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 HEALTH PLAN
OF TEXAS, INC.
Report Number 1C-UU-00-14-073
July 14, 2015
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EXECUTIVE SUMMARY
Audit of the Federal Employees Health Benefits Program Operations at
Humana Health Plan of Texas, Inc.
Report No. 1C-UU-00-14-073 July 14, 2015
Why Did We Conduct The Audit? What Did We Find?
The primary objectives of the audit This report questions $427,804 for inappropriate health benefit
were to determine if Humana Health charges to the FEHBP in contract year 2010. The questioned
Plan of Texas, Inc. (Plan) offered the amount includes $386,389 for defective pricing and $41,415 due
Federal Employee Health Benefits the FEHBP for lost investment income, calculated through
Program (FEHBP) premium rates June 30, 2015.
using complete, accurate and current
data, and that the rates were We found that the FEHBP rates were developed in accordance
equivalent to the Plan’s Similarly with applicable laws, regulations, and the U.S. Office of Personnel
Sized Subscriber Groups (SSSGs), as Management’s Rate Instructions to Community-Rated Carriers for
provided in Federal Employees contract years 2011 and 2012.
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 1895, the Office of the
Inspector General completed a
performance audit of the FEHBP’s
rates offered for contract years 2010
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
OIG Office of the Inspector General
OPM U.S. Office of Personnel Management
Plan Humana Health Plan of Texas, Inc.
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 Health Plan of Texas, Inc.’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 Health Plan of Texas, Inc. (Plan). The audit covered contract
years 2010 through 2012, and was conducted at the Plan’s office in Louisville, Kentucky.
The audit was conducted pursuant to FEHBP contract CS 1895; 5 United States Code (U.S.C.)
Chapter 89; and 5 Code of Federal Regulations 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.
The FEHBP should pay a premium rate that is equivalent to the best rate given to either of the
two groups closest in size to the FEHBP. In contracting with community-rated carriers, OPM
relies on carrier compliance with appropriate laws and regulations and, consequently, does not
negotiate base rates. OPM negotiations FEHBP Contracts/Members
relate primarily to the level of coverage March 31
and other unique features of the
FEHBP. 2,000
1,800
The chart to the right shows the number 1,600
of FEHBP contracts and members 1,400
reported by the Plan as of March 31 for 1,200
each contract year audited. 1,000
800
The Plan has participated in the FEHBP 600
since 1987 and provides health benefits 400
to FEHBP members in the Austin, 200
Texas metropolitan area. This is our
0
first audit of this plan code. 2010 2011 2012
Contracts 796 839 886
Members 1,743 1,866 1,952
The preliminary results of this audit
1 Report No. 1C-UU-00-14-073
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-UU-00-14-073
IV. MAJOR CONTRIBUTORS
II. OBJECTIVES, SCOPE, AND TO THIS REPORT
METHODOLOGY
Objective
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
$10
we plan and perform the audit to obtain sufficient, $9
appropriate evidence to provide a reasonable basis Millions $8
$7
for our findings and conclusions based on our $6
$5
audit objectives. We believe that the evidence $4
obtained provides a reasonable basis for our $3
$2
findings and conclusions based on our audit $1
objectives. $0
2010 2011 2012
Revenue $8.1 $9.3 $9.9
This performance audit covered contract years
2010 through 2012. For these years, the FEHBP
paid approximately $27.3 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-UU-00-14-073
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-UU-00-14-073
III. AUDIT FINDINGS AND RECOMMENDATIONS
1. Defective Pricing $386,389
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 $386,389 (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 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.
$386,389 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 $386,389 in contract
year 2010; $310,672 for the High Option and $75,717 for the Standard Option (see Exhibit
B).
Plan’s Comments (see Appendix):
The Plan agrees with the audit findings.
5 Report No. 1C-UU-00-14-073
Recommendation 1
We recommend that the contracting officer require the Plan to return $386,389 to the FEHBP
for defective pricing in contract year 2010.
2. Lost Investment Income $41,415
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 finding in contract year 2010. We determined the FEHBP is The FEHBP is due
due $41,415 for lost investment income, calculated through June 30,
lost investment
2015 (see Exhibit C). In addition, the FEHBP is entitled to lost
income on the
investment income for the period beginning July 1, 2015, until all defective pricing
defective pricing amounts have been returned to the FEHBP. finding in the
amount of $41,415.
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 $41,415 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-UU-00-14-073
IV. MAJOR CONTRIBUTORS TO THIS REPORT
COMMUNITY-RATED AUDITS GROUP
, Auditor-in-Charge
, Lead Auditor
, Lead Auditor
, Lead Auditor
, Senior Team Leader
, Chief
7 Report No. 1C-UU-00-14-073
IV. MAJOR CONTRIBUTORS
EXHIBIT A TO THIS REPORT
Humana Health Plan of Texas, Inc.
Summary of Questioned Costs
Defective Pricing Questioned Costs
Contract Year 2010 $386,389
Total Defective Pricing Questioned Costs $386,389
Lost Investment Income $41,415
Total Questioned Costs $427,804
Report No. 1C-UU-00-14-073
IV. MAJOR CONTRIBUTORS
EXHIBIT B TO THIS REPORT
Humana Health Plan of Texas, Inc.
Defective Pricing Questioned Costs
Contract Year 2010-High Option
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 $ $ $310,672
Contract Year 2010- Standard Option
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 $ $ $75,717
Total Defective Pricing Questioned Costs $386,389
Report No. 1C-UU-00-14-073
EXHIBIT C
Humana Health Plan of Texas, Inc.
Lost Investment Income
Year 2010 2011 2012 2013 2014 30 Jun 15 Total
Audit Findings:
1. Defective Pricing $386,389 $0 $0 $0 $0 $0 $386,389
Totals (per year): $386,389 $0 $0 $0 $0 $0 $386,389
Cumulative Totals: $386,389 $386,389 $386,389 $386,389 $386,389 $386,389 $386,389
Avg. Interest Rate (per year): 3.1875% 2.5625% 1.8750% 1.5625% 2.0625% 2.1250%
Interest on Prior Years Findings: $0 $9,901 $7,245 $6,037 $7,969 $4,105 $35,257
Current Years Interest: $6,158 $0 $0 $0 $0 $0 $6,158
Total Cumulative Interest Calculated
Through June 30, 2015: $6,158 $9,901 $7,245 $6,037 $7,969 $4,105 $41,415
Report No. 1C-UU-00-14-073
APPENDIX TO THIS REPORT
IV. MAJOR CONTRIBUTORS
March 20, 2015
HUMANA RESPONSE TO DRAFT AUDIT REPORT NO. 1C-UU-00-14-073
This document is submitted by Humana Health Plan of Texas, Inc. (“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
1895 – Plan Code UU for contract years 2010-2012.
The Audit Report questions inappropriate charges for contract year 2010 totaling $426,699
consisting of defective pricing charges of $386,389 and $37,310 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-UU-00-14-073
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-UU-00-14-073
Audit of the Federal Employees Health Benefits Program Operations at Humana Health Plan of Texas, Inc.
Published by the Office of Personnel Management, Office of Inspector General on 2015-07-14.
Below is a raw (and likely hideous) rendition of the original report. (PDF)