oversight

Audit of the Federal Employees Health Benefits Program Operations at HealthPlus of Michigan

Published by the Office of Personnel Management, Office of Inspector General on 2011-03-24.

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 HealthPlus of Michigan




                                          Report No. lC-X5-00-11-005


                                           Date:        March 24,             2011




                                                         -- CAUTION -­

This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This
audit report rna)' contain proprietaQ' data which is protected by Federal law (18 1l.S.C. 1905). Therefore. while this report is available
under the Freedom of Information Act and made available to the public on the DIG webpage, 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.
                           V\IITED STATES OFFICE OF PERSON"EL :VIA"AGEME"T
                                              \\'a-.;hington. DC 20.+15


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                                               AUDIT REPORT



                                    Federal Employees Health Benefits Program

                                 Community-Rated Health Maintenance Organization

                                             HealthPlus of Michigan

                                      Contract Number 2712 - Plan Code XS

                                                 Flint, Michigan




                        Report No. lC-XS-OO-ll-OOS                        Date: 3/24/2011




                                                                           Michael R. Esser
                                                                           Assistant Inspector General
                                                                              for Audits




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                                    EXECUTIVE SUMMARY





                           Federal Employees Health Benefits Program

                        Community-Rated Health Maintenance Organization

                                    HealthPlus of Michigan

                             Contract Number 2712 - Plan Code XS

                                        Flint, Michigan




                Report No. lC-XS-OO-ll-OOS                    Date:    3/24/2011



The Office of the Inspector General performed an audit of the Federal Employees Health Benefits
Program (FEHBP) operations at HealthPlus of Michigan (Plan). The audit covered contract
years 2006 through 2010 and was conducted at the Plan's office in Flint, Michigan. We found
that the FEHBP rates were developed in accordance with applicable laws, regulations, and the
Office of Personnel Management's rating instructions for the years audited.




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                            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 HealthPlus of Michigan (Plan). The audit covered contract years 2006 through 2010 and was
conducted at the Plan's office in Flint, Michigan. The audit was conducted pursuant to the
provisions of Contract CS 2712; 5 U.S.c. Chapter 89; and 5 Code of Federal Regulations (CFR)
Chapter I, Part 890. The audit was performed by the Office of Personnel Management's (OPM)
Office of the Inspector General (OlG), 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 I, Part 890 of Title 5, CFR.
Health insurance coverage is provided through contracts with various health insurance carriers
that 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                       FBiBP ContractslMembers
implementing regulations promulgated by OPM.                                 March 31
                                                               2,500
The FEHBP should pay a market price rate, which is                                                                                "'" -
defined as the best rate offered to either of the two          2,000
groups closest in size to the FEHBP. In contracting                     t-
                                                                             F
                                                                                 r--­         -              -            f--­          -
                                                               1,500
with community-rated carriers, OPM relies on carrier
compliance with appropriate laws and regulations               1,000
                                                                        I­       -            I--            I--          i--=
and, consequently, does not negotiate base rates.


                                                                        I-
OPM negotiations relate primarily to the level of               500

                                                                                 ­            f­             l-           I­            -
coverage and other unique features of the FEHBP.
                                                                   0

                                                                        2006
                                                                                 ~      ...
                                                                                     2007
                                                                                              l1li
                                                                                                  2008
                                                                                                       ...       2009
                                                                                                                          l1li    ...
                                                                                                                               2010
The chart to the right shows the number of FEHBP
                                                         • Contracts    658          862             839          886            998
contracts and members reported by the Plan as of
March 31 for each contract year audited.                 o Members      1,666        1,988        2,072          2, 147        2,370




                                                I

The Plan has participated in the FEHBP since 1995 and provides health benefits to FEHBP
members located in East Central Michigan. The last audit of the Plan covered contract years
2000 through 2005 and questioned $6,157,578 in inappropriate charges to the FEHBP. All
issues contained in the prior audit report were resolved.

The preliminary results of this audit were discussed with Plan officials at an exit conference and
through subsequent correspondence. Since the audit showed 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.



We conducted this performance audit in                                          FBiBP Premiums Paid to Plan
accordance with generally accepted government
auditing standards. Those standards require that
we plan and perform the audit to obtain sufficient,                             $10
appropriate evidence to provide a reasonable basis                               $8
                                                                         ~

for our findings and conclusions based on our audit                      ~



objectives. We believe that the evidence obtained                       ~        $6
                                                                        :ii]
                                                                                 $4

provides a reasonable basis for our findings and
                                                                                 $2

conclusions based on our audit objectives.
                                                                                 $0

                                                                                       2006     2007   2008   2009
This performance audit covered contract years
                                                          • Revenue $6.3    $74    $81   $95
2006 through 2010. For contract years 2006
through 2009, the FEHBP paid approximately
$31.3 million in premiums to the Plan. I 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 SSSGs); and

          •	 the loadings to the FEHBP rates were reasonable and equitable.

1 The   premiums paid report for 20 I0 was unavailable at the time this report was completed.
                                                           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 performed 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 Flint, Michigan, during December
2010. Additional audit work was completed at our offices in Jacksonville, Florida, and
Washington, D.C.

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 2006 through 2010.
Consequently, the audit did not identitY any questioned costs and no corrective action is
necessary.




                                               5

            IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

                   Auditor-In-Charge

                  Auditor

                       Auditor


                   Chief

                  Senior Team Leader




                                       6