u.s. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Su bject: 

Audit of the Federal Employees Health Benefits 

Program Operations of AultCare Health Plan 

Report No. lC-3A-OO-lO-027 

Date: October 28 r 2010 

- CAUTION-­

''rhis audit report has been distributed to Federal officials \ ho are responsible for the lIdrninislnuion of the audited prugram. This 

audit report may contain proprietary data whieh is protected by Fcdcrallaw (18 U.S.C. 1905). Therefore, while this audit report is 

avuiluble IUlller the I~reedom of InFormation Act and millie :lvailable 10 HIl' public on Ihe OIG wcbpage, caution needs to be exercised 

before I'eleasing the I'cportto the general public as H rna)' contllin pl'oprictllry illfol'mation that was ndaeted from the publicly 

distributed cnpy. 
-----

U ITED STATE OFFICE OF PER ON EL MANAGEMENT 

Washington. DC 204] 

Office of the 

Impector General 

AUDIT REPORT
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

AultCare Health Plan
 

Contract umber CS 2723 - Plan Code 3A
 

Canton, Ohio
 

Report o. lC-3A-OO-lO-027 Dak: October 28, 2010 

c~
 Michael R. Esser 

Assistant Inspector General 

for Audits 

www.opm.gov www.usaJobs.gov 
UNITED TATES OFFICE OF PERSONNEL MANAGEMENT
 

Wa 'hillgton. DC 2041:
 

Office fth
 

In pector Gt:nera)
 

EXECUTIVE SUMMARY
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

AultCare Health Plan
 

Contract Number CS 2723 - Plan Code 3A
 

Canton, Ohio
 

Report No. lC-3A-OO-lO-027 Da~: October 28, 2010 

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

Program (FEHBP) operations at the AultCare Health Plan (Plan). The audit covered contract 

years 2006 through 2009 and was conducted at the Plan's office in Canton, Ohio. 

This report questions $4 249 016 for defective pricing in contract years 2006 through 2008, 

including $618 675 due the FEHBP for Lost investment income, calculated through 

September 30 2010. We found that the FEHBP rates were developed in accordance with the 

Office of Personnel Management's rules and regulations in 2009. 

For contract years 2006 through 2008, we determined that the FEHBP s rates were overstated by 

$3,630,341 due to defective pricing. More specifically, the Plan did not select the correct 

similarly sized subscriber groups (SSSG) and did not apply the largest discolmt given to an SSSG 

to the FEHBP rates. 

Consistent with the FEHBP regulations and the contract, the FEHBP is due $618,675 for lost 

investment income calculated through September 30, 2010 on the defective pricing findings. In 

addition, the contracting officer should recover lost investment income on amounts due for the 

period beginning October 1,2010, until aU defective pricing amounts have been returned to the 

FEHBP. 

www,opm.gov www.usajobs,gov 
CONTENTS 

Page 

EXECUTIVE SUMMARY	 i
 

I. INTRODUCTION AND BACKGROUND	 1
 

II.	 OBJECTIVES SCOPE, AND METHODOLOGY 3
 

III.	 AUDIT FINDINGS AND RECOMMENDATIONS 5
 

Premiunl Rates 5
 

1. Defective Pricing	 5
 

2. Lost Investment Income	 10
 

IV.	 MAJOR CONTRIBUTORS TO THIS REPORT I 1
 

Exhibit A (Swnmary of Questioned Costs)
 

Exhibit B (Defective Pricing Questioned Costs)
 

Exhibit C (Lost Investment Income)
 

Appendix (AultCare Health Plan s August 27, 2010, response to the draft report
 
I. INTRODUCTION AND BACKGROUND
 

Introduction 

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

at AultCare Health Plan (Plan) in Canton, Ohio. The audit covered contract years 2006 through 

2009. The audit was conducted pursuant to the provisions of Contract CS 2723; 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 ofthe 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 

Retirement and Benefit Office. The provisions ofthe 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 ubject to various federal state and 

local laws, regulations, and ordinances. While most carriers are subject to state jurisdiction 

many are fulther subject to the Health Maintenance Organization Act of 1973 (Public Law 93­

222), as amended (i.e., many community-rated caniers are federally qualified). In addition 

participation i11 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 is defined as the best rate offered to 

either ofthe two groups closest in size to 

the FEHBP. In contracting with 

community-rated carriers, OPM relies on 

carrier compliance with appropriate laws 

and regulations and, consequently, does not 

negotiate base rates. OPM negotiations 

relate primarily to the level of coverage and 

other unique features ofthe FEHBP. 

The chart to the right shows the number of 

FEHBP contracts and members reported by 

the Plan as of March 31 for each contract 

year audited. 

March 31 

4,000 

3,500 

3,000 

2,500 

2,000 

1,500 

1,000 

500 

o 

2006 

• Contracts 1,532 

o Members 3,743 

2007 

1.258 

2,779 

2008 

1,206 

2,545 

2009 

1
 
The Plan has participated in the FEHBP since 1996 and provides health benefits to FEHBP 

members in Stark, Carroll Holmes, Tuscarawas and Wayne counties and the Canton 

Metropolitan area in Ohio. The last audit conducted by our office was a full scope audit and 

covered contract years 2000 through 2003 and 2005. All matters related to that audit have been 

resolved. 

The preliminary result 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 s comments were considered in the preparation of this report and are 

included, as appropriate as the Appendix. 

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 performed to determine whether the Plan was in compliance with the 

provisions of the Jaws 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 

sufficient, appropriate evidence to provide a 

reasonable basis for oW" findings and conclusions 

based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis 

for oW" findings and conclusions based on our 

audjt objectives. 

FEHBP Premiums Paid to Plan 

2009 

$13.6 

2008 

$12.9 

2007 

$13.0 

2006 

$14.1 

$16 

$15 

$14 

$13 

$12 

$11 

$10 -f--~"'----"---+-~-..,....=...=:...o.~

• Revenue 

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

paid approximately $53.6 million in premiums to the Plan. The premitm1s paid for each contract 

year audited are shown on the chart above. 

OIG audits of commtmity-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 of the Plan' internal control structure, but we did not use tIns 

inforn1ation to determine the nature timing, and ei tent 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 ill 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 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 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 Canton Ohio during January and 

February 2010. Additional audit work was completed at our field offices in Cranberry Township, 

Permsylvania. 

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 docwnentation 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 (FEHBAR), and OPM's Rate Instructions to Community-Rated Carriers to 

determihe 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's policies and procedures, interviewed appropriate Plan officials, and 

performed other auditing procedures necessary to meet our audit objectives. 

4
 
Ill. AUDIT FINDINGS AND RECOMMENDATIONS 

Premium Rates 

1. Defective Pricing $3,630,341 

The Certificates ofAccurate Pricing the Plan signed for contract years 2006 through 2008 

were defective. In accordance with federal regulations, the FEHBP is therefore due a price 

adjustment for these years. Application of the defective pricing remedies shows that the 

FEHBP is entitled to premium adjustments totaling $3,630,341 (see Exhibit A). We found 

that the FEHBP rates were developed in accordance with OPM's rules and regulations for 

contract year 2009. 

FEHBAR 1652.215-70 provides that carriers proposing rates to OPM are required to submit a 

Certificate of Accurate Pricing certifying that the proposed subscription rates, subject to 

adjustments recognized by OPM, are market price rates. aPM regulations refer to a market 

plice rate in conjunction with the rates offered to an SSSG. If it is found that the FEHBP was 

charged higher than a market price (i.e., the best rate offered to an SSSG), a condition of 

defective pricing exists, requiring a downward adjustment ofthe FEHBP premiums to the 

equivalent market price. 

2006 

The Plan selected the
 

_ as SSSGs for contract year 2006. We agree with the selection ofthe
 

•••• but disagree with the selection 0
 

should have been chosen as an SSSG, since it was closer in enrollment size to 

the FEHBP and because it met SSSG requirements. 

Our analysis ofthe rates charged to the SSSGs shows that
 

received percent discount and_received a
 

not apply either discount to the FEHBP.
 

Since OPM requires the FEHBP rates to be at lea t equivalent to the best rates offered to an 

SSSG, the FEHBP rates were recalculated by applying all relevant adjustments and applying 

the_percent discount given to_A comparison ofthe Plan s reconciled line 5 rates 

to our audited line 5 rates shows that the FEHBP was overcharged $1,222,168 see Exhibit B) 

in 2006. 

Plan's Comments (See Appendix); 

The Plan is not in agreement with the SSSG selection and believes that_should have 

been selected instead 01 The Plan chose~ecauseit is the closest in size, next 

larger group to the FEHBP and has the most group similarities and demographics to the 

FEHB~. Based on this selection, the Plan believes that the largest discount ofllll percent 

5
 
from should be applied to the FEHBP rates, resulting in
 

monies owed the FEHBP in the amount of$431 130.
 

OIG's Response to the Plan's Comments: 

We disagree with the Plan's assertion tha~should be an SSSG in 2006 since it is not the 

group closest in size to the FEHBP at the time of reconciliation. According to the 2006 rate 

reconciliation instructions, 

At the time of your 2006 proposal our regulation, 48 CFR 1602.170-13, defined SSSGs 

as follows: 

(a)Similarly Sized Subscriber Groups (SSSGs) are a comprehensive medical 

plan's two employer groups that: 

(1) As of the date specified by OPM in the rate instructions, have a 

subscriber enrollment closest to the FEHBP subscriber 

enrollment· ...." 

The above instruction criteria does not state that the group must be 'next larger' or 'most
 

similar" to the FEHBP, only that the group have the closest subscriber emollment to the
 

FEHBP. Based on these instructions, the two groups closest in size to the FEHBP are the
 

_discount o~percentwas the largest SSSG discount in 2006 and was applied to 

the FEHBP rates at line 5. A comparison ofthe Plan's reconciled line 5 rates to our audited 

line 5 rates shows that the FEHBP was overcharged $ t,222,168 (see Exhibit B) in 2006. 

s SSSGs for contract year 2007. We agree with the 

selection 0 but disagree with the selection of_ ••• 

hould have been chosen as an SSSG since it was closer in enrollment size to the FEHBP and 

because it met SSSG requirements. 

Our analysis of the rates charged to the SSSGs shows that
 

received a_percent discount an.~ did not receive a discount. The Plan did not
 

apply a discount to the FEHBP.
 

Since OPM requires the FEHBP rates to be at least equivalent to the best rates offered to an 

SSSG, the FEHBP rates were recalculated by applying all relevant adjustments and applying 

the percent discount given to A comparison of the 

Plan s reconciled line 5 rates to our audited line 5 rates shows that the FEHBP was 

overcharged $2,3 I9,521 (see Exhibit B) in 2007. 

6 
Plan's Comments (See Appendb'): 

The Plan is not in agreement with the SSSG selection and believes that_should have 

been selected instead 0 The Plan chose_because it is 

the closest in size, next larger group to the FEHBP, and has the most group similarities and 

demographics to the FEHBP. Based on this selection, the Plan believes that the largest 

discount o~percent given to_should be applied to the FEHBP rates. 

In addition the Plan does not agree with using the 2006 audited premium increase to adjust 

the 2007 premiwn experience. Instead, the Plan believes that the 2006 percentage increase it 

calculated and billed should be applied to the 2007 premium experience to adjust the groups' 

premiums to the 2007 level. 

FinaJly, the Plan believes that th loading should be added into the 

benefit loading portion ofth final rate determination. 

Based on the adj ustments discussed above, the Plan states that the FEHBP is due $181 646 fi r 

2007. 

OlG's Respon e to the Plan's Comments: 

We disagree with the Plan' assertion tha_should be an SSSG in 2007 since it is not the 

group closest in size to the FEHBP at the time ofreconciliation. According to the 2007 rate 

reconciliation instructions, 

"At the time of your 2007 proposal our regulation, 48 CFR 1602.170-13, defined SSSGs 

as follows: 

(a)SimilarIy Sized Subscriber Groups (SSSGs) are a comprehensive medical 

plan's two employer groups that: 

(1)	 As ofthe date specified by aPM in the rate instructions, have a 

subscriber enrollment closest to the FEHBP subscriber 

enrollment· ...." 

The above instruction criteria does not state that the group must be "next larger" or "most 

similar' to the FEHBP, only that the group have the closest subscriber enrollment to the 

FEHBP. Based on these instruction, the two groups closest in size to the FEHBP are_ 

In addition for all groups lU1der revi w in the audit scope, the audited renewal increases were 

used to adjust the following year's experience premiums. based on the Plan's methodology. 

The Plan's methodology detelmines a percentage increase for the current year and that 

renewal increase is aJso applied in the following year to adjust the monthly experience 

premiums, which brings them to a ClUTent level. 

7 
We used this methodology consistently and it accurately captures the costs associated with the 

rates in each year. Whi Ie the larger renewal increase in 2006 essentially produces greater 

questioned costs in 2007, the questioned costs in 2006 are lower because we calculated a 

higher renewal increase. This effect would work in reverse as well. If we would calculate a 

lesser renewal increase than the Plan in the first year, the first year's questioned costs would 

be greater and the following year's questioned costs would be lower be,cause the experience 

premiums are adjusted accordingly. 

Finally, when using an adjusted community rating methodology, the extension of coverage 

loading is not applicable. According to the 2007 rating instructions, 

(4) If claims include special benefits claims, you should take no special benefits loadings 

(either in the proposal or reconciliation). Note that claims should reflect extension of 

coverage, which means that you should not take the extension of coverage loading.' 

The claims used in the rate development are group specific and represent the benefits 

purchased by that specific group and are utilized in the Plan's adjusted community rating 

methodology. For these reasons, the extension of coverage loading should not be applied in 

the questioned cost calculation for any of the audit scope years. 

Overalll cannot be an SSSG in 2007 since it does not have the closest subscriber 

enrollment to the FEHBP as of March 31 2007. Additionally, the audited premium 

adjustment will continue to be used consistently for all groups to adjust the experience 

premiums. Finally the eX'1ension of coverage loading will not be included in any ofthe final 

rate determinations. 

iscount 0_percent was the largest SSSG discount in 

2007 and was applied to the FEHBP s rates at line 5. A comparison of the Plan's reconciled 

line 5 rates to our audited line 5 rates shows that the FEHBP was overcharged $2,319,521 (see 

Exhibit B) in 2007. 

as SSSGs for contract year 2008. We 

should have been chosen as SSSGs since they were 

closest in enrollment size to the FEHBP and because they met SSSG requirements. 

Our analysis ofthe rates charged to the SSSGs shows that 

received ~percent discount and_received a"percent discount. The FEHBP 

received a_percent discount. 

Since OPM requires the FEHBP rates to be at Jeast equivalent to the best rates offered to au 

SSSG the FEHBP rates were recalculated by applying all relevant adjustments and applying 

the_percent discount given to A comparison ofthe Plan's 

8 
reconciled line 5 rates to oW' audited line 5 rates shows that the FEHBP was overcharged 

$88 652 (see Exhibit B) in 2008. 

Plan's Comments (See Appendix): 

The Plan is not in agreement with the SSSG selection and believes that should have 

been selected. The Plan chose_because it is the closest in size, next larger group to the 

FEHBP, and has the most group similarities and demographics to the FEHBP. The selection 

o~as an SSSG does not change the outcome of the rating in 2008, and the Plan agrees 

that th~percent discount from be applied to the FEHBP 

rates. Overall, the Plan agrees that they owe the FEHBP $88,652. 

OIG's Response to the Plan's Comments: 

We disagree with the Plan's assertion that-,hould be an SSSG in 2008 since it is not the 

group closest in size to the FEHBP at the time ofreconciliation. According to the 2008 rate 

reconciliation instructions, 

"The SSSG concept was developed to ensW'e OPM receives equitable and reasonable 

market-based rates. OPM shall determine the Federal group rates by selecting the lower 

of each carrier's rates derived by rating methods consistent with those used for the SSSG 

rates. For the 2008 rates OPM will focus on the rating methods used for the two SSSGs 

to determine if the Can'ier appropriately derived the Federal group rates. 

Definition 

(a)Similarly Sized Subscriber Groups (SSSGs) are a comprehensive medical 

plan's employer groups that: 

(1) As of the date specified by OPM in the rate instructions have a 

subscriber enrollment closest to the FEHBP subscriber 

enrollment; .... 

The abo e instruction criteria does not state that the group must be next larger" or' most 

similar" to the FEHBP, only that the group have the closest subscriber enrollment to the 

FEHBP. Based on these instructions, the two groups closest in size to the FEHBP are_ 

The OIG and the Plan are in agreement that the FEHBP is owed $88,652 for 2008 (Exhibit B). 

Recommendation 1 

We recommend that the contracting officer require the Plan to return $3 630.341 t tbe 

FEHBP for defective pricing in contract years 2006 through 2008. 

9 
2. Lost Investment Income $618,675 

In accordance with the FEHBP regulations and the contract between OPM and the Plan the 

FEHBP is entitled to recover lost investment income on the defective pricing findings due the 

FEHBP in contract years 2006 tlu"ough 2008. We detennined that the FEHBP is due $618,675 

for lost investment income calculated through September 30,2010 (see Exhibit C). In 

addition, the FEHBP is entitled to lost investment income for the period beginning October 1, 

2010 w1til all defective pricing finding amounts have been returned to the FEHEP. 

FEHBAR 1652.215-70 provides that, if any rate established in connection with the FEHBP 

contract was increased because the carrier fumished cost or pricing data that were not 

complete accurate, or current as celtified in its Certificate ofAccurate Pricing, the rate shall 

be reduced by the amount of the overcharge caused by the defective data. In addition, when 

the rates are reduced due to defective pricing, the regulation states that the government is 

entitled to a refund and simple interest on the amount of the overcharge from the date the 

overcharge was paid to the carrier until the overcharge is liquidated. 

Our calculation of lost investment income is based on the United States Department of the 

Treasury's semi31IDual cost of capital rates. 

Plan's Comments (See Appendix): 

The Plan is requesting that the 10 t investment income recoveries be forgiven and that the 010 

waive the lost investment income payment. 

OIG's Response to the Plan's Comments: 

It is not within our autl10rity to waive the lost investment income payment. The provisions 

contained within the FEHBP regulations and the contract clearly allow for lost investment 

income. 

Recommendation 2 

We recommend that the contracting officer require the Plan to return $618,675 to the FEHBP 

for lost investment income for the period January 1,2006 through September 30 2010. In 

addition we recommend that the contracting officer recover lost investment income on 

amounts due for the period beginning October 1. 2010, unt11 all defective pricing amounts 

have been returned to the FEHEP. 

10
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Community-Rated Audits Group 

Lead Auditor 

Auditor 

Auditor-Tn-Charge 

Senior Team Leader 

Chief 

II
 
Exhibit A 

AultCare Health Plan
 

Summary of Questioned Costs
 

Defective Pricing Questioned Costs: 

Contract Year 2006 $1,222,168 

Contract Year 2007 $2,319,521 

Contract Year 2008 $88,652 

Total Defective Pricing Questioned Costs: $3,630341 

Lost Investment [ncome: $618.675 

To/al Questioned Costs: $4,249,016 
Exhibit 

AultCare Health Plan 

Defective Pricing Que tioned Costs 

2006 Contract Year - High Option 

FEHBP Line 5 - Reconciled Rate 

FEHBr Lin 5 - Audited Rate 

Overcharge 

To Annualize Overcharge: 

3/31/06 enrollment 

Pay Periods	 ~6

ubtotal	 $165,65R 

Toral 2006 Defecti e Pricing Questioned Cost'	 1222,168 

2007 Contract Year - High Option 

FEHBP Line 5 . Reconciled Rate 

FEHBP Line 5 - Audited Rate 

Overcharge 

To Annualize 0 er harge: 

3/31107 enrollment 

P:,\y Period 26 

Subto al $4 8,76'2 

Tolal 2007 Defective Pricing uestioned Cost	 $2,319,521 

2008 Contract Year-High Option 

26 

$l,860,759 

FEHBP Line 5 - Reconciled Rate 

FEIlf3P Line 5 - Audited Rate 

Overcharge 

T	 Annualize Over harge: 

3/31/08 enrollment 

Pay Periods 

ubI tal 

Tolal 2008 Defective Pricing Qu stioned Co ts $88,652
 

Tot I Oefective Pricing Que tioned Costs 3,630,341
 
E, HTBIT 

ultCare Health Plan 

Lost Investment Income 

Year 2006 2007 2008 2009 2010 Total 

Audit Findings: 

I DeleCli e Pricmg 1,222,168 $2.319,521 $88,652 ° 

$0 

0 

$0 

$3.630.341 

Totals (per year)' $1.222.168 $2,31'1,521 $88,652 $3,630.341 

Cumulative Totals' $1.222,168 'B,541,689 $3,630,341 $3,630,34 J $3,630,341 $3,630,341 

Avg. Interest Rate (per ye-ar); :>.4375% 5.500% 4.9375% 5.2500% 3.1875% 

Interest 011 Prior Years Findings $0 $67,219 $174.871 .$1 '10.59 $86,788 $519.471 

Currenl Years Imerest. $33.228 $63.787 $2.189 SO $0 $99.204 

T tal Cumulative Interest Calculated 

Through September 30, 2010' $33,228 $131,006 $177.060 .$1 '10,59 $86.78 ~I $618,675 
Appendi: AULTCARE 

20 I0AUG 31 PH 3: 4I 

Friday, August 27,2010 

Chref, Community-Rated Audits Group
 

United States Office of Personnel Management
 

Office of the Inspector General
 

1900 E Street, NW
 

Room 6400
 

Washington, D.C. 20415-1100
 

Re:	 AultCare Health Plan
 

Contract Number CS 2723 Plan 3A
 

DIG Audit Report Number 1C·3A·00·10·027, dated June 2, 2010
 

Dea_ 

We are commenting to question the findings of the Office of Inspector General (OIG), following 

the audit of the AultCare Health Plan's administration of the Federal Employees Health Benefits Program 

(FEHBP). Our response is in regards to the contract years 2006 through 2008. 

In review of the 2006 contract year, we are not in agreement with the selection of the Similar 

Sized Subscriber Group (SSSG). The OIG has selected 

From their analysis they determined that received an 

•••discount and _received a _discount. During this contract year FEHBP received a 

~discount when comparing their rating to the Adjusted Community Rating (ACR) method. We agree 

with the analysis of the calculations performed by the OIG auditors for these two groups. However, we 

are not in agreement with the selection of the SSSG. Our determination would select 

•••••••••••••••. _ would have received a"discount 

. Therefore, would have received the greatest discount of 

Applying this discount to the FEHBP would then result in an overcharge of $431,130. Please see 2006 

Audited FEHBP Model Response AultCare Exhibit; we have updated the auditor's model to reflect the 

_discount. 

In review of the 2007 contract year, we are not in agreement with the selection of the SSSG and 

the development of the FEHBP adjusted community rating development. The OIG has selected 

~~~~====~~~~asSSSG's. From their analysis they determined that 

received a discount and _ received a fair market rate. During this contract year FEHBP 

received no discounts. We agree With the analysis of the calculations performed by the OIG auditors for 

these two groups. However, we are not in agreement with the selection of the SSSG. OUf determination 

again for this year would select . _would have received a_discount_ 

. Therefore,~ould have received the greatest discount of" 

P.O, Box 6910/ Canton. OH 44706 

•	 PHONE: 330-363-6360 I TOLL FREE: 1-800-344-8858
 

TIY LI NE: 330-363-2393 I 1-866-633-4752 for the hearing impaired
 

WEBSITE: www.aultcare.com
 
~AU CARE
 

In review of the 2008 contract year, we are not In agreement with the selection of the SSSG. The 

OIG has selected 

From their analysis they determined that received a discount and 

received discount. During this contract year FEHBP received discount when comparing 

their rating to the ACR method. We agree with the analysis of the calculations performed by the OIG 

auditors for these two groups. However, we are not in agreement with the selection of the SSSG. Our 

determination would selecl again for this year as a SSSG. would have received 

discount for this contract year	 Since the_discount would be 

a_ less than 

the	 discount, we would agree then with the auditors calculation using the _discount 

applied to FEHBP. We would agree with the OIG on the 2008 questioned findings and the amount owed 

to FEHBP. 

a_

Friday, Augusl27, 2010 

Re: #1 C-3A-00-1 0-027 

Page #2 

Through the development of the FEHBP rate using the ACR method, we disagree with the 

increase in premiums from the 2005 to 2006 contract year. FEHBP received a increase in 

premiums that AultCare collected, The auditor calculated the renewal increase in the ACR adjusted 

premiums at a_increase. Since we did not collect this additional revenue, the adjusted premiums 

should be reflective of_ Using the audited file provided from the auditors, we have updated the 

worksheets to illustrate the changes. Please see the 2007 AUdited FEHBP Model Response AultCare 

Exhibit. In the claims tab the adjusted premiums have been changed to reflect this increase in premiums 

as of January 2006, By making this adjustment to the calculation the renewal calls for increase 

instead of the calculated by the auditors. The new calculated rates carried over to the exhibit A 

tab to represent the premiums that should have been provided. Further there was no extension of 

benefits loading applied in the calculation using the factor. Then the SSSG discount from_of

_would be applied creating an overpayment of $181.646 owed to FEHBP. 

a_ 

From our analysis in each of the years, 2006-2008, we are in disagreement with the selection of 

the Similar Sized Subscriber Group (SSSG). TI1e reconciliation guidelines definition of the SSSG is the 

medial plan's employer groups that U( 1) As of the date specified by OPM in the rate instructions, have a 

subscriber enrollment closest to the FEHB subscriber enrollment." From the ten groups submitted (Total 

enrollment 2006-2008 Exhibit) in the rate proposal the two group's closest in size to the Federal group at 

the time of reconciliation will become the SSSG's for the plan. The enrollment to determine the groups 

should be based on the most recent enrollment as of the March 31 st of the current year. During our 

selection process and utilizing this definition, we selected_as a SSSG as it was the closest in size, 

next larger group to the FEHBP. In the total enrollment exhibit, it is illustrated that 's represented 

by being the closest in demographics to the FEHBP. We also feel that this group should be selected as 

an SSSG because of the similarities to FEHBP. On an enrollee or per life basis these groups are 

reflective of one another. Both groups have premiums within the given years from Ilillion. So 

on an overall basis_would provide the best analysis to the FEHBP that they were receiving the 

most equitable and reasonable rate within the market, 

AultCare was audited in November 2005 by the OIG for years 2000 through 2003 and year 2005. 

At that time we had also submitted as a SSSG and the auditor in charge during that audit excluded 

this group, Later in the post audit reviews we received an e-mail notice from the auditor in charge that 

•	 P.O. Box6910tCanton, OH 44706 

PHONE: 330-363-6360 I TOLL FREE: 1-800-344-8858 

TIY LINE: 330-363-2393 t 1-866-633-4752 for the hearing impaired 

WEBSITE: www.aultcare.com 
cc: 

~AUlTCARE
 

Friday,August27,2010 

Re: #lC-3A-OO-l0-027 

Page #3 

provided us with an explanation and notation that _ had been erroneously excluded from each of the 

contract years. We were notified that_would have been an SSSG for all of those years under 

review. However, at that time in August of 2006 the auditors informed us that they would not be 

requesting any additional information and would continue with the SSSG selection made during the audit. 

It was from this communication that we were led to understand that going forward from that date that 

would no longer be excluded from an SSSG selection if they are close-enough in size to the 

FEHBP. Therefore, we strongly feel that based on the instructions in the reconciliation and rate 

guidelines along with the communication we received from the OIG that AultCare selected the SSSG's 

that meet the requirements. 

In conclusion, we would like to ask the Office of the Inspector General to review the selection of 

the SSSG's and to utilize the_forthe contract years 2006 through 2008. For the 2007 

contract we would like to have the ACR rating method for the FEHBP reviewed based on our earlier 

comments. Lastly, we would like to request that the OIG give consideration to AultCare in regards to the 

lost investment income on the defective pricing findings. We are asking that the lost investment 

recoveries be forgiven and that AultCare can be waived of this payment. 

We have included several exhibits as mentioned throughout our comments If you have any 

questions in regards to those exhibits or would like to discuss further any matter related to the review. we 

would make ourselves available for a teleconference or an established meeting. Please do not hesitate 

to contact me at or via e-mail at for any questions. Thank you for 

your time and considerations in this matter. 

Sincerely, 

Underwriting Manager 

Senior Vice President AultCare 

•••• Chief Health Insurance Group III 

••••tl\'\ultCare Compliance 

P.o. Box6910 I Canton, OH 44706 

PHONE~ 330-363-6360 / TOLL FREE: 1-800-344-8858 

TIY LINE: 330-363-2393/1-866-633-4752 for the hearing impaired 

WEBSITE: www.aultcare.com