US 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 Inc. - "Kansas City 

Report No. lC-MS-OO-09-056 

Date: February 19, 2010 

--CAUTION-


This audit rtlJOr( has been distributed to Fedl.'"ral offi6als who :n-c resilonsible for till.'" administraliOll of the audited 

IJrogram. This audit report lJIay contain Ilropriclary data which is (lrot.ccled b~" Fcdcrallaw (18 U.S.c. 1905).__Therefore, 

while this report is available under the Frcedolll of Information Act and made a~";lilable to the public on the OIG 

• '. '- - ~--'-~~~MI h.,.forf' releasing the rellort to the generat public as it my contain prOIJricty 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

AUDIT REPORT 

Federal Employees Health Benefits Program
 

Comprehensive .Medical Plan - Community-Rated
 

Humana Health Plan, Inc. - Kansas City
 

Contract Number 1773 - Plan Code MS
 

Louisville, Kentucky
 

Repoli No. 1C-MS-OO-09-056 Dak February 19, 2010 

Michael R. Esser 

Assistant Inspector General 

for Audits 

-_.. _._.~-_._~_. ------------------,------'-----'-------------~

www.opm.gov www.u5a)obs.gov 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

EXECUTIVE SUMMARY
 

Federal Employees Health Benefits Program
 

Comprehensive Medical Plan - Community-Rated
 

Humana Health Plan, Inc. - Kansas City
 

Contract Number 1773 - Plan Code MS
 

Louisville, Kentucky
 

Report No. lC-MS-OO-09-0S6 Dak February 19, 2010 

The Office ofthe Inspector General perfomled an audit ofthe Federal Employees Health 

Benefits Program (FEHBP) operations of Humana Health Plan, Inc. - Kansas City (Plan). The 

audit covered contract years 2005 through 2009 and was conducted at the Plan's office in 

Louisville, Kentucky. We found that the FEHBP rates were developed in accordance with the 

applicable laws, regulations, and the Office of Personnel Management's rating instructions for 

the years audited. 

www.usEljobs.gov www.opm.gov 
CONTENTS
 

EXECUTIVE SUMMARY i
 

I. INTRODUCTION AND BACKGROUND 1
 

II. OBJECTIVES, SCOPE, AND METHODOLOGy .3
 

III. RESULTS OF THE AUDIT 5
 

IV. MAJOR CONTRlBUTORS TO THIS REPORT 6
 
FEHBP Contracts/Members 

March 31 

9,000 

8,000 

7,000 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

o 

2005 2006 

• Contracts 3,939 3,471 

o Members 8,555 7,359 

2007 2008 2009 

2,982 2,792 2,735 

6,169 5.715 5,539 

I. INTRODUCTION AND BACKGROUND
 

Introduction 

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

at Humana Health Plan, Inc. - Kansas City (Plan). The audit covered contract years 2005 

through 2009 and was conducted at the Plan's office in Louisville, Kentucky. The audit was 

conducted pursuant to the provisions ofContract CS 1773; 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 (GIG), 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 Retirement and Benefits Office. The provisions ofthe Federal Employees Health 

Benefits Act are implemented by aPM through regulations codified in Chapter 1, 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 pmiicipating in the FEHBP are subject to various federal, state and 

local laws, regulations, and ordinances. While most can-iers 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, 

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 can-iers, 

aPM relies on carrier compliance with 

appropriate laws and regulations and, 

consequently, does not negotiate base rates. 

aPM negotiations relate prim31ily to the level 

of coverage and other unique features of the 

FEHBP. 

1
 
The chmi to the right shows the number of FEHBP contracts and members repOlied by the Plan 

as of March 31 of each contract year audited. 

The Plan has participated in the FEHBP since 1987 and provides health benefits to FEHBP 

members throughout the Kansas City metropolitan area. The last audit ofthe Plan conducted by 

our office was a full scope audit of contract years 2000 through 2004. AU issues related to that 

audit have been resolved. 

The preliminary results ofthis 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 verify that the loadings to the FEHBP rates were reasonable and equitable. 

Additional tests were perfonned to detennine whether the Plan was in compliance with the 

provisions of the laws and regulations governing the FEHBP. 

We conducted this perfonnance audit in accordance 

with generally accepted governmental 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 perfonnance audit covered contract years 2005 

through 2009. For 2005 through 2008, the FEHBP 

paid approximately $108.3 million in premiums to 

the Plan. I The premiums paid for each contract 

year audited are shown on the Chat1 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 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 structure, but we did not use this 

infornlation to detennine the nature, timing, and extent of our audit procedures. However, the 

audit included such tests of the Plan's rating systems 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: 

•	 Tbe 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 an SSSG); and 

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

] The Subscription Income Report for contract year 2009 was not available at the time lhe report was completed. 

3 

FEHBP Premiums Paid to Plan 

$30 

$25 

$20 

t--_R_e_ve_n_u_e--'----__J-.-_---'__----L__--' 
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 ofthe United States. 

The audit fieldwork was performed at the Plan's office in Louisville, Kentucky, during August 

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. Further, we examined claim payments to verify that the cost data used to 

develop the FEHBP rates was accurate, complete and valid. In addition, we examined the rate 

development documentation and billings to other groups, such as the SSSGs, to determine ifthe 

market price rate was actually charged to the FEHBP. Finally, we used the contract, the Federal 

Employees Health Benefits Acquisition Regulations, and OPM's Rate Instructions to 

Connnunity-Rated Carriers to determine the propriety of the FEHBP premiwns and the 

reasonableness and acceptability of the Plan's rating systems. 

To gain an understanding of the intemal 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 <If the FEHBP was in accordance with the applicable 

laws, regulations and OPM'sTating instructions to carriers for contract years 2005 Lhrough 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 

Auditor 

Auditor 

Chief 

Senior Team Leader 

6