Review of the Payroll Functions Related to the Federal Employees Health Benefits Program Enrollment Transactions for Annuitants

Published by the Office of Personnel Management, Office of Inspector General on 2011-03-14.

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

                               UNITED STATES OFFICE OF PE RSO NNEL MANAG EMENT
                                                      Wa~hin glon.   DC 20-115

  Oftice of lh,:,
In,p'~~\llr   General                                 March 14, 2011

              MEMORAN DUM FOR JOI-lNllERRY 	                                                           • _I   1/
                                        Oneetor 	                                         L f1f~\
              FROM: 	                   PA r Rl CK E. McFARLAND
                                        Inspector General                   P0.~


              SU BJECT: 	               Review of the Payroll Functions Rel ated to the FederaJ
                                        Em ployees Health Benefits Program E nrollment Transactions
                                        for Annuitants (Repon No. I K-RS-OO··II -03..J.)

                                                    Executive S ummary

          The U.S . Office o f PersOlU1cl Management (OPM ), Office o f the Inspector General (O IG) has
          completed a review of the payro ll functi ons rdated to the Federa l Emp loyees Health Benefi ts
          Program (FEHB P) enrollmc nt transactions lo r Federal annuitant.s. All Federal an nuitants. unless
          specl fi call y excludcd by Jawor regulations_ arc eligible to partic ipate in the FEH BP. The
          FE I-IB P is joi ntly financed by conlributions rrmn the FeJeral Cjovernment and participating
          Federal annuitants throug.h prem iums establ ished by law or regu.la tions.

              Thi s report describes the results of our revi ew of OPM ·s payroll func ti on related to th e FEHBP
              enrollment transactions for annuitants. We fou nd that overall OrM has an effect ive program to
              monitor employees' hea lth benefits transactions; h owever, there arc some areas which ni:cd
              im provement.

          111 addition, we ident ifi ed ano ther matter that needs immediate attent ion. Based Oil our review,
          we bel ieve that the Centralized Enro llment Clearinghouse system 's (C LER) impact has resulted
          in a signitic ant decrease in ellfo lhnent di screpanc ies to lhe point where orM should rcducc . or
          potentially remove, the I percent !ipec ia l premi um rale loading tor enrollm ent discrepancies
          cu rrentl y offe red to the FEIIBP communi ty-rated carriers. Thi s would rt= sult in tens of mi llions
          of dollars in program savings.


              OPM has overall authority for admini steri ng the FEHBr. O PM's authority tor the program i ~
              cited ill Title 5 of the United States Code. Premiums are collected for Ihe FEHBP annuitants
              through OPM· s payro ll office. OPM co llects these run d~ and . through the U.S. Treasury. inVl' sts
              and pays ins urance carriers on be half of the annuitants enrolled in the FEH BP. The fail ure to
              correcil y and proll1ptly cotlect and transmit the appropriate amount of funds for the FE1IBP can
              result in the loss of income and increased costs to annuitants ~md , in some instances, the Federal
              Governl11e ni.

                                                                        ----        -      -       -
Honorable Jolm Berry                                                                                     2


To help reso lve enrollment di screpancies, OPM requested the National Finance Center (NFC) to
design, develop, and impl ement a system to automate FEHBP enro llment reconciliations
between Federal agencies' payroll offi ces and the panicipating FEHEP carriers. Accordingly,
the NFC developed CLER, a Web-based system that rece ives electronic enrollment data from the
agencies and the FEHBP carriers to facilitate reconci liation and reporti ng. Agencies submit
enrollment data quarterl y to th e NFC [or processing in C LER. The FEHBP carri ers submit
enrollm ent data quarterly to OPM' s Macon, Georgia data processing ce nter. OPM then transmits
the data provided by the FEHBP carriers to the NFC for CLER. The NFC is responsibl e for
processing the emollment data. maintaining the reconci.I ed data, and assistin g in reso lvin g
discrepanc ies between tJle payroll offices and tbe FEHBP carrier enrollm ent records. Once the
data is processed. agencies rev iew the data, take ap propriate corrective acti on, and document
action taken in CLER. The FEHBP carriers are responsibl e for taki ng correcti ve acti on
requested by the responsible agencies eith er by the receipt of Form SF-2S09. Health Benefits
Election Foml; Fo m] SF-2S1 0, Noti ce of Change in Heal th Benefit s Emollment; or by other
notification .

                           Objectives, Scope, and Methodologv

The objectives for thi s review were to detem] ine ifOPM 's payroll office for annuitants:

   • 	 accurately and timely processes FEHBP enrollm ent transactions and tenninati ons with
       FEHBP carriers;

   • 	 reconciles l'EHBP eruo IIment transactions with CLER;

   • 	 proeesseslreso lves reconciliation differences with carri ers; and ,

   • 	 veriti es that the ann uitants' withho ldings are correct based on th e anl1llitants' health
       carri er selection and type of enro llm ent (i .e., se lf only or self and fam il y).

To accompli sh our objecti ves, we obta ined an understanding of the controls in place to monitor
enrollm ent transactions. We random ly selected a sample of 50 annu itants fo r the pay peri od
ending December 3 1,2008 and another 50 an nuitan ts who made changes during the 200S Open
Season for the pay period effecti ve January 1, 2009.

Using each alU1Uitant' s of1iciallil e, the AImu itant Express System (an electronic mechanism
used by annu itants to make changes to health insurance coverage, taxes, etc.), and OPM' s payro ll
records, we conducted tests to:

   • 	 Determine if the health benefit codes indicated on the annuitants ' Heal th Benefits
       Electi on Form (SF-2S 09) agreed with the plan codes rep0l1ed in OPM 's payroll system.
       We also verified that annuitants' wi thhold ings agreed with the offi cia l subsc ription rates
       issued by OPM for the plan and option elected by each 31muitant.
Honorab le John Berry                                                                                   3

    • 	 Detenlline iftbe health benefi t codes indicated on the annuitants' No ti ce of Change in
        Health Benefit s Enrollment Form (SF-28J 0) agreed with the plan codes reported in
        OPM's payroll system.

    • 	 VerifY that the ann ui tants' withh oldin gs agreed with the offic ial s ubscription rates issued
        by OPM for the plan and option elected by each annui tan t.

    • 	 Determine whether the changes made thro ugh th e Annuit ant Express System agreed w ith
        the plarl codes reported in the OPM payro ll system. We also ve rifi ed th at the an nuilarlt s'
        withho ldings agreed ,,\lith the onlcial subscription rates issued by OPM Cor the plan and
        option elected by each arl1luitant.

    • 	 Detemline compliance with applicable laws and regulations.

We also anal yzed the quarterly CLER summaries fo r the quarters endi ng: December 31 , 2008,
March 3 1, 2009, June 30, 2009, arld September 30, 200910 determine ifOPM was app lying
appropriate procedures in reconciling the FEHBP enro llment transacti ons in CL ER.

Our review was not conducted in accordance wit h the Genera ll y Acce pted GovenUllent Auditing
Standards (GAGAS). The nature arld scope of the work performed was consistent with that
expected of a GAGAS audit; however, because we consider thi s to be a review, the
doc um entation, reporting, arld quality contro l standards are not as strin gent.


Enrollment Tr'ansactions for Annuitants

Based on applying the procedu res identilied p rev iously, we found that OPM has implemented
appropri ate co nt rols related to enrollment transactions for arllluitants pa11icipat in g in thc FEHB P.
However, we did identify an opporhmity fo r improvement.

Our review revealed that OPM does not have a formal po licy fo r reconciling discrepancies on the
CLER Rep0l1. CatTier Letter No. 2003 -34 all ows FEHBP carriers to send a di sem ol lment lette r
to active employees after a fa il co unt of tlu'ee or more for the' J60' error cod e, which occms
when a calTien eports an enrollment, but no Federal agency reports that enrollm cnt. Th e Carrier
Letter defines a fail count as the number of success ive quarters that the same disc repancy is
identified by CLER. The supervisor of thc Retirement Benefits CLER Team in sti tuted an
informal policy of reso lvi ng disc repancies for large FEHBP ca rri ers when the di screpancy was a
fail count of fi ve, and for small er carri ers with a I'ai l count of three.

For our testing, we selected the Rmal Carrier Bcnefit Plan fo r the third quarter of 2009 to rev iew
because we considered it to be a small carrier. Also, bccause of the number of d iscrepancies.. we
further narrowed our scope of the review to j ust error code' 160.' The reason we selected error
code ' 160' was because thi s error code can resu lt in health cl aim s being paid arld no premiulll s
co ll ected. Our review revealed that there were 1.552 . J60' code di screpancies reported for that
Honorable John Berry                                                                                 4

quarter. Further analysis revealed that 513 of the discrepancies had a fail COWlt of three or less
and 1,039 of the discrepancies had a fail count greater than three.

It is our opinion that this reflects a low rate for resolving discrepancies in a timely manner. We
further believe the low rate of reso lution is because of OPM's informal policy not to attempt to
resolve discrepancies until after a fail count of tlu'ee and to not involve the annuitant in the
resolution process.

Our review further revealed that 696, or 45 percent, ofthe '160' code discrepancies had a fai l
count greater than eight, meaning the discrepancies had not been resolved for over two years.
Also, nine discrepancies had a fail count of30. These discrepancies had 110t been resolved ill
seven and one-half years. It is our opinion that resolving the' 160' code discrepancies in a timely
manner is crucial. The ' 160' code discrepancy is the main discrepancy that led to the I percent
load for community-rated carriers.

While we realize there are differences between active employees and alU1Uitants, our analysis
showed that for active employees OPM resolved all types of errors ninety-six percent of the time
within three quarters (fail COWlt of three).

We believe that there are several reasons for the lower rate of resolving the discrepancies for
almuitants. The most prevalent is OPM's informal policy not to attempt to resolve discrepancies
until the discrepancy has occwTed for three quarters. For active employees, attempts to resolve
discrepancies begin immediately and if the discrepancy appears for three quruters, the FEHBP
cruTier solicits !lIe help of the enrollee. Tllis is done by having the carrier mail out the "Notice of
Intent to Disenroll" letter. The assumption is made that if the enrollee is about to lose their
health insurance coverage they will become very active in trying to resolve the discrepancy.
CatTier Letter 2003-34 exempts alIDuitants from receiving !lIe "Notice ofIntent to Disenroll"
letter. We believe that the policy should be the srune for both active employees and almuitants.

It is our opinion that OPM is not resolving discreprulcies for annuitants ill a timely manner. The
following are our recommendations:

Recommendation 1:

We recommend iliat for annuitants, OPM begin reconciliation efforts for discrepancies on the
CLER Report after the first occurrence and not wait until the di screpancy appears tlll'ee times for
small carriers and five times for larger carriers. Waiting to resolve the cllscrepancy can resull in
premiullls not being withheld from the armuitant's check.

Recommendation 2:

We recommend that OPM or the FEHBP carrier either mail !lIe "Notice of Intent to Disenroll "
letter after a fail count of three to the armuitanls or develop a similar process to encourage
prompt resolution. We believe tllis procedme is very beneficial in resolving cllscrepancies.
Honorable John Berry                                                                               5

Recommendation 3:

We recommend tbat aPM sbould vigorously start resolving discrepancies with the oldest fail
count. Seven and one-half years is entirely too long for a discrepancy to continue to appear. If
there is some reason the elTor can not be resolved, aPM should develop a new code to cover
these situations.

One Percent Special Premium Loading for Community-Rated Carriers

aPM anlended the Standard Contract for the Federal Employees Health Benefits Program for
contract year 1997. Tbe amendment to the contract allowed a J percent special premium load for
FEHBP community-rated carriers. The 1 percent load was the result of negotiations between
aPM and the ConJJllwllty-rated carriers. Its purpose was to account for unresolved enrollment

When CLER was implemented in June 2002, one of the major objectives was to resolve
discrepancies to the point where aPM can remove the 1 percent load.

After CLER was implemented, the NFC produced a qua11erly report called CLER Production
Recap. The report listed the tota] records processed by each carrier and the number of records in
elTor. The report also gave the elTOf rate of each catTier, and the overall error rate. Because our
main focus is on the elTor rate for conunullity-rated carriers, we had the NFC modify the repol1
to only include conununity-rated cruTiers. We had this done for the period starting with the
second quarter of2002 through the first qUat1er of20 10. For the second qUat1er of2002, the
rep0l1ed elTor rate was approximately 23 percent for commuruty-rated carriers. As of March 31 ,
2010 the error rate was approximately four percent (See Attachment 1). The report clearly
shows that CLER is achieving its objective of identifYing and resolving discrepatlcies. When tbe
second quru1er of 2002 is compared to the first quarter of 2010, there is an 82 percent reduction
in the error rate (23-4=19/23=.82). Even though the error rate has dropped significantly, aPM
has not renegotiated the 1 percent load.

Based on our inquires, it appears that aPM has not formally analyzed the impact of CLER on
FEHBP community-rated carrier's enrollment discrepancies. This cOlTesponds to aPM not
revisiting the possibility of renegotiating the special premium load since it was implemented in
June 1997. As a result of not renegotiating the special premium load, aPM runs the risk of
paying a cost which is no longer reasonable.

For calendar yeat· 2008, the total premiums paid to FEHBP community-rated can-iers were
approximately $6.8 billion. Applying the 1 percent special load to the premium dollars results in
approximately $68 million paid to the carriers. If the special premium load was renegotiated to,
for example, one-half of 1 percent, aPM could save approximately $34 million per year, or $340
million over 10 years .
Iionorable Joh n Berry                                                                                    6

RecoOllllendation 4:

We reco nunend that aPM reenter negotiations with the FEl-IBP ca n iers to reduce the I percent
load based on the reduction in enrollment discrepanc ies.

Reco mmendulion 5:

We recommend that the reduction in rale starLwi th contrac t year 20 12. The cost savings for
201 2 o f reducing the special premi um load to one·lmlf of I percent would be approx imately $3 4

Retire ment and Benefit s' Res pon se:

Currently, OPl'vl 's Insurance Operations (1 0 ) is cond ucting an enro llment and premium
info rmat ion pilo t, operating independentl y fro111 CL ER. By usi ng the Enterprise Huma n
Resources ln legration data, the 10 wi ll be able 10 tran smi t premiu m data to carriers at the
indiv idual enrollee level every pay period . We were lold that this efTort wi ll be fully operat ional
across mosl agcncics and carriers in 20 II.

Through our evaluation of this information, the 10 should bl;! able 10 give the FEH BP carriers
enrollment associated with co ll ected premiums. This information would el im inate the need for
the 1 percent rate load ing for comm unity-rated plans. Taki ng this nction in 201 1 will allow
OP M to give adequate notice to the carriers pri or to 2012 con tract rate negoti ations, and wi ll also
allow adjustments for income shortfall.

T he In surance Operati ons agrees wi th the 1~l c tu a l nature o r lhe Inspector General's nnding and
agrees that red ucing the I percellt load to rates of FEHBP commun ity-rated carriers is
appropriate (Sec Anachm ent 2).

Ole Comm ent :

The 010 eval uated the Ins urance Operations' response 10 our No tifi cation of Find ings •.mel
Recommend at ions. We concur wi th their posi tion to eliminale the 1 percent load by using the
Enterprise Human Reso urces Integrat ion datu. Also. it is our opinion thai if fo r some rcason
there is a delay in ini tiating the new policy, OPM sho uld begin negotiations with the FEHO P
t:arriers \() reduce the loud starling with cont ract year 20 12, to reflect th e reduction in enro llment

Please contact me if yo u have any questions regarding th i~ review, or someone
     wish to contact Michael R. Esser. Ass istant Inspector Genera l for Aud its, at
                     Spec ial Assistant to the Assistant Inspector General for AIJd its,


cc: Christine Gri ffi n
    Deputy Director
Honorable Jolm Berry                                                  7

   Elizabeth A. M ontoya
   Chief of Staff

   U,,·ec'.or, Exec'J1i '"" Secretariat and Ombudsman

   Will iam 13. Zie linski 

   Associate Directo r, Ret ireme nt Sen ices 

   John O"Brien 

   Directo r, Healt hcare ilnd Insurallce

                rectOr fo r Federal Employee Insu rance Ope rations

              nlern,,1 :lvclrsi!lln and Compliance

   DCDU!V u'uec.o, r. lmemal Oversight and Com pliance

   ASiSo·ciatc [ ' in"",, Employee Services and 

     Chief I luman Capital Officer 

                                                                                                            J:iMO Carrier:s Error Rate
               I ~

      15                          ....
••0                                                                                                                                                                                                                                .


                                                                                                                                                                                                                                       , ..I~
      5                                                                                                                          A

           !:)'l,.       ~'l- !:)'1- !0":J r::,"J r;::,":> r::,":l r;::,i). r;::,~ r::,!;>. r;::,l>. r;::,<:>     r;::,"=>   r;::,"=>      r;::,":l   r;::,'O    [;;)10      r;::,'O   r::,'O    r;::,'\ ~\ ~ S·    r;::,~ r;::,'O ,;:)'0 RJ'h R>~ r;::,q, r;::,q, r;::,0; "C)
      ~<::S          ~<::S ~ ~(J ~(;j ~(S ~<S ~G ~t:J ~(J ~<S ~                                                 rt'l cf5                Cl-t5         ~         ~         :!-G         ~        ~ ~ ~C5 ~G         ~G ~G ~o:::l ~ ~(;j ~(J [l,t:l :..G n,,~
                                                                                                                 Attac h ment 2

                              UNfTED STATES OFFICE OF PER SO NNEL MANAG EMENT
                                                            WJ.5hingtoll, DC 2.0415

Re tirement and
   Benefi ts
                                                               July2 1, 2010

               M EMORJU'.JDUM FOR:

               T II ROUG H:
                                                   -Deputy Ass istant inspector General

                                                    Will iam Ziel in ski       jJJ~~I/~~ ,
                                                    Assoc iate Director ro r Retire ment                 anA;l;fit~ y....-.....- ...­
                                                                                                                           Operatio ns

               DATE:                                Ju ly 2 1.20 10

               SUBJ ECT:                            RESPON SE TO IG FIND ING ON fl, I-1B I % LOADING

               Thi s is in response to your notifica tio n and findin g on Spec ial Premium Load for
               Community-Rated Carriers.

               Currently Insurance Opcra tio ns (1 0) is (.:o ndllcting an enro ll me nt and premium
               infonnalio n pilot , ope rating ind ependently [rom Ce ntra lized enro llment clearing house
               (CLl~ R). By lIsing En terp rise I llImOl n Resources fntegrati on (E HR I) data, (0 wil l be able
               to lr~tnSlllj t prem ium data to carriers at the ind ividual en rollee leve l every pay period .
               Th15 effort will be fully operationa l across most agenc ies a nd carrie rs in 20 t J. Through
               our eval uation o f tillS infonnatioll , fa should be able to give ll eallh Plans eiU"ollment
               associated with co llected prc miwn . T his illfonnalion would eliminate the need for the
               1% rate loading f:o r commu nity rated plans. Ta ki ng this actio n in 20 I l will allow us to
               give adequate advanct: notice to the carrie rs prior 10 201 2 contract and rate negotiati ons,
               and will also a llow adjustme nts lo r inco me shortfall.

               Insurance Opemtions agrees the factua Lnature of tile Inspector General's finding.

               Ins urance Operations agrees that red ucing the 1% load to rates of f El lB community­
               rated carriers is approp riate.


        www.opm .gov           Rcc ru i!. Retain and Honor a World·C h ss \\'orkforc~ 10   S~rve lh ~   Ame rican People
                     OFFICE OF T HE I NS PEC rOR GENERAL 

                             OFFICE OF AUD ITS 

 Review of th e Payroll Fu nction Related to tb e Federal E mployees H ea lth Be nefits 

                 Prog ,·a m E urollment T ran saction s for A nnuit an ts 

                Notifica tio n of Findings and Recomm endation s CNFR)

General info rm ation:

We have identified the following issue as a potential finding for inclusion in a draft
report. We encourage you to provide us with any addi tional infomlation that may be
relevant to ensure that the finding presented provides an accurate and fair presentation of
the issue. If you have any quest ions, concerns, have additional infonnation for our
review, or need additi onal time to respond to this NFR please contact C harles E. Gibbons
on 606-4720 or char les.gibbons@opm.l!ov or j eff Cole, Deputy Assistant Inspector
General for Audits at 606-1200 or jcff.coleUUopm.gov.

fssu ed to:                                 Acting Associate Director

Approved by: 

N FR number:
Dale NFR Issued: 

Subjec t:
\VI P Reference(s): 


                      Special Pre mium Load for Communi ty-Rated Carriers 

Background :

OPM amended the Standard Co ntract for the Federal Employees Heahh Benefits
Program (FEHBP) for contract year 1997. The amendment to the con tract allowed a one
percent special premium load for comm unity-rated carriers. The one percent load was
the resu lt of negotiations between OPM and the community-rated carriers to account for
unresolved enro llment discrepancies.

To help resolve enrollment discrepancies OPM implemented the Centralized Enrollment
Reconciliation Clear inghouse (CLER). The purpose o[CLER is to facilitate em·ollment
reconci liation between Federal payro ll o rri ces and health plans to identify and resolve
discrepanGies~CLER..was implemente..d...June 2002.

One oftbe major object ives ofCLER W<iS to resolve discrepancies to the poin t where
OPM can remove the one percent load.
                                                                                                      Page 2

                 C ondition :

                 When CLER was implemented in June 2002, the National Finance Center (NFC)
                 produced a qualterly report caJled the CLER Production Recap. The report listed the
                 total records processed by each caiTier and the number of records in error. The report
                 also gave the error rate for each carrier, and the overall error rate. Because our main
                 fo cus is on the error rate for community-rated carriers, we had the NFC modify the report
                 to only include community-rated carriers. We had this done for the period starting with
                 the second qual1er 2002 tlU'ough the first quarter 20 1O. For the second quarter 2002, the
                 reported error rate was approximately 23 percent for community-rated carriers. As of
                 March 31,2010 the error rate was approximately 4 percent (see attac hed graph). The
                 reports clearly show that CLER is achieving its objective of identify ing and resolving
                 discrepancies. When the second quarter 2002 is compared to the first quarter 201 0, there
                 is an 82 percent reduction in the error rate (23-4=19/23:0::.82). Even though the error rate
                 has dropped significaOlly, OPM has not renegotiated the one percent load .

                  C l'it eria;

                  FAR 31.201 -3 Detelming Reasonableness: "A COS! is reasonable if, in its nature and
                  amount, it does not exceed that which would be incurred by a prudent person in the
                  conduct o f competitive business."

                  C:ltl Se:

                  Base on ollr inquiries, it appears that OPM has not form ally analyzed the impact of CLER
                  on community-rated carriers' enrollment discrepancies. This corresponds to a PM not
                  revisi ting renegoti ating the spe.cial premium load since its was implemented in June

                  Effe ct:

                  As a resul t ofl1ot renegotiating the special premium load, OPM runs the ri sk of paying a
                  cost which is no longer reasonable.

             For calendar year 2008, the total premiums paid to community-rated caniers were $6.8
             billion. Appl ying the one percent special premium load to the premium do llars results in
- - - - - -- $68...milliOlLbcing_l2f!i<ito the carriers. lfthe special premium load was renegotiated to
             halfpercent, OPM could save approximately $34 million per year, or $340-million-over - -­
             10 years.

                  Reco mme ndatio n 1:

                  We recommend that OPM consider reentering negotiations with the carriers to reduce the
                  one percent load based on the reduction in enrollmen t discrepancies.
                                                                                  Page 3

Please indicate your response in the space provided below or as an attachment and return 

to us no later than J une 14,2010. Your written response will be considered when 

preparing the draft audit report. 

Audit ec Response: 

 /      Management concurs with the factual accuracy of the find ing.

 /      Management does not concur with the factual accuracy of this find in g.

Additionals Comm ents:

S ignature of Agency Offic·

4JScU.Jc/Jiltthr - j}jir~ ti 47's
Title of Agency Official