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 at JMH Health Plan 

Report No. 1 C-J8-00-J 0-025 

Date: December 15, 2010 

-- CAUTlON·-

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di,tributed copy. 
UN ITED STATES OFFICE OF PERSONNEL MANAGEMENT 


Wa shington, DC 204 15 


flic~ of the 

tn~pect r Genera! 

AUDIT REPORT 


Federal Employees Health Benefits Program 


Community-Rated Health Maintenance Organization 


JMH He.lth Plan 

Contract Number CS 2870 - Plan Code J8 


Miami, Florida 


Report No. IC-J8-00-IO-02S Date: December 15, 2010 

Michael R. Esser 

Assistant Inspector General 

for Audits 

...ww.o pm.lo\l ww.... usa OI)$.~O. 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 


Washingwn , DC 20415 


Office of Ihc 

Inspector Genera l 

EXECUTIVE SUMMARY 


Federal Employees Health Benefits Program 


Community-Rated Health Maintenance Organu..ation 


JMH Health Plan 


Contract Number CS 2870 - Plan Code J8 


Miami, Florida 


Report No. I C-J8-00-IO-025 Date: December 15, 2010 

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

Program (FEHBP) operations at JMH Health Plan (Plan). The audit covered contract years 2004 

through 2009 and was conducted at the Plan's office in Miami, Florida. Additional audit work 

was perfonned in our field offices in Jacksonville, Florida, and Cranberry Township, 

Pennsylvania. 

This report questions $1,137,147 for defective pricing in contract years 2004 through 2008. The 

questioned amount includes 5969,239 for inappropriate health benefit charges and $167,908 due 

the FEHBP for lost investment income, calculated through October 31, 2010. We found that the 

FEHBP rates were developed in accordance with the Office of Personnel Management's rules 

and regu lations in 2009. 

For contract year 2004, we determined that the FEHBP's rates were overstated by $1 09,034 due 

to defective pricing. More specifically, the Plan did not apply the appropriate trend factor as 

shown in the rate filing to the FEHBP's rates. In addition, the Plan overstated the retention factor 

and infertility rider used to develop the FEHBP's rates. 

For contract year 2005. we determined that the FEHBP's rates were overstated by $130,306 due 

to defective pricing. More specifically, the Plan did not apply a discount given to a similarly 

www .usajob •.g oy 
sized subscriber group (SSSG), the State of Florida, to the FEHBP's rates. and the Plan 

overstated the retention factor and inferti lity rider used to develop the FEHBP's rates. 

For contract year 2006, we determined that the FEHEP's rates were overstated by $148,465 due 

to defective pricing. More specifically, the Plan did not apply the discount given to the SSSG, 

James E. Scott Community Association, Tnc. _ to the FEHBP's rates, and the Plan 

overstated the retention factor and infertility rider used to develop the FEHBP's rates. The Plan 

also charged the FEHEP an unallowable extension of coverage loading. 

For contract year 2007, we determined that the FEHBP's rates were overstated by $181 ,261 due 

to defective pricing. More specifically, the Plan overstated the unpaid claims, manual pharmacy 

rate, retention factor, and infertility rider used to develop the FEHBP rates. The Plan also 

charged the FEHBP an unallowable extension of coverage loading. 

For contract year 2008, we determined that the FEHBP's rates were overstated by $394.192 for 

the high option and $5,981 for the standard option due to defective pricing. More specifically, 

the Plan did not apply the discount given to the SSSG, _ to the FEHBP's rates, and the 

Plan overstated the unpaid claims, manual trend factors, retention factor, and infertility rider used 

to develop the FEHBP's rates. The Plan also charged the FEHBP an unallowable extension of 

coverage loading. 

Consistent with the FEHEP regulations and contract, the FEHBP is due $167,908 for lost 

investment income, calculated through October 31, 2010, on the defective pricing findings. In 

addition, we recommend that the contracting officer recover lost investment income starting 

November 1, 2010, until all defective pricing amounts have been returned to the FEHBP. 

II 
CONTENTS 


Page 

EXECUTIVE SUMMARy............................................................................................... i 


I. INTRODUCTION AND BACKGROUND ..................................................................... 1 


II. 	 OBJECTIVES, SCOPE, AND METHODOLOGY ......................................................... 3 


III. 	 AUDIT FINDINGS AND RECOMMENDATIONS ....................................................... 5 


PremiUlll Rates ................................................................................................................ 5 


1. Defective Pricing .......................................................................................................... 5 


2. Lost Investment Income ............................................................................................. 11 


IV. 	 MAJOR CONTRIBUTORS TO THIS REPORT .......................................................... 13 


Exhibit A (Summary of Questioned Costs) 


Exhibit B (Defective Pricing Questioned Costs) 


Exhibit C (Lost Investment Income) 


Appendix (JMH Health Plan's September 27,2010, response to the draft report) 

I. INTRODUCTION AND BACKGROUND 


Introduction 

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

at JMH Health Plan (Plan) in Miami, Florida. The audit covered contract years 2004 through 

2009. The audit was conducted pursuant to the provisions of Contract CS 2870; 5 U.S.c. 

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

performed by the Office ofPersonnei Management's (OPM) Office of the Inspector General 

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

Backeround 

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 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 carriers who 

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

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

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

many are further subj ect to the Health Maintenance Organization Act of 1973 (Public Law 93­

222), as amended (i.e., many community-rated carriers arc 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 carriers, aPM relies on 

carrier compliance with appropriate laws 

and regulations and, consequently, does not 

negotiate base rates. aPM 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. 

FEHBP Contracts/M~mbers 

March 31 


1.200 

1,000 

800 

600 

.00 

- r­

- r200 

0 

2004 2005 2006 2007 2008 2009 

• ContrIJCts 451 786 39' 420 323 301 

o Members 1, ' 31 8" 948 '14 '" '" 
The Plan participated in the FEHBP from 2003 through 2009 and provided health benefits to 

FEHBP members in Miami-Dade and Broward Counties. This was the first audit conducted by 

aPM ofthis Plan. 

The preliminary results 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 ofthis report and are 

included, as appropriate, as the Appendix. 

2 

n. OBJECTIVES, SCOPE, AND METHODOLOGY 


Objectives 

The primary objectives of the 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 laws and regulations governing the FEHBP. 

FEHBP Premiums Paid to Plan 

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 j 

sufficient, appropriate evidence to provide a i 

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 2004 through 2009. For these contract years, the 

FEHBP paid approximately $ J 4.5 million in premiums to the Plan. The premiums paid for each 

contract year audited are shown on the chart above. 

OIG audits of community-rated carriers are designed to test carrier compliance \\;th the FEHBP 

contract, applicable laws and regulations, and aPM 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's internal control structure, but we did not use this 

information to determine 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 circlUllstances. Our review of internal controls was limited to the 

procedures the Plan has in place to ensure that: 

• 	 The appropriate similarly sized subscriber groups (SSSG) were se lected; 

• 	 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 

J 

the various infonnation 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 Miami, Florida, during March 2010. 

Additional audit work was completed at our field offices in Cranberry Township, Pennsylvania, 

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 detennine ifthe 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 

detennine 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 

perfonned other auditing procedures necessary to meet our audit objectives. 

4 

III. AUDIT FINDINGS AND RECOMMENDA nONS 

Premium Rates 

1. Defective Pricing $969,239 

The Certificates of Accurate Pricing the Plan signed for contract years 2004 through 2008 

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

adjustment for these years. Application of the defective pric ing remedi es shows that the 

FEHBP is entitled to premium adjustments totaling $969,239 (sec Exhibit A). We found that 

the FEHBP rates were developed in accordance with OPM's rul es and regulations for contract 

year 2009. 

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

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

adjustments recognized by OPM, arc market price rates. OPM regul ations refer to a market 

price rate in conjwlction 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 of the FEHBP premiums to the 

equivalent market price. 

In 2004, the Plan used a community rating by class (CRC) methodology to develop the 

FEHBP rates and then switched to an adjusted community rating (ACR) methodology with a 

credit,illity factor used to blend the and manual rate from 2005 2009. The 

was 

years. on group specific claims experience blended with a 

manual rate, which is adjusted by trend factors, a benefit change factor, high dollar claims, and 

retention in order to detennine the required per member per month (PMPM) revenue needed 

for the renewal period. Once the required PMPM is calculated, a conversion factor and 

premium ratio, or a current PMPM and percentnge increase nre applied to detemline the 

group's renewal rates by billing tier. 

as 

the group includes Plan 

as analysis of the rates charged to the 

she,ws that neither group received a di scount. 

We reviewed the FEHBP's rates and found that the Plan used higher manual trend [actors in 

the FEHBP rate development than the factors supported by the rate filing. Accordingly, we 

reduced the FEHBP's medical and prescription drug (Rx) manual trend factors from. and 

• to l1li and~, respectively. In addition, we reduced the FEHBP's retention from 

5 

I 

rate 

and 2008). 

_ to _,as supported by the Plan' s rate filing. and we reduced the infertility 

rider from~ t~ PMPM after the Plan identified the overcharge and provided 

actual support. A comparison ofour audited line 5 rates to the Plan's reconciled line 5 rates 

shows that the FEHBP was overcharged $109,034 in 2004 (see Exhibit B). 

Plan's Comments (See Appendix): 

should not be considered an SSSG because the 

~~2:0fthe 

In addition, the Plan asserts that _ is not a reasonable or adequate retention rate, nor 

is it a reflection ofthe retention mte that JMH Health Plan or other insurers charged to other 

groups. The Plan states that it was to file a rale manual in order to offer a 

commercial rate However, the manual rating was used sparingly to 

quote coverage for groups groups above the small employer threshold of 50 

employees). As manually rated groups were always immaterial to the Plan's financial results, 

this line of business received little attention. The Plan contends that the retention 

factor used in the FEHBP's rates 

exceed the percentage used in the 

development (i.e., .ercent in 

While the Plan did not specifically mention the use of higher manual trend rates, its 

calculation of the liability due the FEHBP shows that it did not accept the audit adjusted 

manual trend factors. However, the Plan does agree that the infertility benefit rate should be 

changed from PMPM to .PMPM. The Plan re-calculated the FEHBP's rates for 

2004 and detennined that the FEHBP is due $17,349. 

OIG's Response to the Plan's Comments: 

According to OPM's Community Rating Guidelines, the definition of a provider partner is, 

"Employer Groups in which the carrier has a financial interest or there is a risk sharing 

The mere fact that a carrier conducts business with an does not 

nrov'ide, panner." The Plan . 

PWviae fedeiraJ passhO'Ne',er,mnpllyproviding funds to an organization does not constitute a 

financial ' or risk sharing arrangement. _ does not meet the definition of a 

"provider partner" because the relationship between_ and the Plan is not a financial or 

risk sharing arrangement. The only relationship between the Plan and_ is that_ 

contracted with the Plan to provide health insurance to its employees. 

6 
The rate filing clearly states that the retention rate is. percent, plus any commission, and that 

is also the retention rate charged 10_ Regardless ofthe retention rate the Plan, or other 

insurers, charged to other groups, the FEHBP rates must be equivalent to the lower of the two 

SSSG rates, including any discounts or market advantage given to an SSSO. Therefore, we 

continue to use a -"ercent retention factor in calculating the audited rates. 

We acknowledge the Plan's agreement with the adjustment to the infertility rider PMPM. 

However, we do not agree with the use of manual trend factors and a retention factor that is 

higher than the factors supported by the rate filing or charged to_ Therefore, we 

continue to question $109,034 in overcharges to the FEHBr in 2004. 

fu2005,t~~~ 

SSSGs. We agree with we d;;;agree ~ 

Plan's selection the group includes Plan 

as analysis of the rates charged to 

shows group received a. percent discount, which was not 

. The discount is based on a reduced billed rate and understated Rx 

claims used in the experience portion of the rate development. _ did not receive a 

discount. 

We reviewed the FEHBr's rates and found the group was given a higher retention factor and 

infertility rider than what could be supported. We also found an unallowable extension of 

coverage loading. Per OPM' s 2005 Reconciliation Instructions, "claims should reflect 

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

loading." Because the FEHBP was rated using an ACR methodology in 2005, we removed the 

loading since the claims experience should already reflect extension of coverage. In addition, 

we reduced the FEHBP's retention factor from "'ercent to aercent as supported by the 

Plan's rate filing, and we reduced the infertility rider from~ PMPM to l1li PM PM after 

the Plan identified the overcharge and provided actual support. A comparison of our audited 

line 5 rates to the Plan's reconciled line 5 rates shows that the FEHBP was overcharged 

$130,306 in 2005 (see Exhibit B). 

Plan's Comments (See Appendix): 

As discussed above, the Plan does not agree that_ should be an SSSG. In addition, the 

Plan does not agree that a aercent retention factor should be used in the FEHBP's rate 

development. The Plan contends the retention factor should be. percent. The Plan agrees 

with the recommended adjustments to the infertility rider. However, despite these 

disagreements, the Plan does not challenge the audited rates, and the Plan's calculations show 

agreement with the $130,306 overcharge to the FEHBP. 

7 

OIG's Response to tbe Plan's Comments: 


We acknowledge the Plan's agreement with the audited rates and questioned costs for 2005. 


In 2006, the Plan selected SSSG. We 

disagree "ith the Plan's I since the group 

includes Plan employees, and were no other 

employer groups that contracted with from 2006 fOf\.vard. Our analysi s of the rates 

charged to_shows that the group received a. percent discount, which was not 

applied to the FEHBP. The discount was due to a 5 month rate extension from April 1, 2007, 

to August 31 , 2007, and an understated vision rider. The vision rider was missing the 2005 

trend of. percent, which increased it from'" PMPM to PMPM. 

We reviewed the FEHBP's rates and found the group was given a higher retention factor and 

infertility rider than what wold be supported. We also found an unallowable extension of 

coverage loading. Per OPM's 2006 Rewnciliation Instructions, "claims should reflect 

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

loading. " Because the FEHBP was rated using an ACR methodology in 2006, we removed the 

loading since the claims experience should already reflect extension of coverage. In addition, 

we reduced the FEHBP's retention from aercent to aercent as supported by the Plan's 

rate filing, and we reduced the infertility rider from...- PMPM to_PMPM after the 

Plan identified the overcharge and provided actual support. A comparison of our audited line 

5 ratcs to the Plan's rcconciled linc 5 rates shows that the FEHBP was overcharged $148,465 

in 2006 (see Exhibit B). 

Plan's Comments (See Appendix): 

As previously discussed, the Plan does not agree that_should be an SSSG. In addition, 

the Plan does not agree that a . percent retention factor should be used to develop the 

FEHBP's rates. Rather, the Plan contends that a. percent retention factor is appropriate. 

However, the Plan agrees that the infertility benefit rate should be changed from PMPM 

to. PMPM. The Plan also agrees that the extension of coverage should be removed from 

the FEHBP's rates. As a result, the Plan's calculations show $14,150 due the FEHBP for 

2006. 

OIG's Response to the Plan's Comments: 

As discussed above, we do not agree with the Plan's argument that_ is a provider 

partner and therefore ineligible to be an SSSG. In addition, we disagree that the FEHBP's 

retention factor should be higher than. percent. 

We acknowledge the Plan's agreement with the adjustment to the infertility rider PMPM and 

the removal of the extension of coverage loading. However, we continue to apply a. 

I 

percent SSSG discount to the FEHBP's audited rates and use a . percent retention factor in 

our rate development. As a result our analysis contin ues to show that the FEHBP is due 

$148,465 for overcharges in 2006. 

In 2007, the Plan selected SSSG. We 

disagree with the Plan's selection since the group 

includes Plan employees. Due to the rate exte",iOll, elillibleSSSG in this 

year, since the renewal date changed from April I, Septem,ber 

there were no eligible SSSGs in 2007. 

During our review of the FEHBP's rates for 2007, we identified five findings. In addition to 

the overstated retention factor, infertility rider, and unallowable extension of coverage loading 

identified in the earlier years, we found the rates were developed using an overstated unpaid 

claim liability and an inappropriate Rx rider. 

pl)lie d~to the FEHBP in unpaid claim liability, but the support showed 

only The difference was due to a manual override of the unpaid claim liability 

loading. The Plan commented in the rate development that the . 

percent was .percent higher than the original unpaid claim liability. We adjusted the 

unpaid claim i back to_as supported. 

The Plan priced the FEHBP using a_ PMPM Rx rider for a $7/$20/$35 Rx benefit leveL 

The FEHBP had $5/50 percent Rx benefit level in 2007 and should have been priced using a 

_ PM PM Rx rider. We adjusted the prescription dnlg rider to account for the actual 

benefits received. 

In addition to the two adj ustments above, we reduced the FEHBP's retention factor from. 

percent to rcent, as supported by the Plan's rate filing; we reduced the infertility rider 

from l1li PMPM to PMPM, after the Plan identified the overcharge; and we removed 

the extension of coverage loading. A comparison of our audited line 5 rates to the Plan's 

reconciled line 5 rates shows that the FEHBP was overcharged $181,261 in 2007 (see Exhibit 

B). 

Plan's Comments (See Appendix): 

As previously discussed, the Plan does not agree that a . percent retention factor is 

appropriate and believes that a . percent retention factor should be used to develop the 

FEHBP rates. However, the Plan agrees with the recommended adjustments to the infertility 

rider, the extension of coverage loading, the claim liability adjustment, and the Rx benefit 

value adjustment. Based on its calculations, the Plan believes the FEHBP is due $84,995 for 

2007. 

9 

OIG's Response to the Plan's Comments: 

As discussed in the olher years, we do not agree that the FEHBP's rates should include a 

higher retention factor. We acknowledge the Plan's agreement with adjustment to the 

infertility rider PMPM, the removal of the extension of coverage loading, the adjustment to 

the unpaid claim liability, and the adjustment to the Rx benefit value. However, we continue 

to use a ~rcent retention factor to develop the FEHBP rates in 2007. As a result, our 

analysis continues to show that the FEHBP was overcharged $181,261 in 2007. 

In 2008, the Plan SSSO. We 

disagree with the Plan's since the group 

includes Plan employees, and of the rates 

charged to _ shows the group an ~rcent discount, which was not applied 

to the FEHBP. The discount was due to understated medical, vision, and Rx riders. The Plan 

PMPM base medical rate, but the support showed it should have 

been . the Plan charged_ a_PMPM vision rider that 

only one vear ot Je'ceJ)( trend. This vision rider should have been PMPM 

after applying l""Tenlt"atnd ~rcent trend for 2005 and 2007, respectively. Finally, 

the Plan a illllPMPM Rx rider, but the support showed it should have 

been Mlr~1 . 

During our review of the FEHBP's rates, we identified five findings. In addition to the 

overstated retention factor, infertility rider, and unallowable extension of coverage loading 

identified in the earlier years. we found the rates were developed using an overstated unpaid 

claim liability and overstated manual trend factors. 

to the FEHBP in unpaid claim liability, but the support showed it 

. The difference was due to the Plan applying 4 additional months 

of unpaid claim i the prior years' (2005) experience period in addition to the 12 

months of the current experience period (2006). We removed the additional four months of 

unpaid claim liability. 

The Plan applied manual trend factors of ~nd _ to the FEHBP's medical and Rx 

riders. Because the base rates are from the April 2005 rate tiling. the FEHBP's trend factors 

should adjust the base rate forward by 11 quarters from the second quarter of2005 to the first 

quarter of 2008. With a medical trend o. percent and an Rx trend of. percent, we 

adjusted the trend factors down to for medical and for prescription drug. 

In addition to the two adjustments above, we reduced the FEHBP's retention factor from. 

percent to. percent as supported by the Plan's rate filing, we reduced the infertility rider 

from ~MPM to PM PM after the Plan identified the overcharge, and we removed 

the extension of coverage loading. A comparison of our audited line 5 rates to the Plan's 

reconciled line 5 rates shows that the FEHBP was overcharged $394,192 in 2008 for the High 

10 

Option and $5,981 in 2008 for the Standard Option (see Exhibit B). In total, the FEHBP was 

overcharged $400,173 in 2008 

Plan's Comments (See Appendix): 

As previously discussed in this report, the Plan contends is not an SSSG because 

it is a provider partner. Therefore, the Plan removed the ercent SSSG discount from its 

calculations. Also, the Plan contends tha. percent is not a reasonable retention factor, and 

therefore, used ~ercent in its calculations. The Plan does agree with the adjustments to 

the FEHBP's rate development to reduce the infertility rider PMPM, remove the extension of 

coverage loading, reduce the unpaid claim liability, and reduce the manual trend factors. 

Based on the Plan's calculations, it contends that the FEHBP is due $24,210 for 2008 high 

option rates. The Plan did not re-calculate the standard option rates due to materiality. 

OIG's Response to the PIan'S Comments: 

As discussed in greater detail above, _ is not a provider partner, therefore, the group is 

an SSSG and the percent discount granted to the group should be applied to the FEHBP 

rates. In addition, as previously discussed, we disagree that a . percent retention factor is not 

reasonable and continue to use . percent in the development of the FEHBP's audited rates. 

We acknowledge the Plan's agreement with the adjustments to the infertility rider, extension 

of coverage loading, unpaid claim liability, and the manual trend factors. Based on these 

adjustments, as well as the adjustment to the retention factor and application of the ~ 

percent SSSG discount. we continue to question $394,192 and $5 ,981 in overcharges to the 

high and standard option rates, respectively. In total, the FEHBP was overcharged $400,173 

in 2008. 

Recommendation I 

We recommend that the contracting officer require the Plan to return $969,239 to the FEHBP 

for defective pricing in contract years 2004 through 2008. 

2. Lost Investment Income S167,908 

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

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

contract years 2004 through 2008. We determined that the FEHBP is due $167,908 for lost 

investment income, calculated through October 31, 2010 (see Exhibit C). In addition, the 

FEHBP is entitled to lost investment income for the period beginning November 1, 20 10, until 

all defective pricing amounts have been returned to the FEHBP. 

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

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

complete, accurate, or current as certified in its Certiticate of Accurate Pricing, the rate shall 

II 

be reduced by the amount ofthe 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 ofthe 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 ofthe 

Treasury's semiannual cost of capital rates. 

Plan's Comments (See Appendix): 

The Plan did not address this issue. 

Recommendation 2 

We recommend that the contracting officer require the Plan to return $167,908 to the FEHBP 

for lost investment income for the period January 1, 2004 through October 31, 2010. In 

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

amounts due for the period beginning November], 201 0, until all defective pricing amounts 

have been returned to the FEHBP. 

12 

IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Community·Rated Audits Group 

Audilor-in-Charge 

Staff Auditor 

Staff Auditor 

Senior Team Leader 

Chief 

13 

Exhibit A 

.JMH Health Plan 

Summary of Questioned Costs 

Defective Pricing Questioned Costs: 

Contract Year 2004 


Contract Year 2005 


Contract Year 2006 


Contract Year 2007 


Contract Year 2008 


Total Defective Pricing Questioned Costs: 

Lost Investment Income: 

Total Questioned Costs: 

$109,034 

$130,306 

$148,465 

$181,261 

$400,173 

$969,239 

$1.LJ 7. 14Z 
-

-

-

-

f: XllmtT U 

l'ag<' [ uf J 

Ji\UI Hea ltb Plan 

Ol'rect i~ e Pricing Questioned Costs 

FEHBP Lin~ 5 - Reconciled Rate 

FEBUP Line 5 - ,'uditcd Rate 

Overcharg<.! 

To Annualize O~'e arge: 

3/3 1/04 enrollment 

l'ay Periods 26 1J!

-

• 

-

• 

Subtotal 

Tota l 2004 Defective !'ricing Questioned Costs 

FEI 10l' Line 5 -ltcconc iled Rate 

FEl-IllP Line 5 - Audited Rate 

To Annualize Overcharge: 

313 1/05 enrollment 

]IllY Period ~ •

2 26 " • 

Subtotal 

Total :::!005 [)efective Prk ing QUi!stiollcd Costs 

-

SUlJ..JlIJl 
-

-

-

• 

-

-

-

• 

E~ hihi l IJ 

PII !!e 2 00 

JMII Heallh Plan 


Infecti\'(' Pricing QUl.'S titlftetJ Costs 


FEHOP Line 5 • Rccollci icd Kale 

FEHOI> Line 5 . Audited Rat,; 

Ovcl"I;hargc 

To Annuul ize Overcharge: 

J(\ 1/06 enrollment 

Pay I>c riods 

•

.. 

•.. 

Sublol:!! 

Tota l 1006 Defective Pricing Qu~ ti ncd Costs -

rEl-lllP Line 5 • Reconciled Rate 

r EUBP Line 5 . Audited Rate 

Overcharge 

To Annualize Overcharge: 

3/31107 enrollme nt 

f'ay Pe riods 16 

Subtotal 

Total 007 Defective Pricing Questioned ('...osiS 
t:,lhihil U 

1'.11;1.' J of J 

SJ'}-'. I 'J2 

200N Iligh Ol).ion 

f EH Ul' Line 5 - Reconci led Kale 

FEHBP Line 5 - Audited Kat.: 

Ovuchrlrge 

To Ann ualize Overch"r!,;c: 

3/31101S {'nrol1menl 

Pay Periods 

Subtota l 

TOI.a 12008 High Opiioo [).:f':Clivc 

Pricing Questioned COSIS 

2008 Sia ntiard O,,'ion 

FEHBP Line 5 - Reconciled Rate 

FEHIW Line 5 - Audited Klllc 

O\'erchargc 

To r\nnual ize O vercharge: 

3/3 1/08 enrollment 

Pay Periods 

Subtotal 

Tot,tl l 008 SI:lIIdard Option efe t 

Pricin:; Questioned CoSIS 

JMlllh.'alfh Plan 


Oe(eeliw Pricing Q uestiollt"d Costs 


-

•

-

" 

-

• 

I 

2!i 

c 

Toll1 l 2008 k,j~::~ . i\'e Pricing Qllestiol1 ed COSt); 

TOilal Ocf«l in~ Pridll;; QUCS1M.Illt'(I Costs 

-


• 


.. 


-

EXHIBIT (' 

JMH Healtll Plan 

Lost hl\"f'stmt"ut Income 

II 

Year 1005 2()06 2007 2008 2009 2010 Total ,\ 

Audit Findings: 

Ddccri'n2 Pricing <, 1119.1.134 $130,306 SI48A65 $181.261 $400,173 $11 SO S9f,q,~3l1lI' 

$109,034 S 130,306 $14~,465 $18l,261 $'100,173 SO SO 


51O<),03,j S239.340 S387,805 $569,066 $969,239 $969,23'1 $!)69,239 


/\vg Intt.:rest Rate year) 4150%, 4375~o 5.4375% 5.500'}o 4.9375% 5.250% 3.1875% 


OIl PrioI Yt'aro;; Findings-: SO Sn70 513,014 $21.329 $28,098 550,885 525,745 


Cum:llf Yt:rll,S $::J17 $2,850 $4,036 $.1,985 59,879 SO SO
 Interest· _____..;.::.::.:.:..._____..::.:::.:.:.._____.::.:.:;:;;::.:..._____::..:.:.:..;:;:.:...____....;::;:.;:::.:..:_______.::.:._______.::.:.____....;:;;.:..:;:.:.jl 

Total C'lHmuati\,c lntl:!rest Calcuh"ih:d 

Throu"h October 31. 2010' $2.317 SVJ20 517,050 S26.314 $37,977 $50,885 
Appendix 

I)) Soll!h Mi.l.fui IhnHR' 

S",,,; I I I) 

Mia",i . H"..-i&, .U IJO 

l'I","e: JIJ'l · 'l;''i-J 7()U

ZGIODeT ·· 4 AH 8: i .: r n: .iO':; ·':;,j'l · 51 11 

Email ; inql.lirin("' ill1hhp.(u," 

September 27, 20 I 0 

Ullel. c.ornnlUllIl'y··K 'Hea Audit ( jroup 

U.s. Onice "rl'monnel Management 

Office orlhe Inspcctor (jeneral 

1900 F Street. N W 

Room 6400 

Washington, D.C. 204 1 S-II OO 

Self! via hard copy a"d CD ;1/ Miao.mft Wonl formal 

Dcar_: 

JMII llealth Plan (JMII) has recci\ ed Ihe drall audit rcsults from the U.S. Office or I'.:rsonnci 

Management (OPM) detailing the Audit hlldings and Recommendations for Ihe Federal I:mrloyecs 

Ilcallh BCIl..;fil Program (FI::II BP). We appreciate the opporlUnity 10 provid.: comments regarding the 

dralt rcp<lrt. 

In review ur the Audit Findings ...IIl d Recommendations. JM H discovered three general items th at 

warrant cOlllm.:nt which Me common to multiple plan year.; being reviewed. Thcse comments <.Irc 

discuss..:d in the "Gencral ltems" section oflhis leUa. Olher commenls are specific 10 a plan year and 

are included in lhe ·· Plan .... 'car Ilems" seclion . 

In addition to our comments. we ha\'e incl ud ed re sponsc calculations in this leller which arc rcllcetivc 

of our comments. 

C,£NERAL ITEMS 

Deleted by OIG - l'iot relevant to the Final Report 
Page 2 of 12 

2. Retention 

In each year, the JMH retention was reduced by aPM to 10% in the draft Audit Findings and 

Recommendations. 

The OPM rationale for lowering the retention each year is that the 2002 rate filing and subsequent rate 

manual updates reflected a.base retention charge plus a variabl e commission charge. As 

commission charges are not applicable to the Federal Group. OPM believes that no more than a. 

retention rate is appropriate. 

A brief discussion of the rate manual is warranted. JMH is a public subsidiary of the Public Health 

Trust of Miami-Dade county. The company's primarily line of business is a Medicaid HMO which 

provides selVice to low income residents of Miami-Dade 1MB entered the commercial market 

with the intent including employees of the 

health plan were i manual to participate in this 

market I county rates were based on the group's experience. The manual \\'as 

used sparingly to quote coverage for mid-size groups (small groups above the small employer 

threshold of 50 employees). As manually rate groups were always immaterial to JMH 's financial 

results. this line ofbusiness received little management attention. 

JMH asserts that .,/0 is not a reasonable or adequate retention rate, nor is it a reflection of the 

retention rate that JMH charged to other groups. The table below displays the retention rates charged 

to each group for each year. The retention level applied to the groups in the table received significant 

attention from the Chief Financial Officer. _ is not included in the table as the enrollment was 

small and the group was renewed without direct approval by the Chief Financial Officer. 
Page 3 of 12 

In preparation for our response, we also reviewed the retention level of other large group carriers in 

Florida, further supporting the market unreasonableness of a 10% retention level. 

IRetention 

Tn our response calculations, we have applied the retention rate in the reconciliation which does not 

exceed the retention rates of our commercial groups reviewed by the Chief Financial Officer. 

3. SSSG Selection 

_ is a "provider partner", defined by OPM as an "Employer Group in which the carrier has an 

interest or there is a risk sharing arrangement." Provider partners should be excluded from SSSG 

consideration. 

JMH Health Plan is a subsidiary of the Public Health Trust of Miami-Dade county. _ was a 

publicly funded social service agency that worked with county agencies and served Miami's inner city. 

The county partnered with _ and had a strong interest in the viability of the agency and 

uncollected health premiums were allowed to sustain the agency. 

The federal government has recognized the link between Miami-Dade county and _ as the U.S. 

Department of Housing and Urban Development pursued a claim against Miami-Dade County due to 

unsatisfactory use of federal funds that the county steered 10_projects. For further information, 

http;II................miamiherald.coml2010/07/19/173 7900/agencys-fai lures-leave-trail-of.h1ml#ixzz 1 OZpFLNOC 


In our response calculations, we have removed the discounts to the Federal Group that were based 

upon discounts applied to _ in the draft audit results. 
In the case 

Calculation relative to the Revised Rate Calculation which does not include a discount. The discount 

Page 4 of 12 

PLAN YEAR ITEMS 

2004 Contract Year 

The Audit Findings and Recommendations indicate that . not receive a discount. 

Alternatively, the Audit Findings and Recommendations . received a 

lower manual trend factor and that "Any trend factor used for the Federal group must same as 

the trend factor the carrier used for other groups." The referenced instructions refer to ACR guidance 

in the OPM instructions; ACR guidance is not applicable to the Federal Group in 2004. 

ACR trend factors are applied to prior claims experience to project future experience. Manual trend 

factors are not factors that are multiplied by claims experience to project future experience. Manual 

trend factors are intended to update the base rate for timing differences, and can be equall y expressed 

as a prior base rate and a trend factor or an updated base rate. 

if a lower base rate was applied, it should be recognized as a 

table below shows the manual rate discount in the Initial Rate 

is minimal as the group rate is based primarily on experience. The actual rates charged are higher than 

the Revised Rate Calculation; therefore, no effective discount was applicd. 

Rate Cak:ulatim 

As discussed in the general items section, a . retention level is appropriate for the Federal Group. 

JMH agrees with OPM's comment that the rate for the infcnility rider should be reduced. The chart 

below illustrates the initial rate calculalions. the draft aud it results, and the calculations reflective of 

our response comments. 

- -

• • • • --

- -

• • • --

Page 6 of 12 

The calculation below reflects the chart above and the corrected enrollment. 

FEHBP line 5 - Reconciled Rate 

FEHBP line 5 - Aud ited Rate 

Overcharge 

To Annualize Overcharge: 


3/31/04 enrollment 


Pay Periods 


Subtotal 

Total 2004 Defective Pricing Costs $17,349 

2005 Contract Year 

JMH does not challenge the audited rate in the draft pricing results. The calculation below reflects the 

corrected enrollment. 

FEHBP line 5 - Reconciled Rate 


FEHBP line 5 - Audited Rate 


Overcharge 

To Annualize Overcharge: 


3{31/05 enrollment 


Pay Pe riods 


Subtotal • 

Total 2005 Defective Pricing Costs $130,306 

2006 Contract Year 

We have removed the discounts to the Federal Group that were based upon discounts applied to 

_ in the draft audit results. As discussed in the general items section, a . retention level is 

appropriate for the Federal Group. JMH agrees with OPM's comments that the rate for the infertility 

rider should be reduced and the extension of coverage loading should be removed. The chart below 

includes the calculations reflective of our response comments. 

- -

• • 

- -

~ Page 8 of 12 

The calculation below reflects the chart above and the corrected enrollment. 

Self Family 

FEHBP line 5 - Reconciled Rate 

FEHBP line 5 - Audited Rate 

Overcharge 

To Annualize Overcharge: 

3/31/06 enrollm ent 


Pay Periods 26 26 


Subtotal 


Total 2006 Defective Pricing Cost s $14,150 

2007 Contract YeaT 

As discussed in the general items section, a _ retention level is appropriate for the Federal Group. 

JMH agrees with OPM's comments that the rate for the infertility rider should be reduced and the 

extension of coverage loading should be removed. We also agree with the recommended claim 

liability adjustment and Rx bene fi t value adjustment. The chart below includes the calculations 

reflective of OUf response comments. 

--

--

• • 

--

September 27, 2010 

Page JO of 12 

The calculation below reflects the chart above and the corrected enrollment. 

Self Family 


FEHBP Line 5 - Reconciled Rate 


FEHBP Line 5 - Audited Rate 

-­

Overcharge 

To Annualize Overcharge: 

3/31/07 enrollment 

Pay Periods 26 26 

Subtotal 

Total 2007 Defective Pricing Costs $84.995 

2008 Contract Year 

We have removed the discounts to the Federal Group that were based upon discounts applied to 

_ in the draft audit results. As discussed in the general items section, a /o retention level is 

appropriate for the Federal Group. JMH agrees with OPM 's comments that the rate for the infertility 

rider should be reduced and the extension of coverage loading should be removed. We also agree with 

the recommended claim liability adjustment and adjustment of the manual trend factors. The chart 

below includes the calculations reflective of our response comments. (The chart reflects the 2008 High 

Option; due to materiality, we did not review the 2008 Standard Option but would have similar 

comments.) 

- -

• • 

--

The calculation below reflects the chart above and the corrected enrollment. 

Self Family 


FEHBP line 5 • Reconciled Rate __ 


FEHBP line 5 - Audited Rate __ 


Overcharge 

To Annualize Overcharge: 

3/31/0B enrollment 

Pay Pe riods 26 26 

Subtotal 

_ 2008 Defective Pricing Cost s $24,210 

CONCLUSION 

Thank you for the opportunity to provide comments regarding the draft report. We are available to 

discuss any clarifications yo u may require regarding our commenLs. 

Sincerely, 

cc: _ Wakely Consulting Group, Inc.