U.S. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

AUDIT OF CAREFIRST BLUECROSS BLUESHIELD 

OWINGS MILLS, MARYLAND 

Report No. IA-IO-92-09-024 

Date: March 10, 2010 

--CAUTI0 N-­

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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 

Washington, DC 20415 

Office of the 

Inspector General 

AUDIT REPORT
 

Federal Employees Health Benefits Program

Service Benefit Plan Contract CS 1039

BlueCross BJueShieJd Association 

Plan Code 10 

CareFirst BlueCross BJueShield 

Federal Employee Program Operations Center 

Owings Mills, Maryland 

REPORT NO. lA-1O-92-09-024 DATE: March 10, 2010 

~~Michael R. Esser 

Assistant Inspector General 

for Audits 

www.opm.goY www.usajobs.gOY 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

EXECUTIVE SUMMARY
 

Federal Employees Health Benefits Program
 

Service Benefit Plan Contract CS 1039
 

BlueCross BlueShield Association
 

Plan Code 10
 

CareFirst BlueCross BlueShield
 

~ederal Employee Program Operations Center
 

Owings Mills, Maryland
 

REPORT NO. lA-1 0-92-09-024 DATE: March 10, 2010 

This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations at 

CareFirst BlueCross BlueShield" (Plan), which specifically included the Federal Employee 

Program (FEP) Operations Center's administrative expenses, disclosed no findings. Overall, we 

concluded that the FEP Operation Center's administrative expenses charged to the FEHBP were 

actual, allowable, necessary and reasonable expenses incurred in accordance with the terms of the 

contract and applicable laws and regulations. 

Our limited scope audit was conducted in accordance with Government Auditing Standards. The 

audit covered administrative expenses of the FEP Operations Center from 2004 through 2008 as 

reported in the Annual Accounting Statements. 

www.opm.gov www.usajobs.gov 
CONTENTS
 

PAGE
 

EXECUTIVE SUMMARY i
 

I. INTRODUCTION AND BACKGROUND 1
 

n. OBJECTIVE, SCOPE, AND METHODOLOGY 3
 

Ill. AUDIT RESULTS 5
 

A. ADMINISTRATIVE EXPENSES 5
 

IV. MAJOR CONTRIBUTORS TO THIS REPORT 6
 

V. SCHEDULE A _ ADMINISTRATIVE EXPENSE CHARGES 
I. INTRODUCTION AND BACKGROUND
 

INTRODUCTION
 

This final audit report details the findings, conclusions, and recommendations resulting from our 

limited scope audit of the Federal Employees Health Benefits Program (FEHBP) operations at 

CareFirst BlueCross BlueShield (Plan) pertaining to the administrative expenses of the Federal 

Employee Program (FEP) Operations Center. The Plan's offices are located in Washington, D.C. 

and Owings Mills, Maryland. 

The audit was perfonned by the Office of Personnel Management's (OPM) Office of the 

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

BACKGROUND 

The FEHBP was established by the Federal Employees Health Benefits (FEHB) 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. OPM's Retirement and Benefits 

Office has overall responsibility for administration of the FEHBP. The provisions ofthe FEHB 

Act are implemented by OPM through regulations, which are codified in Title 5, Chapter 1, Part 

890 ofthe Code ofFederal Regulations (CFR). Health insurance coverage is made available 

through contracts with various health insurance carriers. 

The BlueCross BlueShield Association (Association), on behalf of participating BlueCross and 

BlueShield plans, has entered into a Government-wide Service Benefit Plan contract (CS 1039) 

with OPM to provide a health benefit plan authorized by the FEHB Act. The Association 

delegates authority to participating local BlueCross and BlueShieId plans throughout the United 

States to process the health benefit claims of its federal subscribers. The Plan is one of 

approximately 63 local BlueCross and BlueShield plans participating in the FEHBP. 

The Association has established an FEp l Director's Office in Washington, D.C. to provide 

centralized management for the Service Benefit Plan. The FEP Director's Office coordinates the 

administration of the contract with the Association, member BlueCross and BlueShield plans, 

and OPM. 

The Association has also established an FEP Operations Center. The activities ofthe FEP 

Operations Center are perfonned by CareFirst BlueCross BlueShield, located in Washington, 

D.C. These activities include acting as fiscal intennediary between the Association and member 

plans, verifying subscriber eligibility, approving or disapproving the reimbursement oflocal plan 

payments ofFEHBP claims (using computerized system edits), maintaining a history file of all 

FEHBP claims, and maintaining an accounting of all program funds. 

I Throughout this report, when we refer to "FEP" we are referring to the Service Benefit Plan lines of business at the 

Plan. When we refer to the "FEHBP" we are referring to the program that provides health benefits to federal employees. 
Compliance with laws and regulations applicable to the FEHBP is the responsibility of the 

Association and Plan management. Also, management of the Plan is responsible for establishing 

and maintaining a system of internal controls. 

All findings from our previous audit ofthe Plan (Report No. lA-1O-85-03-1 OS, dated 

September 29,2004) for contract years 2001 and 2002 have been satisfactorily resolved. 

The results of this audit were discussed with Plan and/or Association officials throughout the 

audit and at an exit conference. Since our audit disclosed no findings, we bypassed the draft 

report and issued the final report. 

2
 
II. OBJECTIVE, SCOPE, AND METHODOLOGY
 

OBJECTIVE
 

The objective of our audit was to determine whether the FEP Operations Center's administrative 

expenses charged to the contract were actual, allowable, necessary and reasonable expenses 

incurred in accordance with the terms ofthe contract and applicable regulations. 

SCOPE 

We conducted our limited scope performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform the audit to 

obtain sufficient and 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 conclusions based on our audit objective. 

We reviewed the BlueCross and BlueShield FEHBP Annual Accounting Statements as they 

pertain to administrative expenses for the FEP Operations Center for contract years 2004 through 

2008. During this period, the Plan charged approximately $376 million in administrative 

expenses for the FEP Operations Center (See Schedule A). 

In planning and conducting our audit, we obtained an understanding of the Plan's internal control 

structure to help determine the nature, timing, and extent of our auditing procedures. This was 

determined to be the most effective approach to select areas of audit. For those areas selected, 

we primarily relied on substantive tests of transactions and not tests of controls. Based on our 

testing, we did not identify any significant matters involving the Plan's internal control structure 

and its operation. However, since our audit would not necessarily disclose al1 significant matters 

in the internal control structure, we do not express an opinion on the Plan's system ofintemal 

controls taken as a whole. 

We also conducted tests to determine whether the Plan had complied with the contract, the 

applicable procurement regulations (i.e., Federal Acquisition Regulations (FAR) and Federal 

Employees Health Benefits Acquisition Regulations (FEHBAR), as appropriate), and the laws 

and regulations governing the FEHBP. The results of our tests indicate that, with respect to the 

items tested, the Plan did comply with all provisions of the contract and federal procurement 

regulations. With respect to the items not tested, nothing came to our attention that caused us to 

believe that the Plan had not complied, in all material respects, with those provisions. 

In conducting our audit, we relied to varying degrees on computer-generated data provided by the 

FEP Director's Office and the Plan. Due to time constraints, we did not verify the reliability of 

the data generated by the various infonnation systems involved. However, while utilizing the 

computer-generated data during our audit testing, nothing came to our attention to cause us to 

doubt its reliability. We believe that the data was sufficient to achieve our audit objectives. 

3
 
The audit was performed at the Plan's office in Owings Mills, Maryland on various dates from 

May 4, 2009 through August 7, 2009. Audit fieldwork was also performed at our offices in 

Washington, D.C.; Cranberry Township, Pennsylvania; and Jacksonville, Florida. 

METHODOLOGY 

We obtained an understanding ofthe internal controls over the Plan's cost accounting system by 

inquiry ofPlan officials. 

We judgmentally reviewed administrative expenses of the FEP Operations Center that were 

charged to the FEHBP for contract years 2004 through 2008. Specifically, we reviewed 

administrative expenses relating to cost centers, natural accounts, out~of-system adjustments, 

prior period adjustments, pension, post-retirement, employee health benefits, executive 

compensation, Association dues, lobbying expenses, return on investment, subcontracts, and 

Health Insurance Portability and Accountability Act of 1996 compliance. We used the FEHBP 

contract, the FAR, and the FEHBAR to determine the allowability, allocability, and 

reasonableness of charges. The results of the testing were not projected to the universe of 

administrative expenses. 

4
 
III. AUDIT RESULTS 

A. ADMINISTRATIVE EXPENSES 

The audit disclosed no findings pertaining to administrative expenses. Overall, we concluded 

that the FEP Operation Center's administrative expenses charged to the FEHBP were actual, 

allowable, necessary and reasonable expenses incurred in accordance with the terms of the 

contract and applicable laws and regulations. 

5
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Experience-Rated Audits Group 

~eadAuditor 

Auditor 

Auditor 

Auditor 

Chief 

Senior Team Leader 

6
 
V. SCHEDULE A 

CAREFIRST BLUECROSS BLUESHIELD 

OWINGS MILLS, MARYLAND 

ADMINISTRATIVE EXPENSE CHARGES 

ADMINISTRATIVE EXPENSE CHARGES 2004 2005 2006 2007 200~ TOTAL 

FEDERAL EMPLOYEE PROGRAM OPERATIONS CENTER I $59,203,709 $68,642,031 $74,392,174 $83,071,253 $90,802,673 $376,111,840