us, OFFICE OF PERSOJ\t"NEL MANAGEMENT 

OfFiCE OF THE INSPECTOR GENEIV\L 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

Audit of the Federal Employees Health Benefits 

Program Operations at HMO Health Ohio 

Report No. 1C-L4-00-1 0-040 

Date: Octohpr 20 2010 

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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 

\VJshingtorJ. DC 204.15 

Ojl1n- of Ihl," 

Jn~p(:\.·(DrGcneml

AUDIT REPORT 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

HMO Health Ohio
 

Contract Number CS 20lS - Plan Code L4
 

Cleveland, Ohio
 

Report No. 1C-L4-00-1O-040 D~le: October 20 , 20 1 0 

Michael R. Esser 

Assistant Inspector General 

for Audits 

www_opm.J,!l!v 
U ITED STATES OFFICE OF PERSONNE1. MANAGEMENT
 

Office of !he 

In~I!'S10'f 'Gcner;11 

EXECUTIVE SUMMARY
 

Federal Employees lIeallh Bellefits P"ogram
 

Community-Rated Health Maintenance Organization
 

HMO Health Ohio
 

Contract Number CS 2015 - PlaD Code L4
 

Cleveland, Ohio
 

Report No. lC-L4-00-10-040 Date: October 20, 2010 

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

Program (FEHBP) operations at HMO Health Ohio (Plan). The audit covered contract years 

2006 through 2009 and was conducted at the Plan's office in Clevelalld. Ohio. We found that the 

FEHBP rates were developed in accordance with the applicable laws, regulations, and the Office 

of Personnel Management'~ rating instrLlctions for the years audited. 

www.opm.gov 
CONTENTS
 

Page
 

EXECCTIVE SU\<lMARY 1
 

I. INTRODUCTION A):D BACKGROU~O 1
 

JI. OBJECTIVES, SCOPE, AND 1\fETHODOLOGY 3
 

III. RESULTS OF THE AUDIT.. 5
 

IV. MAJOR CONTRIBUTORS TO THIS REPORT " 6
 
1. INTRODUCTIO~ AND BACKGROUND 

Introduction 

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

at HMO Health Ohio (Plan) in Cleveland. Ohio. The audit covered contract years 2006 through 

2009. The audit was conductcd pursuant to the provlsions of Contract CS 2015: 5 U.S.c. 

Chapter 89; and 5 Code of Federal Regulations (CFR) Chapte, I, Part 890. The audit was 

perfonned by the Ofiice of Personne.l i\'!anagel11ent's (OPlvl) 0 ffi ce of the Inspector General 

(OIG), as established by the Inspector Generai Act of 1978. as amended. 

Background 

The FEHBP was established by the Federal Employees He,1lth Beneftts Act (Public La,,·; 86-382). 

enacted on September 28, 1959. The FEHI3P \\'as crea,ed to provide health insurance benefits 

for federal employees. annuitants. and dependents. The FEHEP is administered by OPM's 

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

are implemented by OP1"1 through regulations codified in Chapter ], Palt 890 of Title 5. CFR. 

Health insurance coverage is provided through contracts with health insurance carriers \\'ho 

provide service benefits, indel11n<ty benefits. or comprehensive medical services. 

Cummunity-rated carriers panicipating in the FEHBP are sllbject to various federal, state and 

local laws, regulations, and urdinances. \"ihile ,nost carriers are subject to Slate jurisdiction, 

many are further subject to tne Health I'l/laintemmce Organization Act of [973 (Public Law 93­

222), as amendec (i.e .. many communi:y-rated carriers are federally qualified), In addttion, 

participation in the FFHBP subjects the carriers (0 the l'ederal Employees Health Benefits ....ct 

and implementing regulations promulgated by OPi\1. 

The FEHBP should pay a market price rate. FEHBP Contracts/Members 

whi",h is uefineu a, Llle best rate olrercLi tu 

either oflhe two groups closest in size to 

tbe FEHBP. tn contTRcting with 

community-rated carriers. OP/vi relies on 

carrier compliance with appropriale laws 

and regulations and. consequently, does not 

negotiate base rales. OPM negolia1 ions 

relate primarily to the level of coverage and 

other unique features oflhe FEHEP. 

The chan to the right shows the number of 

FEHBP contracts and members reponed by 

the Plan as of :--"'Iareh 31 [or each eOluraCI 

year audited. 

March 31 

5,000 

'.500 

',000 

3.500 

3.000 

2,500 

2,000 

1.500 

1,000 

500 

o 

• Con!racts 

o A1etr;·bers d.SS2 3448 3,024 
The Plan has participated in the FEHBP since 1985 and provides bealth benefits to FEHBP 

members throughout Nonheast Ohio. The last audit conducted by our offi.ce was a full scope 

audit and covered contract years 200] through 2005. All issues related to that audit have been 

resolved. 

The preliminary results ofth;s audil were discussed vlith Plan officials at an exit conference and 

in subsequent conespondence. Since the a"dit showed that tbe Plan's rating of the FEHBP was 

in accordance with the applicable laws, regulations, and instructions, \ve did not issue a draft 

report. 
II. OBJECTIVES, SCOPE, AND METHODOLOGY
 

ObjectiHs 

The primary objectives of the audit were to verify that the Plan offered matket price rates to the 

FEHBP and to verify that the loadings to the FEHBP rates were reasonable and equitable. 

Additional tests were performed to dctermir,e whether the Plan was in compliance with the 

provisions of the laws and regulations governing the FEHBP. 

We conducted this performance audit in 

accordance with generally accepted government 

auditing standards. Those standards require that 

we plan and perform the audit to obtain 

sufticient. 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 

audir objectives. 

FEH8P Premiums Paid to Plan 

This performance audit covered contract years 2006 through 2009. For these years. the FEHBP 

paid approximately $6 1.5 million in premiums to the Plan. The premiums paid for each contract 

year audited are shown on the chart above. 

DIG 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 ,tmcture, but we did not use this 

infonnation lo deternline the nature, timing, and extent of au, audit procedures. However, the 

audi t included such tests of the Plan's rating system and such other auditing procedures 

considered necessary under the circumstances, Our review of inlernal 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 \Vere the market plice rates (i.e., equivalent 10 the best 

rate offered to the SSSGs); and 

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

In conducting the audit, we relied to varying degrees on c01l1puter-generated billing, ellroHmenL 

and claims data provided by the Plan. We did not verify the reliability ofthe data generated by 
the variolls il1fonnation systems involved. However, nothing came 10 our attention during our 

audit testing utilizing the computer-generated data to cause LIS to doubt its reliability. Vv'e 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 Lnited States. 

The audit fieldwork was performed at the Plan's office in Cleveland, Ohio, during April 2010. 

Additional audit work was completed at our field offices in Jacksonville, Florida, and Cranbeny 

Township. Pennsylvania, 

Methodologv 

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 detennine if the 

market price was actually charged to the FEHBP, Finally, v,'e used the contract, the Federal 

Employees Health Benefits Acquisition Regulations (FEHBAR), 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 rati ng system, 

To gain an understanding oCthe internal controls in the Plan's rating system, we reviewed the 

Plan's rating system's policies and procedures, interviewed appropriate Plan offLciaJs, and 

performed other auditing procedures necessary to meet our audit objectives, 

4
 
Ill. RESULTS OF THE AUDIT 

Our audit showed thm The Plan's rating of the FEHEP was in accordance with the applicable 

laws, reguJaiions, and OrM's rating inSlruclions to caTTier;, for contract years 2006 through 2009, 

Consequently, the audit did not idenrify any qUc;tiol1ed costs and no corrective action is 

necessary. 

5
 
IV, MAJOR CONTRIBUTORS TO THIS REPORT 

Coromunitv-Rated Audits Group 

Auditor-rn-Charge 

Staff Auditor 

Staff Audi(Or 

Staff Audi(o~

Chief 

Senior Team Leader 

6