ce1iificates of Accmate Pricing The Health Plan of Upper Ohio Valley, Inc. (Plan) signed for contract years 2008 and 2010 were defective. In accordance with Federal regulations, the FEHBP is therefore due a rate reduction for these years. Application of the defective pricing remedy shows that the FEHBP is due a premium adjustment of $1,940,249 (see Exhibit A). While rating discrepancies were identified in The FEHBP is due a contract year 2009, we fmmd that there was no material cost rate reduction of impact to the FEHBP rates in that year. $1,940,249 for defective pricing in Federal Employees Health Benefits Acquisition Regulation contract years 2008 (FEHBAR) 1652 .2 15-70 provides that caniers proposing rates to and 2010. OPM are required to submit a Ce1i ificate of Accm ate Pricing ce1iifying that the proposed subscription rates, subject to adjustments recognized by OPM, are market price rates. OPM regulations refer to a market price rate in conjunction with the rates offered to an SSSG. SSSGs are the Plan's two employer groups closest in subscriber size to the FEHBP. If it is fmmd that the FEHBP was charged higher than the market price rate (i.e. , best rate offered to an SSSG), a condition of defective pricing exists, requiring a downward adjustment of the FEHBP premimns to the equivalent market price rate. We agree with the Plan's selection as SSSGs for contract year 2008 . The FEHBP and Adjusted Commlmity Rating (ACR) methodology was rated using a blended ACR and Commlmity Rating by Class methodology. The Plan did not apply an SSSG discount to the FEHBP rates. Om analysis of the rates charged to the SSSGs shows that the received a - discount. did not receive a discount. The Plan sold the three benefit options; however, the rate development did not accmmt for benefit option differences in the claims experience. In addition, each option had a deductible change that was not accounted for in the claims experience. Finally, we found that the medical claims and em ollment inf01mation used in the rate development did not match the supp01iing documentation. After 5 Rep01i No. 1C-U4-00-1 4-038 adjusting our audited rate development using the supported claims and enrollment numbers and adjusting for the benefit differences, we determined that the received a discount. During our review of the FEHBP rates, we found that the claims and enrollment data used in the Plan’s FEHBP rate development did not match the reports generated at the time of rating. In addition, we found that the Plan applied an FEHBP pharmacy trend factor that was lower than the state-filed pharmacy trend factor that was correctly applied to the SSSGs. We updated the claims, enrollment and pharmacy trend factor in our FEHBP audited rates. We recalculated the FEHBP rates based on the exceptions noted above and applied the SSSG discount of to our audited rates. A comparison of our audited line 5 rates to the Plan’s reconciled line 5 rates shows that the FEHBP was overcharged $140,296 (see Exhibit B). Plan’s Comments (see Appendix): Option Differences The Plan did not comment on this issue. Deductible Change The Plan agrees that the $100 deductible benefit should be accounted for in the claims experience. However, the Plan believes that the relative change is averaged over all of the experience. Claims and Enrollment Data The Plan did not comment on claims and enrollment data variances between their 2008 rate development and the source documentation. FEHBP Claims and Enrollment Data The Plan did not comment on claims and enrollment data variances between their 2008 FEHBP rate development and the source documentation. Pharmacy Trend Differences The Plan agrees that the Pharmacy trend should be applied consistently to the FEHBP and the if the auditors are applying a generated discount to the FEHBP rates. 6 Report No. 1C-U4-00-14-038 2008 Questioned Costs The Plan disagrees with the questioned costs in 2008. Based on their position, the Plan contends that they owe the FEHBP $18,959 in contract year 2008. OIG’s Response to the Plan’s Comments: Deductible Change Prior to the issuance of the draft report, we accounted for the experience period deductible change. Per the Plan’s rate filing, the applicable benefit change for a $100 deductible is , which we applied to the three months of experience when the $100 deductible was available to members. We do not agree with the Plan’s calculation of the $100 deductible adjustment. The Plan did not use the filed benefit change factor of , instead using an unsupported factor of . Additionally, the Plan weighted the benefit change over a full year of claims experience, instead of the benefit change being applied to the three months of claims experience when the $100 deductible was applicable. Pharmacy Trend Differences Prior to issuance of the draft report, we applied the pharmacy trend to the FEHBP pharmacy rate to be consistent with the Plan’s 2008 rating of the . 2008 Questioned Costs Our audit documentation accounts for the $100 deductible change for the rate development. Additionally, the application of the pharmacy trend factor in the FEHBP and rate developments is consistent. The Plan was unable to provide any further evidence that would dismiss our findings in the draft report for contract year 2008. Thus, we continue to question $140,296 in contract year 2008 (see Exhibit B). 2010 We agree with the Plan’s selection of and as SSSGs for contract year 2010. The FEHBP and the SSSGs were rated using ACR. The Plan provided an “other” discount of approximately to the proposed 2010 FEHBP rates. The Plan was notified by OPM on July 23, 2009 that they will not be allowed to recoup the “other” discount in the 2010 reconciliation. The Plan did not apply an SSSG discount to the FEHBP rates. Our analysis of the rates charged to the SSSGs shows that received a discount and received an discount. The Plan sold two products, a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO) product. The Plan rated 7 Report No. 1C-U4-00-14-038 this group as one product with combined experience, but did not adjust the experience to account for the product benefit differences. In addition, the HMO product had a preventative benefit change that was not accounted for in the experience. To account for the cost of each product, we used the Plan’s HMO experience to re-rate the HMO product and the Plan’s PPO experience to re-rate the PPO product. We made the adjustment for the preventative benefit change in the HMO experience as outlined by the group’s benefit brochure and made the renewal benefit adjustments for each product as outlined by their respective benefit brochures. In addition, the Plan’s catastrophic claims policy is to pool claims and apply a pooling charge to groups with less than 500 covered lives. had 517 covered lives and did not qualify for pooling; however, the Plan pooled claims for this group and applied a pooling charge. In accordance with the Plan’s rating methodology, we removed the catastrophic pooled claims and the pooling charge from our audited rate development. Additionally, the $174,883 in claims that the Plan removed from the FEHBP rates due to member termination were added back into the FEHBP rate for consistency. Finally, the Plan could not support the use of an medical trend factor used in rate development. We applied an trend rate, which was used consistently for the FEHBP and . We recalculated the FEHBP rates applying the largest SSSG discount of to our audited rates. A comparison of our audited line 5 rates to the Plan’s reconciled line 5 rates shows that the FEHBP was overcharged $1,799,953 (see Exhibit B). Plan’s Comments (see Appendix): SSSG Status The Plan states that is not an appropriate SSSG due to the fact that over 50 percent of the covered lives are enrolled in a PPO product which was underwritten by The Health Plan Insurance Company in 2010. Product Benefit Differences The Plan did not comment on this issue. HMO Preventative Benefit Change The Plan agrees that HMO product should receive an adjustment for the preventative benefit change. However, they contend that the preventative benefit change was accounted for in the 2010 HMO trend factor applied to the group. 8 Report No. 1C-U4-00-14-038 Pooling The Plan agrees that per the underwriting policy, groups with less than 500 covered lives pool their catastrophic claims and in exchange receive a pooling charge. The Plan also states that at their discretion they may pool catastrophic claims and apply a pooling charge to large groups (greater than 500 lives) if the group requests the adjustment. FEHBP Member Termination The Plan states that they removed $174,883 of catastrophic claims from the 2010 FEHBP renewal without a corresponding pooling charge, which represents a discount to the FEHBP rate that was not afforded the SSSGs. Trend Rates The Plan disagrees with the use of the trend rate applied to audited rate. Due to the timing of rate development, the Plan states that they used an updated rate filing. Discount The Plan agrees that they discounted , but states that the discount was effective on the PPO product only. Discount The Plan disagrees with the discount calculated on . 2010 Questioned Costs The Plan disagrees with the questioned costs in 2010. Based on their position, the Plan contends that they owe the FEHBP $70,341 in contract year 2010. OIG’s Response to the Plan’s Comments: SSSG Status The Health Plan Insurance Company does not meet the criteria to be considered a separate line of business. Additionally, the Plan was aware, prior to 2010 renewal, that the group met the criteria to be selected as an SSSG and elected them as such in the 2010 Proposal on the Potential SSSG listing, and again in the 2010 Reconciliation. qualifies as an SSSG in 2010. HMO Preventative Benefit Change The Plan is unable to support that HMO preventative benefit change is accounted for in the HMO trend factor. 9 Report No. 1C-U4-00-14-038 Pooling The Plan removed catastrophic claims and applied a pooling charge at the group’s request and at the Plan’s discretion. This action was contrary to the Plan’s pooling policy. Additionally, the Plan was aware prior to 2010 renewal that the group met the criteria to be an SSSG and that they should no longer apply pooling to the group. In accordance with the Plan’s rating methodology, the catastrophic claims were added back into rate and the pooling charge was removed, for SSSG discount calculation purposes. FEHBP Member Termination To be consistent with rating, we added the $174,883 in claims back into the FEHBP rate development. In the 2010 reconciliation, the Plan explained that these claims were related to member termination. Trend Rates The Plan was unable to support the HMO trend and PPO trend that they blended to arrive at an overall trend for 2010 rating. Based on the rate filings we received from the Plan and the OPM rating criteria, we applied the trend to , as was applied to the FEHBP and . Discount We disagree with the Plan’s calculation of the effective discount of . We maintain that the discount given to was . Discount The Plan was unable to provide any additional documentation to counter the discount we calculated on the 2010 rate. 2010 Questioned Costs We adjusted the audited FEHBP workbook to account for the $174,883 in claims previously removed by the Plan to account for terminated members. We re-developed the FEHBP’s rates by applying the discount to the line 5 FEHBP rates. We continue to question $1,799,953 in contract year 2010 (see Exhibit B). 10 Report No. 1C-U4-00-14-038 Recommendation 1 We recommend that the contracting officer require the Plan to retum $ 1,940,249 to the FEHBP for defective pricing in conu·act years 2008 and 2010. 2. Lost Investment Income $203,858 In accordance with FEHBP regulations and the contract between OPM and th e Plan, th e FEHBP is entitled to recover lost inveshnent income on the defective The FEHBP is due pricing fmdings in conu·act years 2008 and 2010. We detennined the lost investment FEHBP is due $203,858 for lost inveshnent income, calculated income on defective through Januaty 3 1, 201 5 (see Exhibit C). In addition, the FEHBP is pricing findings in entitled to lost inveshnent income for the period beginning the amount of Febmaty 1, 201 5, until all defective pricing amounts have been $203,858. retumed to the FEHBP. FEHBAR 1652.215-70 provides that, if any rate established in connection with th e FEHBP conu·act was increased because the catTier fumished cost or pricing data that was not complete, accurate, or cmTent as certified in its Ce1i ificate 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 de fective pricing, the regulation states that the govemment is entitled to a reftmd and simple interest on the am mmt of the overcharge from the date the overcharge was paid to the catTier until th e overchat·ge is liquidated. Our calculation of lost inveshnent income is based on the United States Depatiment of the Treasmy 's semiaimual cost of capital rates. Plan's Comments (see Appendix): The Plan agrees that an adjushnent to lost investment income should be made based on the adjusted fmdings; however, the Plan did not express an opinion on the am mmt of lost inveshnent income due. Recommendation 2 We recommend that the conu·acting officer require the Plan to retum $203 ,858 to the FEHBP for lost investment income, calculated through J anuaty 3 1, 201 5. We also recommend that the conu·acting officer recover lost inveshnent incom e on am mmts due for the period beginning Febmaty 1, 2015, until all defective pricing amounts have been retumed to the FEHBP. 11 Rep01i N o. 1C-U4-00-1 4-038 3. Records Retention The Plan did not comply with the records retention clause of its FEHBP contract. After several requests, the Plan could not provide sufficient and appropriate documentation to support the 2008 age/gender adjustments, the 2009 age/gender adjustments, and the 2010 medical trend factor. Although we ultimately developed audited rates using alternative methods, the FEHBP contract requires the Plan to retain and make available all records supporting its rate submissions for a period of six years after the end of the contract term to which the records relate. Plan’s Comments (see Appendix): The Plan agrees to maintain original documents for future audits. Recommendation 3 We recommend that the contracting officer assess the maximum penalty allowed in the contract between OPM and the Plan for the Plan’s non-compliance with the records retention clause. In addition, we recommend that the contracting officer inform the Plan that: OPM expects it to fully comply with the records retention provision of the contract and all applicable regulations; it should maintain copies of all pertinent rating documents that show the factors and calculations the Plan uses in developing the actual rates for the FEHBP and the groups closest in size to the FEHBP for each unaudited year; and the applicable community-rated performance factors described in FEHBAR 1609.7101-2 will be enforced if information requested during an audit is not provided. 4. Rating System Controls The Plan does not have adequate rating system controls to ensure that the FEHBP and groups closest in size are rated consistently and in accordance with the Plan’s standard rating methodology. This condition is mostly due to the following rating system control weaknesses: 12 Report No. 1C-U4-00-14-038 Separation of Duties The Plan’s marketing department is responsible for both the sale and pricing of employer group products. This is an internal control weakness in the Plan’s rating system that may lead to improper rate application, inconsistent rate development and non-compliance with the Plan’s standard rating methodology. Insufficient Rating System Policies and Procedures The Plan’s rating system policies and procedures are outdated and are not always followed consistently. The Plan provided its 2003 underwriting and rating manual to document its current rating methodology. According to the Plan, it has had very little turnover in the marketing department and its rating policies and procedures are known by staff. However, we found that these policies were not followed consistently among all groups reviewed. For example, although the Plan’s stated policy was to adjust for benefit changes in the claims experience used in pricing groups, the adjustment was not always applied. In another case, the Plan removed catastrophic claims from a 500+ life group and applied a pooling charge, contrary to the Plan’s rating policies that stated groups over 500 lives do not receive a catastrophic claim adjustment. Rate Review Process The Plan’s group rating system and group rate development does not include an underwriting review process to minimize the risk of errors or non-compliance with internal policies and procedures. Failure to correct these issues may result in: 1) the FEHBP receiving a defective price; 2) the potential for inaccurate or inconsistent pricing of the FEHBP rates; and, 3) the potential for future inaccurate and inconsistent calculations and reporting of OPM’s new medical loss ratio methodology requirements. Plan’s Comments (see Appendix): Separation of Duties The Plan states that they will be working on reorganization of the Marketing and Underwriting departments in 2015. Rating System Policies and Procedures The Plan states that they will be implementing updated written policies and procedures for their large groups by December 31, 2014. 13 Report No. 1C-U4-00-14-038 Rate Review Process The Plan contends that they have adequate rating system controls to ensure that the FEHBP and the groups closest in size are rated consistently and receive sufficient review. Recommendation 4 We recommend that the contracting officer require the Plan to submit a corrective action plan within 60 days of final report issuance, which addresses actions taken to mitigate internal control weaknesses related to its rating system. Recommendation 5 We also recommend that the contracting officer require the Plan to develop and implement updated written rating policies and procedures. 14 Report No. 1C-U4-00-14-038 IV. MAJOR CONTRIBUTORS TO THIS REPORT COMMUNITY-RATED AUDITS GROUP , Auditor-in-Charge , Lead Auditor , Lead Auditor , Senior Team Leader , Chief 15 Report No. 1C-U4-00-14-038 EXHIBIT A The Health Plan of the Upper Ohio Valley, Inc. Summary of Questioned Costs Defective Pricing Questioned Costs Contract Year 2008 $140,296 Contract Year 2010 $1,799,953 Total Defective Pricing Questioned Costs $1,940,249 Lost Investment Income $203,858 Total Questioned Costs $2,144,107 16 Report No. 1C-U4-00-14-038 EXHIBIT B The Health Plan of the Upper Ohio Valley, Inc. Defective Pricing Questioned Costs Contract Year 2008 Self Family FEHBP Line 5 - Reconciled Rate FEHBP Line 5 - Audited Rate Bi-weekly Overcharge To Annualize Overcharge: March 31, 2008 enrollment Pay Periods 26 26 Subtotal $140,296 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 $1,799,953 Total Defective Pricing Questioned Costs $1,940,249 17 Report No. 1C-U4-00-14-038 EXHIBIT C The Health Plan of the Upper Ohio Valley, Inc. Lost Investment Income Year 2008 2009 2010 2011 2012 2013 2014 January 31, 2015 Total Audit Findings: 1. Defective Pricing $140,296 $0 $1,799,953 $0 $0 $0 $0 $0 $1,940,249 Totals (per year): $140,296 $0 $1,799,953 $0 $0 $0 $0 $0 $0 Cumulative Totals: $140,296 $140,296 $1,940,249 $1,940,249 $1,940,249 $1,940,249 $1,940,249 $1,940,249 $0 Avg. Interest Rate (per year): 4.9375% 5.2500% 3.1875% 2.5625% 1.8750% 1.5625% 2.0625% 2.1250% Interest on Prior Years Findings: $0 $7,366 $4,472 $49,719 $36,380 $30,316 $40,018 $3,436 $171,707 Current Years Interest: $3,464 $0 $28,687 $0 $0 $0 $0 $0 $32,151 Total Cumulative Interest Calculated Through January 31, 2015: $3,464 $7,366 $33,159 $49,719 $36,380 $30,316 $40,018 $3,436 $203,858 18 Report No. 1C-U4-00-14-038 APPENDIX November 25 , 2014 Deleted b OIG-Not Relevant to Final Re art U.S. Office of Pers01mel Management Office of Inspector General 800 Cranbeny Woods Drive Suite 270 Cranbeny Township, Pennsylvania 16066 Response to draft repOii for FEHBP. Deleted b OIG-Not Relevant to Final Re art The Health Plan of the Upper Ohio V defective pricing for 2008 and 2010 The Health Plan provides the following documents and facts that rebut the findings in your letter of September 30, 2014: 2008 Deleted b OIG-Not Relevant to Final Re art Finding: The Health Plan did not take into account the benefit ootton differences or benefit changes in the claims experience period for the 2008 renewal. Facts and Observations: The did in fact have a deductible change in July, 2007 to $100 (across all three options). The experience period used in the audited ACR model calculation contained 3 months of claims that had no benefit deductible. Consequently, the last 9 m onths of claims used in the ACR model were reflective of the $ 100 deductible benefit and claims. Based upon that, a Benefit Plan Factor adj ustment would need to have been used to adjust (lower) the claims to account for the $ 100 deductible not in force (3 of 12 months) during the experience period. Deleted by OIG-Not Relevant to Final Report 19 Rep01i No. 1C-U4-00-14-038 The Health Plan's recalculation represents a minor miscalculation which only provided discount to the medical component of The - 2008 renewal rather than . This would reduce the FEHBP calculation of ~-to -. Finding: The Health Plan applied an FEHBP phannacy u·end factor that was lower than the state-filed phannacy u·end factor that was conectly applied to the SSSGs. Facts and Ob~hannacy u·end factors comp ared between the FEHBP Rx ACR model and th e - Rx ACR model differ due to the point in time in which each group's renewal was developed. The FEHBP 2008 premium was developed in May 2007; while the SSS 2008 premium renewal was not developed until March 2008 . In and approved Rx u·end factor was . . The Health Plan ' s 2008 Rx were not filed and by State regulators until the fomih quarter of 2007 . Rx u·end factor been the FEHBP Rx premium would have increased In conclusion, The Health Plan has calculated the net result of discount to SSSG - tobe- . 2010 Deleted by OIG-Not Releva nt to Final Report Finding: The Health Plan rated the group as one product and did not adjust the experience to account for product benefit differences. Facts and Observations: The Health Plan would initially contend t h a t - was not an appropriate SSSG due to the fact that over 50%~ives were enrolled in a PPO product unde1written by THP Insurance Co. in 2010. The Health Plan originally calculated the 2010 renewal for two (2) ways. First, the renewal rate was calculated\.1__\-~~~li_l:J~ ~~~'0'-'"-l'lJ'H"'"' of both the HMO and PPO members resulted in an overall - increase for each of the separate product offerings. This increase was applied to each p~'s in-force premium. A second ACR Model was also developed that calculated the renewal for the HMO and PPO . This method would accmmt for specific benefit differentials. Deleted b OIG-No i!ltlr!ml This method resulted in a. . increase for the HMO and a • • -..u increase lmder t~ethod was - v vJLllVll · At this pomt m the renewal process, and the broker had asked if enrolled in the HMO, would the HMO rate mcrease ~ Fi nal Re ort . The Health Plan infonned the group . the HMO price would need to be modified/increased to reflect the higher claims experience of the PPO members if eve1yone was to be enrolled in the HMO. 20 Rep01i No. 1C-U4-00-14-038 The broker pointed out that the renewal under the " combined" method was a under the rating method. wanted the HMO rate increase to remain at as calculated an d asked if the - PPO rate increase could be adjusted downward to an ive at the overall increase indicated by " combined" rating method. The Health Plan did adjust down to rate increase which made th e overall rate increase • . This premium adjustmentie·resented an effective discount to the PPO rate . This equates to pmlpm for PPO members over 12 months totaling- . had then asked for rates if the benefits for the HMO were adjusted an $15/$100 to a HMO Value $15/$250. The HMO value includes 20% co-insm an ce on things such as lab x-ray, MRI, Chemotherapy, and other copay changes. This benefit resulted in an reduction to the rate increase calculated under the method. then asked for rates if the benefits for the PPO were adjusted to 100%/$15/$100 to th e PPO 90%/$ 15/$250. The renewal rates rate increas e to reflect this benefit change. l1!t§§ill Finding: The HMO product had a preventative benefit change in th e HMO product that was not accounted for in th e experience. Facts and Observations : The Health Plan contends that the 2010 HMO trend factor used in the ACR Model included a component th at accounted for the coverage of the preventative benefit change th at was to take effect. Therefore, no discount should be applied to the HMO methodology. Finding: The Health Plan pooled claims and applied a pooling charge to a group with over 500 covered lives. Facts and Observations : The Health Plan 's Intemal Unde1w riting Guidelines an d ACR Model do requir e a pooling charge for groups with less than 500 covered lives. However, if a large group with greater than 500 covered lives makes a specific request of The Health Plan to pay the pooling charge in an effort to mitigate futme catastrop hic claim fluctuations, exceptions to the Intem al Unde1writing Guidelines (at the discretion of The Health Plan) may be granted to the request to include pooling in exchange for a pooling charge . This decision has to be made in advan ce an d a pooling charge included in the prior ' rates in order to have claims pooled in the subsequent renewal calculation . In this case, specifically requested th at The Health Plan include the pooling · · 2001. They have been pooled eve1y year th ereaf ter. r.iilliiillliailliill The Health Plan contends that the SSSG client requested pooled claims an d a pooling charge , and ar e not a discount. For the FEHBP 2010 renewal, a - credit for catas trophic claims was given with out a con esponding pooling charge ha~n paid in the prior year or included in the renewal 21 Rep01i No. 1C-U4-00-14-038 premium. This credit reduced th e medical renewal rate increase -~t of a . discmmt not afforded The Health Plan could not supp01i the use of an - medical trend factor used in rate development. Facts and Observations : The Health Plan can only apply trend factors in the ACR model that are consistent with the State rate filing in force at the time the renewal premium rate is developed. The 2010 FEHBP rate was developed in May 2009. At that point in trend factor for the HMO product was In Janmuy 2010 , the rate development was calculated the State <>nr"."'"""ri th e HMO and . for th e PPO . 1,;6;1,1~ "combined" ACR model prc>portHmate an overall. . u·end factor. The fmal,~justed rate was based on rating the The Health Plan asse1is th ere was no discount given to used th e appropriate filed an d approved u·end factors . Finding Deleted b OIG-Not Relevant to Final Re art Fact s and Observations : does not specify the reasons for the - discount of the 2010 rate . We have assumed that this perceiv:fdlscount was calculated group an HMO product in 2009 to a POS product in 2010. At th at time, The Health Plan had higher base rates for an HMO plan than a comparable THP Insurance Co. POS plan. evaluated the HMO products an d asked for other product altem atlves product. We applied the State approved product pricing differentials to altemative POS plan designs requested by the group. · The Health offered similar to the FEHBP but was declined . ...-.~.-. Given this inf01mation, The Health Plan did not provide a discount to - ' but rather they selected a more affordable altemative to their Deleted b OIG-Not Relevant to Final Re art Response: Although The Health Plan contends that considered a 2010 SSSG due to their majority PPO coJtnposinon, effective discount to have been - . We have also addressed the minor miscalculation to the 2008 ACR Model and dete1mined their effective discount to have been - . 22 Rep01i No . 1C-U4-00-14-038 Deleted by OIG-Not Relevant to Fina l Response: This ammmt should be reduced commensurate with a downward adj ustment to the "SSSG" discmmt calculations above. Recommendation 3: Records not retained for 6 years. Response: The dr aft rep01t s states that "The Health Plan could not sufficient and appropriate documentation to supp01t the 2008 age/gender adjustments ." The Heath Plan does not groups th at ar e 100% experience rated because age/gender adjustments only impact the community rate portion of the ACR Model which is not used for 100% experience rated groups. The age/gender rep01t used to calculate the age/gender factor for - was misplaced during the numerous times the rep01t was copied for various audits . While the age/gender report can be regenerated at any time, it is always updated to reflect changes in enrollment. As a result, we were unable to exactly match the numbers used in the original calculation . To prevent this in the future, The Health Plan will put age/gender rep01ts (when applicable) and copies of cmTent bills on the disk along with the MK-150 claim rep01ts to preserve the original documents for future audits . medical trend factor is discussed above i•!t§§il@ Recommendation 4: Rating System Controls Response: The Health Plan does not agree with the assettion that we do not have adequate rating system controls to ensure that the FEHBP and th e groups closest in size are rated consistently . Monthly meetings were held to review commercial group renewals by the CEO, CFO, VP Marketing an d Director ofMarketing/Undetwriting. We are also addressing re organization of the Marketing and undetwriting depattments in 2015. Recommendation 5: Updated Policies & Procedures Response: The Health Plan's large group rating model and methodology have remained consistent for years. As a result, no significant updates to the policy an d procedures have been updated. The Health Plan contracting officer is taking the opp01tunity of this audit to implement written updated policy and procedures for rating of large employer groups to implement controls to minimize any impact of non-compliance. This process should be fully completed by December 31, 2014. In conclusion, The Health Plan has provided data, facts and observations to the fmdings of the FEHBP audit and maintains the actual discmmts provided to th e SSSGs total - plus any 23 Rep01t No. 1C-U4-00-14-038 accrued interest. The Health Plan has always made every effort to develop renewal rates for potential SSSG’s without applying any discounts. We remain hopeful this letter has demonstrated that these renewals were in fact conducted within the parameters of our rating model(s). Sincerely, Deleted by OIG-Not Relevant to Final Report Vice President, Marketing The Health Plan Attachments Deleted by OIG-Not Relevant to Final Report 24 Report No. 1C-U4-00-14-038 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 25 Report No. 1C-U4-00-14-038
Audit of the Federal Employees Health Benefits Program Operations at the Health Plan of the Upper Ohio Valley, Inc.
Published by the Office of Personnel Management, Office of Inspector General on 2015-02-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)