oversight

Audit of the Federal Employees Health Benefits Program Operations at Humana Health Plans of Puerto Rico, Inc.

Published by the Office of Personnel Management, Office of Inspector General on 2014-10-23.

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 Humana Health Plans of
                      Puerto Rico, Inc.


                                          Report No. 1C-ZJ-00-14-019
                                                          October 23, 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
                                 Humana Health Plans of Puerto Rico, Inc.
                                 Contract Number CS 2872 - Plan Code ZJ
                                          San Juan, Puerto Rico



              Report No. 1C-ZJ-00-14-019                                                   October 23, 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
                       Humana Health Plans of Puerto Rico, Inc.
                       Contract Number CS 2872 - Plan Code ZJ
                                San Juan, Puerto Rico


         Report No. 1C-ZJ-00-14-019                      Date:    October 23, 2014

The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at Humana Health Plans of Puerto Rico, Inc. (Plan). The
audit covered contract years 2011 and 2012, and was conducted at the Plan’s office in San Juan,
Puerto Rico. We found that the FEHBP premium rates were developed in accordance with the
Office of Personnel Management’s Rate Instructions to Community-Rated Carriers 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 Humana Health Plans of Puerto Rico, Inc. (Plan). The audit covered contract years 2011 and
2012, and was conducted at the Plan’s office in San Juan, Puerto Rico. The audit was conducted
pursuant to the provisions of Contract CS 2872; 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              6,000
carriers, OPM relies on carrier compliance
with appropriate laws and regulations and,              5,000
consequently, does not negotiate base rates.            4,000
OPM negotiations relate primarily to the level
of coverage and other unique features of the            3,000
FEHBP.                                                  2,000

The chart to the right shows the number of              1,000

FEHBP contracts and members reported by the                 0
Plan as of March 31 for each contract year                             2011                 2012
                                                      Contracts        2,126                2,053
audited.                                              Members          5,828                5,704




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The Plan has participated in the FEHBP since 2003 and provides health benefits to FEHBP
members in the Commonwealth of Puerto Rico. The last full scope audit of the Plan conducted
by our office covered contract years 2005 through 2010. That audit reported $208,502 in
questioned costs. The Plan agreed with those audit results and paid the findings in full.

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 responded adequately to the draft report and we consider the issues
resolved.




                                                 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,
                                                                      $16
appropriate evidence to provide a reasonable basis                    $14




                                                        Millions
for our findings and conclusions based on our audit                   $12
                                                                      $10
objectives. We believe that the evidence obtained                      $8
provides a reasonable basis for our findings and                       $6
conclusions based on our audit objectives.                             $4
                                                                       $2
                                                                       $0
This performance audit covered the FEHBP                                      2011           2012
                                                                   Revenue    $15.3          $14.7
premium rates developed and charged for contract
years 2011 and 2012. For these contract years, the
FEHBP paid approximately $30 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 OPM’s 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;

        • 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 San Juan, Puerto Rico during January
2014. 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 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. RESULTS OF THE AUDIT

Our audit showed that the Plan’s rating of the FEHBP was in accordance with applicable laws,
regulations, and the rate instructions for contract years 2011 and 2012. 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

                   Auditor

                   Auditor


                    Chief

                   Senior Team Leader




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