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 of Blue Care Network of
 

Michigan, Inc.
 

Report No. IC-LX-OO-IO-007 

Date: February 19, 2010 

-- CAUTION --

ThiS ;ludil ,'epnrl h:ls been i1isl,-ilJuled It, Federal om(i~ls wh(, arc nSJlllusihlc r.,,- tlie ~dnlinislr;llio" of lhe audiled progj'<lul. This 

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bet"(..,c releasing Ihe report 10 [he genel"al public as il rnay conla;n pJ"OI)rietary information lhal was redacted from Ihe puhlich' 

distrihnlcd copy. 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

AUDIT REPORT
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

Blue Care Network of Michigan, Inc.
 

Contract Number 2011 - Plan Code LX
 

Southfield, Michigan
 

Report No. IC-LX-00-IO-007 Da~: February 19. 2010 

Michael R. Esser 

Assistant Inspector General 

for Audits 

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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

EXECUTIVE SUMMARY
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

Blue Care Network of Michigan, Inc.
 

Contract Number 2011 - Plan Code LX
 

Southfield, Michigan
 

Report No. lC-LX-OO-lO-007 Da~: February 19, 2010 

The Office ofthe Inspector General performed an audit of the Federal Employees Health Benefits 

Program (FEHBP) operations at Blue Care Network of Michigan, Inc. (Plan). The audit covered 

contract years 2006 through 2009 and was conducted at the Plan's office in Southfield, Michigan. 

The audit showed that the Plan's rating ofthe FEHBP was 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
 
I. INTRODUCTION AND BACKGROUND
 

Introduction 

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations 

at Blue Care Network of Michigan, Inc. (Plan). The audit covered contract years 2006 through 

2009 and was conducted at the Plan's office in Southfield, Michigan. The audit was conducted 

pursuant to the provisions of Contract CS 2011; 5 V.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, arumitants, and dependents. The FEHBP is administered by OPM's 

Retirement and Benefits Office. The provisions of the Federal Employees Health Benefits Act 

are implemented by OPM through regulations codified in Chapter 1, Part 890 ofTitle 5, CFR. 

Health insurance coverage is provided through contracts with health insurance caITiers who 

provide service benefits, indemnity benefits, or comprehensive medical services. 

Conununity-rated carriers participating in the FEHBP are subject to various federal, state and 

local laws, regulations, and ordinances. While most catTiers 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 

which March 31 is defined as the best rate offered to 

either of the two groups closest in size to 

the FEHBP. In contracting with 

community-rated carriers, aPM relies on 

cani.er compliance with appropriate laws 

and reg:ulations and, consequently, does not 

negotiate base rates. aPM negotiations 

relate primarily to the level of coverage and 

other unique features of the FEHBP. 

The chaI1 to the right shows the number of 

FEHBP contracts and members reported by 

the Plan as of March 31 for each contract 

year audited. 

20,000 

18,000 

16,000 

14,000 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

o 

• Contracts 

o Members 

2006 

4,279 

7,730 

2007 

5,224 

12,118 

2008 

7,948 

18,717 

2009 

8,257 

19.415 
The Plan has participated in the FEHBP since 1984 and provides comprehensive medical 

services to the FEHBP as an individual practice plan. Primary health care services are provided 

to most ofMichigan. The last audit conducted by our office covered contract years 2002 through 

2005. All questioned costs associated with that audit have been 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, we did not issue a draft 

report. 

2
 
II. OBJECTIVES, SCOPE, AND METHODOLOGY
 

Objectives 

The primary objectives ofthe audit were to verify that the Plan offered market price rates to the 

FEHBP and to veritY 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 perfOlmance audit in accordance 

with generally accepted government auditing 

standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our 

findings and conclusions based on our audit 

objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

This performance audit covered contract years 2006 

through 2009. For 2006 through 2008, the FEHBP 

paid approximately $108.8 million in premiums to 

the Plan. I The premiums paid for each contract year 

audited m'e shown on the chart to the right. 

OlG audits of community-rated caniers 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 ofthe Plan's internal control stmcture, but we did not use this 

infoffilation to detennine 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 ofintemal 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 otfered to SSSGs); and 

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

1 The Subscription Income Report for 2009 was not available al the time this report was completed. 

"

J 

FEHBP Premiums Paid to Plan 

$40 

$35 

$30 

$25 

$20 

$15 

$10 

$5 

$0 

_Revenue 
In conducting the audit, we relied to varying degrees on computer-generated billing, ernollment, 

and claims data provided by the Plan. We did not verify the reliability of the data generated by 

the various infOlmation 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 perfonned at the Plan's office in Southfield, Michigan during November 

2009. Additional audit work was completed at our offices in Washington, D. C. 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 lmderstanding 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
 

OUf audit showed that the Plan's rating ofthe FEHBP was in accordance with the applicable 

laws, regulations, and OPM's rating instructions to carriers for contract years 2006 through 2009. 

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 

Auditor 

Senior Tearn Leader 

Chief 

6