oversight

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)

     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


                                                                 -- 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 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 

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                     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