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.US·OFFICE OF PERSONNELMANAGEM:ENT 

··OFFICEOFTHEINSPECTORGENERAL . 

... .. OFFICE OF AuDITS 

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This.auditreport bas been.distritmtedto Federalandnon~Federal (tfficials~ M are responsible for Jhe
 

.a~lDipistr8:tionortht. aUdited contract. This report may co.-tain proprietary ~ata which is protect~dbr
 

.	 Federlillaw (IS UoS.C.190S); therefore, while this report is. available under the Freedoll1of Information Act, 

caution needs to be exercised before releasing the re~ort to the general public. . 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

AUDIT REPORT
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

Kaiser Foundation Health Plan of Colorado
 

Contract Number 1268 Plan Code 65
 

Aurora, Colorado
 

Report No. lC-65-00-08-057 Date: January 30 ( ·2009 

~ez. Michael R. Esser 

Assistant Inspector General 

for Audits 

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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington. DC 20415
 

Office of the 

Inspector General 

EXECUTIVE SUMMARY
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

Kaiser Foundation Health Plan of Colorado
 

Contract Number 1268 - Plan Code 65
 

Aurora, Colorado
 

Report No. lC-65-00-08-057 Date: January 30 ( 2009 

The Office of the Inspector General perfonned an audi10fthe Federal Employees Health Benefits 

Program (FEHBP) operations at Kaiser Foundation Health Plan ofColorado (Plan). The audit 

covered contract years 2005 through 2008 and was conducted at the Plan's office in Aurora) 

Colorado. The audit showed that the Plan's rating ofthe FEHBP was in accordance with 

applicable laws) regulations, and the Office ofPersonnel Management's rating instructions for 

the years audited. 

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CONTENTS
 

Page·
 

EXECUTIVE SUMMARy , i
 

I. INTRODUCTION AND BACKGROUND I
 

II. OBJECTIVES, SCOPE, AND METHODOLOGy 3
 

III. RESULTS OF AUDIT 5
 

IV. MAJOR CONTRIBUTORS TO THIS REPORT , 6 
I. INTRODUCTION AND BACKGROUND
 

Introduction 

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

at Kaiser Foundation Health Plan of Colorado (Plan). The audit covered contract years 2005 

through 2008 and was conducted at the Plan's office in Aurora, Colorado. The audit was 

conducted pursuant to the provisions of Contract CS 1268; 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 

Center for Retirement and Insurance Services. The provisions ofthe Federal Employees Health 

Benefits Act are implemented by aPM through regulations codified in Chapter 1, Part 890 of 

Title 5, CFR. Health insurance coverage is provided through contracts with 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 subject to the Health Maintenance Organization Act of 1973 (Public Law 93­

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

participation in the FEHBP subjects the carriers to the Federal Employees Health Benefits Act 

and implementing regulations promulgated by OPM. 

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

which March 31 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 of the 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. 

2007 

15,283 

30,938 

2008 

14,979 

30,162 
The Plan has participated in the FEHBP since 1969 and provides health benefits to FEHBP 

members throughout the Metropolitan Denver/Boulder and Colorado Springs areas. The last 

full-scope audit covered contract years 2000 through 2003. All questionedcosts associated with 

that audit have been resolved. 

The preliminary results of this audit were discussed with Plan officials at an exit conference and 

through subsequent correspondence. Since the audit showed that the Plan's rating of the FEHBP 

was in accordance with the applicable laws, regulations, and instructions, we did not issue a draft 

report. 

2
 
II. OBJECTIVES, SCOPE, AND METHODOLOGY
 

Objectives 

The primary objectives ofthe audit were to verify that the Plan offered market price rates to the 

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

Additional tests were performed to determine whether the Plan was in compliance with the 

provisions ofthe 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 sufficient, appropriate evidence to 

provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis 

for our findings and conclusions based on our audit 

objectives. 

This performance audit covered contract years 2005 

through 2008. For contract years 2005 through 2007, the
 

FEHBP paid approximately $380.7 million in premiums to the Plan!.
 

The premiums paid for each contract year audited are shown on the chart to the right.
 

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP
 

contract, applicable laws and regulations, and OPM rate instructions. These audits are also
 

designed to provide reasonable assurance of detecting errors, irregularities, and illegal acts.
 

We obtained an understanding 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 ofthe 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 in 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 SSSGs); and 

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

I The 2008 premiums were not available as ofthe date of this report. 

3 
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 Aurora, Colorado, during September 

and October 2008. Additional audit work was completed at our office in Cranberry Township, 

Pennsylvania. 

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 determine if the market price was actually charged 

to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition 

Regulations, and OPM's Rate Instructions to Community-Rated Carriers to determine the 

propriety ofthe FEHBP premiums and the reasonableness and acceptability ofthe 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
 
III. RESULTS OF AUDIT
 

Our audit showed that the Plan's rating ofthe FEHBP was in accordance with the applicable 

laws, regulations, and OPM's rating instructions to carriers for contract years 2005 through 2008. 

Consequently, the audit did not identify any questioned costs and no corrective action is 

necessary. 

5
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Community-Rated Audits Group 

Auditor-In-Charge 

Auditor 

, Auditor 

Senior Team Leader 

, Chief 

6