oversight

Audit of the Federal Employees Health Benefits Program Operations at Aetna Open Access - Phoenix and Tucson, Arizona

Published by the Office of Personnel Management, Office of Inspector General on 2011-12-22.

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 

Subject:

   Audit of the Federal Employees Health Benefits
 Program Operations at Aetna Open Access - Phoenix
                 and Tucson, Arizona



                                          Report No. lC-WO-OO-ll-OS7

                                          Date: December 22, 2011




                                                       -- CAUTION -­
This audit report has been distributed to Federal officials who are responsible for the admini~tration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 V.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, caution needs to be exercised before
releasing the report to the general puhlic as it may contain proprietary information that was redacted from the publicly distributed copy.
                           UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                              Washington, DC 20415


  Ofticc of the
In"'pec!or General




                                       EXECUTIVE SUMMARY 





                                 Federal Employees Health Benefits Program 

                             Community-Rated Health Maintenance Organization 

                              Aetna Open Access - Phoenix and Tucson, Arizona 

                                 Contract Number CS 2867 - Plan Code WQ 

                                          Blue Bell, Pennsylvania 




                     Report No. tC-WO-OO-lt-OS7                 Date:   12/22/11


        The Otlice of the Inspector General perfonned an audit of the Federal Employees Health
        Benefits Program (FEHBP) operations at Aetna Open Access - Phoenix and Tucson. Arizona
        (Plan). The audit covered contract years 2007 through 2011. We found that the FEHBP rates
        were developed in accordance with appl icable laws. regulations, and the Oftice of Personnel
        Management's rating instructions for the years audited.




         www.opm.gov                                                                        www.usajobs.gov
                           UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 

                                              Washington. DC 20415 



   Office of lhe
In:-.peclOr General




                                            AUDIT REPORT 




                                    Federal Employees Health Benefits Program 

                                Community-Rated Health Maintenance Organization 

                                 Aetna Open Access - Phoenix and Tucson, Arizona 

                                    Contract Number CS 2867 - Plan Code WQ 

                                             Blue Bell, Pennsylvania 




                        Report No. lC-WO-OO-11-OS7                     Date:   1 2 /22/ 11




                                                                        Michael R. Esser
                                                                        Assistant Inspector General
                                                                          for Audits




         www.opm.go\l                                                                         www.usajobs.go\l
                                                    CONTENTS

                                                                                                                   Page

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

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

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

III. RESULTS OF THE AUDIT ............................................................................................ 5

IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 6
                     I. INTRODUCTION AND BACKGROUND
Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at Aetna Open Access – Phoenix and Tucson, Arizona (Plan). The audit covered contract years
2007 through 2011. The audit was conducted pursuant to the provisions of Contract CS 2867; 5
U.S.C. Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Part 890. The audit was
performed by the Office of Personnel Management’s (OPM), Office of Inspector General (OIG),
as established by the Inspector General Act of 1978, as amended.

Background

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. The FEHBP is administered by
OPM’s Healthcare and Insurance Office. The provisions of the Federal Employees Health
Benefits Act are implemented by OPM through regulations codified in Chapter 1, Part 890 of
Title 5, CFR. 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 market price                             FEHBP Contracts/Members
                                                                       March 31
rate, which is defined as the best rate
offered to either of the two groups closest          16,000
in size to the FEHBP. In contracting with            14,000
community-rated carriers, OPM relies on              12,000
carrier compliance with appropriate laws
                                                     10,000
and regulations and, consequently, does
                                                      8,000
not negotiate base rates. OPM negotiations
relate primarily to the level of coverage             6,000

and other unique features of the FEHBP.               4,000
                                                      2,000
The chart to the right shows the number of                0
FEHBP contracts and members reported by                          2007    2008    2009    2010    2011
                                                    Contracts    5,886   5,909   5,859   6,080   5,697
the Plan as of March 31 for each contract           Members 14,208 14,056 13,611 13,617 12,893
year audited.




                                                1
The Plan has participated in the FEHBP since 2002 and provides health benefits to FEHBP
members in the Phoenix and Tucson, Arizona areas. The last audit of the Plan conducted by our
office was a full scope audit of contract years 2003 through 2006 and identified $207,308 in
defective pricing. All issues identified in the previous audit have been resolved.

The preliminary results of this audit were discussed with Plan officials at an exit conference and
in subsequent correspondence. Since the audit concluded that the Plan’s rating of the FEHBP
was in accordance with applicable laws, regulations, and instructions, a draft report was not
issued.




                                                 2
                     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                                  $70

auditing standards. Those standards require that                               $60




                                                                 Millions
                                                                               $50
we plan and perform the audit to obtain
                                                                               $40
sufficient, appropriate evidence to provide a
                                                                               $30
reasonable basis for our findings and conclusions
                                                                               $20
based on our audit objectives. We believe that                                 $10
the evidence obtained provides a reasonable                                     $0
basis for our findings and conclusions based on                                       2007    2008    2009    2010
                                                                            Revenue   $48.6   $55.1   $57.7   $63.7
our audit objectives.

This performance audit covered contract years
2007 through 2011. For contract years 2007 through 2010, the FEHBP paid approximately
$225.1 million in premiums to the Plan 1. 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.



1
    The 2011 premiums were not available as of the date of this report.
                                                            3
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 and additional audit work was completed at our offices located in
Washington, D.C., Cranberry Township, Pennsylvania, and Jacksonville, Florida.

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’s policies and procedures, interviewed appropriate Plan officials, and
performed other auditing procedures necessary to meet our audit objectives.




                                                 4
                           III. RESULTS OF THE AUDIT
Our audit showed that the Plan’s rating of the FEHBP was in accordance with applicable laws,
regulations, and OPM’s rating instructions to carriers for contract years 2007 through 2011.
Consequently, the audit did not identify any questioned costs and no corrective action is
necessary.




                                              5
            IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

                , Auditor-in-Charge

                   , Lead Auditor

_______________________________________________________________________

                  ., Chief

                 , Senior Team Leader




                                        6