oversight

Audit of the Federal Employees Health Benefits Program Operations at Group Health Cooperative

Published by the Office of Personnel Management, Office of Inspector General on 2012-06-13.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                      CONTENTS

                                                                                                                         Page

     EXECUTIVE SUMMARY .............................................................................................. i

 I. INTRODUCTION AND BACKGROUND..................................................................... 1

II. OBJECTIVES, SCOPE, AND METHODOLOGY ......................................................... 3

III. AUDIT FINDINGS AND RECOMMENDATIONS ...................................................... 5

    1. Premium Rate Review ................................................................................................. 5

    2. Incorrect SSSG Selection............................................................................................. 5

IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 7

    Appendix (Group Health Cooperative’s April 20, 2012 response to the draft report)
The Plan has participated in the FEHBP since 1960 and provides health benefits to FEHBP
members in Eastern and Central Washington and Northern Idaho. The last audit of the Plan
conducted by our office was in 2008. There were no issues identified during that audit.




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                II. OBJECTIVES, SCOPE, AND METHODOLOGY
Objectives

The primary objectives of the audit were to verify that the Plan offered market price rates to the
FEHBP and to verify that the loadings to the FEHBP rates were reasonable and equitable.
Additional tests were performed to determine whether the Plan was in compliance with the
provisions of the laws and regulations governing the FEHBP.

Scope
                                                                   FEHBP Premiums Paid to Plan

We conducted this performance audit in
accordance with generally accepted government
                                                                    $50
auditing standards. Those standards require that




                                                      Millions
we plan and perform the audit to obtain                             $40
sufficient, appropriate evidence to provide a
                                                                    $30
reasonable basis for our findings and conclusions
based on our audit objectives. We believe that                      $20
the evidence obtained provides a reasonable                         $10
basis for our findings and conclusions based on                             2008           2009
                                                                 Revenue    $36.0          $38.0
our audit objectives.

This performance audit covered contract years
2008 and 2009. For these contract years, the FEHBP paid approximately $74.0 million in
premiums to the Plan. The premiums paid for each contract year audited are shown on the chart
above.

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP
contract, applicable laws and regulations, and OPM rate instructions. These audits are also
designed to provide reasonable assurance of detecting errors, irregularities, and illegal acts.

We obtained an understanding of the Plan’s internal control structure, but we did not use this
information to determine the nature, timing, and extent of our audit procedures. However, the
audit included such tests of the Plan’s rating system and such other auditing procedures
considered necessary under the circumstances. Our review of internal controls was limited to the
procedures the Plan has in place to ensure that:

        • The appropriate similarly sized subscriber groups (SSSG) were selected;

        • the rates charged to the FEHBP were the market price rates (i.e., equivalent to the best
          rate offered to 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
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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 Spokane, Washington during
September 2011. Additional audit work was completed at our office in Cranberry Township,
Pennsylvania.

Methodology

We examined the Plan’s federal rate submissions 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 OPM’s Rate Instructions to Community-Rated Carriers to determine the
propriety of the FEHBP premiums and the reasonableness and acceptability of the Plan’s rating
system.

To gain an understanding of the internal controls in the Plan’s rating system, we reviewed the
Plan’s rating system policies and procedures, interviewed appropriate Plan officials, and
performed other auditing procedures necessary to meet our audit objectives.




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              III. AUDIT FINDINGS AND RECOMMENDTIONS
1. Premium Rate Review

   Based on our audit, we have accepted Group Health Cooperative’s (Plan) rating of the
   Federal Employees Health Benefits Program (FEHBP) for contract years 2008 and 2009 and
   have no questioned costs.

2. Incorrect SSSG Selection

   The Plan did not select the correct Similarly Sized Subscriber Groups (SSSGs) for
   comparison to the FEHBP for all years audited. Prior to our audit, the Plan submitted revised
   FEHBP rate reconciliations in which all groups under the Plan’s subsidiary, Group Health
   Options (GHO) were eliminated from SSSG consideration. In the Plan’s original
   reconciliations, GHO groups were correctly included in the SSSG selection process and
   selected as SSSGs by the Plan. Our review determined that GHO groups do not meet the
   exclusion criteria set forth in the OPM rate instructions. Accordingly, our SSSG selection
   process included GHO groups as potential SSSGs. Although the Plan did not select the
   correct SSSGs, this did not have a negative impact on the FEHBP rates in 2008 and 2009.

   Plan’s Comments (see Appendix)

   The Plan disagrees with the audit finding and recommendation and refers the OIG to its
   May 28, 2010, response to similar findings in OIG Audit Report 1C-54-00-09-048. The Plan
   continues to maintain that only customers of the Plan are eligible to be potential SSSGs. The
   Plan’s May 28, 2010 response relayed the following:

      (a) GHO groups cannot be an SSSG because these groups are not a customer group of
      the Plan but are a customer of GHO, which is a wholly-owned subsidiary of the Plan.

      (b) Only groups that contract with “the Carrier” are eligible for SSSG consideration.

      (c) The Plan asserts that the definition of “Carrier” is the entity contracting with the
      FEHBP and does not include the subsidiaries and affiliates of the entity.

   OIG’s Response to the Plan’s Comments

   We disagree with the Plan’s response. Our review, conducted during this and the prior audit
   of plan code 54, determined that GHO groups did not meet the exclusion criteria set forth in
   the OPM rate instructions for separate lines of business. Specifically, GHO did not meet the
   requirement that a separate line of business have its own workforce and management staff
   and separate financial statements. Therefore all GHO groups, if meeting the SSSG criteria,
   can be considered for SSSG selection.



                                                5
Recommendation 1

We recommend that the contracting officer require the Plan to follow all rules and rating
instructions regarding the requirement to correctly identify and select SSSGs.




                                            6
              IV. MAJOR CONTRIBUTORS TO THIS REPORT
Community-Rated Audits Group

                , Auditor-in-Charge

                   , Auditor


                  ., Chief

                 , Senior Team Leader




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