oversight

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

Published by the Office of Personnel Management, Office of Inspector General on 2014-07-28.

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, Inc.


                                          Report No. 1C-X5-00-14-005
                                                           July 28, 2014
                                          Date:




                                                      -- 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, 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.
                                                     AUDIT REPORT



                                Federal Employees Health Benefits Program
                             Community-Rated Health Maintenance Organization
                                       HealthPlus of Michigan, Inc.
                                 Contract Number CS 2712 - Plan Code X5
                                             Flint, Michigan



              Report No. 1C-X5-00-14-005
                                                                                                 July 28, 2014
                                                                                    Date: _________________




                                                                                      Michael R. Esser
                                                                                      Assistant Inspector General
                                                                                        for Audits



                                                      -- 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, 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




                      Federal Employees Health Benefits Program
                   Community-Rated Health Maintenance Organization
                             HealthPlus of Michigan, Inc.
                       Contract Number CS 2712 - Plan Code X5
                                   Flint, Michigan


         Report No. 1C-X5-00-14-005                     Date:
                                                                 July 28, 2014


The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at HealthPlus of Michigan, Inc. (Plan). The audit covered
contract years 2011 and 2012, and was conducted at the Plan’s office in Flint, Michigan.

We found that the Plan was not compliant with its FEHBP record retention clause in contract
year 2012. We determined that the FEHBP premium rates were developed in accordance with
the Office of Personnel Management's rules and regulations for contract year 2011.




                                              i
                                                        CONTENTS

                                                                                                                                  Page

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

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

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

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

    1. Record Retention ............................................................................................................. 5

IV. MAJOR CONTRIBUTORS TO THIS REPORT ................................................................ 6

      Appendix (HealthPlus of Michigan’s May 9, 2014 response to the draft report)
                     I. INTRODUCTION AND BACKGROUND

Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at HealthPlus of Michigan, Inc. (Plan). The audit covered contract years 2011 and 2012, 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 1, Part 890. The audit was performed by the Office of Personnel Management’s (OPM)
Office of the 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 rate,                         FEHBP Contracts/Members
                                                                         March 31
which is defined as the best rate offered to
either of the two groups closest in size to the
FEHBP. In contracting with community-rated              4,500
carriers, OPM relies on carrier compliance              4,000
with appropriate laws and regulations and,              3,500
consequently, does not negotiate base rates.            3,000
OPM negotiations relate primarily to the level          2,500
of coverage and other unique features of the            2,000
FEHBP.                                                  1,500
                                                        1,000
The chart to the right shows the number of                500
FEHBP contracts and members reported by the                 0
Plan as of March 31 for each contract year                             2011                 2012
                                                      Contracts        1,251                1,503
audited.                                              Members          3,304                4,013

The Plan has participated in the FEHBP since

                                                  1
1995, and provides health benefits to FEHBP members in Eastern Michigan. The last full scope
audit of the Plan conducted by our office covered contract years 2006 through 2010. That audit
reported the FEHBP rates were developed in accordance with applicable laws, regulations, and
OPM’s Rate Instructions to Community-Rated Carriers (rate instructions) for the years audited.

The preliminary results of this audit 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 included, as
appropriate, in the Appendix.




                                                 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 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

We conducted this performance audit in accordance                    FEHBP Premiums Paid to Plan
with generally accepted government auditing
standards. Those standards require that we plan
and perform the audit to obtain sufficient,
                                                                      $20
appropriate evidence to provide a reasonable basis



                                                        Millions
for our findings and conclusions based on our audit                   $15
objectives. We believe that the evidence obtained                     $10
provides a reasonable basis for our findings and
conclusions based on our audit objectives.                             $5

                                                                       $0
This performance audit covered the FEHBP                                      2011           2012
                                                                   Revenue    $15.6          $20.0
premium rates developed and charged for contract
years 2011 and 2012. For these contract years, the
FEHBP paid approximately $35.6 million in
premiums to the Plan, as shown on the chart to the right.

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP
contract, applicable laws and regulations, and the 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;

        • 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.




                                                 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 was performed at the Plan’s office in Flint, Michigan during November
2013. Additional audit work was completed at our offices in 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 (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
              III. AUDIT FINDINGS AND RECOMMENDATIONS

1. Record Retention

   The Plan did not comply with the record retention clause of its FEHBP contract. After
   several requests, the Plan could not provide sufficient and appropriate documentation to
   support the 2012                   rate development, one of its’ SSSGs for that year. Although
   we ultimately developed audited rates using alternative methods, the FEHBP contract
   requires the Plan to retain and make available all records supporting its rate submissions for a
   period of six years after the end of the contract term to which the records relate.

   Plan’s Comments (see Appendix):

   The Plan does not contest the finding of non-compliance with the record retention clause
   related to the 2012                rate development.

   Recommendation 1

   We recommend that the contracting officer assess the maximum penalty allowed in the
   contract between OPM and the Plan for the Plan’s breech of the record retention clause.

   In addition, we recommend that the contracting officer inform the Plan that:

          •   OPM expects it to fully comply with the record retention provision of the contract
              and all applicable regulations;

          •   it should maintain copies of all pertinent rating documents that show the factors
              and calculations the Plan uses in developing the actual rates for the FEHBP and
              the groups closest in size to the FEHBP for each unaudited year; and

          •   the applicable community-rated performance factors described in FEHBAR
              1609.7101-2 will be enforced if information requested during an audit is not
              provided.




                                                5
              IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

              , Auditor-In-Charge

              , Staff Auditor


              Chief

              , Senior Team Leader




                                     6
                                          APPENDIX 

     Information deleted by the Office of the Inspector General. Not relevant to the report.


May 9, 2014

                                                   HealthPius
                                                                                           ,J
                                                                                                    --     Tlol




                         Management
Office of the Inspector Genera l
800 Cranberry Woods Drive
Suite 270
Cranberry Township, Pennsylvania 16066




Dea-
RE: Report No. 1C-X5-00-14-005




This letter is in response to Report No . 1C-X5-00-14-005, dated April 14, 2014, concerning the
Office of the Inspector Genera l's audit of the Federa l Employees Hea lth Benefits Program
(FEHBP) operations at HealthPius of Michigan, Inc. (HPM) for the contract years 2011and 2012.




does not contest the findings of non-compliance with the record retention cl ause related to the
2012               rate development.




                                                          Flint 2050 South Linden Road, Fli nt, M ich igan 48532
                                                      Saginaw 5454 Hampton Place, Saginaw, M ich igan 48604
                                                   Troy 101 Big Beaver Road, Suite 1400, Troy, M ichigan 48084
                                                                       1·800·332·9161 * www.healthplus.org
Please contact me                            at   for
further discussions on this matter.

Sincerely,




Ryan ORoark
Vice President and Chief Financial Officer
HealthPius of M ichigan



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