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US OFFICE OF PERSONNEL MANAGEMENT 

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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
 

Community-Rated Health Maintenance Organization
 

Aetna Open Access
 

Contract Number CS 2867 - Plan Code RD
 

Blue Bell, Pennsylvania
 

Report No. lC-RD-OO-08-056 Da~: March 26, 2009 

Michael R. Esser 

Assistant Inspector General 

for Audits 

www.opm.goY www.usa)obs.goY 
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
 

Aetna Open Access
 

Contract Number CS 2867 - Plan Code RD
 

Blue Bell, Pennsylvania
 

Report No. lC-RD-OO-08-056 Date; March 26 ( 2009 

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

Benefits Program (FEHBP) operations at Aetna Open Access - Plan Code RD (Plan). The audit 

covered contract years 2003 through 2008 and was conducted at our office in Cranberry 

Township, Pennsylvania. This report questions $86,743 for inappropriate charges to the FEHBP 

in 2005 and 2008l including $6,030 for lost investment income. We found that the FEHBP rates 

were developed in accordance with the applicable laws, regulations, and the Office of Personnel 

Management's rating instructions in contract years 2003, 2004, 2006, and 2007. 

We determined that the FEHBP rates were overstated by $25,886 for contract year 2005 because 

the Plan incorrectly charged the FEHBP an open access loading on the mental health benefits. In 

addition, the FEHBP rates were overstated by $54,827 for contract year 2008 because the Plan 

did not completely apply a similarly sized subscriber group discount to the FEHBP's rates. 

Consistent with the FEHBP regulations and contract, the FEHBP is due $6,030 for lost 

investment income, calculated through December 31, 2008, on the defective pricing findings in 

2005 and 2008. The Plan agreed with the findings and remitted a check for $86,743. 

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 RECOMMENDAnONS 5
 

Premium Rates 5
 

1. Defective Pricing	 5
 

2. Lost Investment Income	 6
 

IV.	 MAJOR CONTRIBUTORS TO THIS REPORT 8
 

Exhibit A (Summary of Questioned Costs)
 

Exhibit B (Defective Pricing Questioned Costs)
 

Exhibit C (Lost Investment Income)
 

Appendix (Aetna's March 6, 2009, response to the draft report)
 
8,000 

1"1' 

7,000 F: 

6,000 1< 

5,000 I""! 

4,000 o!J; 

3,000 I:: 

2,000
 Jt .-

I­

~I .. .. 2003 2004 1I .

,.... 

1,000
 .. ;;; 2005 2006 2007 2008 " 

I_ Contracts 1,794 2,116 3,121 3,221 2,828 3,257

10 Members 3,785 4,783 6,259 7,429 5,783 6,172

I. INTRODUCTION AND BACKGROUND
 

Introduction 

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

at Aetna Open Access - Plan Code RD (Plan) in Blue Bell, Pennsylvania. The audit covered 

contract years 2003 through 2008. The audit was conducted pursuant to the provisions of 

Contract CS 2867; 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 of 

the Inspector General, 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 various 

health insurance carriers that 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 is defined as the best rate offered to 

March 31 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 of the 

FEHBP. 

The chart to the right shows the number of 

FEHBP contracts and members reported by the 

Plan for March 31 of each contract year 

­

audited. 

I
 
The Plan began participating in the FEHBP in 1983 and provides health benefits to FEHBP 

members throughout the greater Cincinnati, Ohio area. The last audit ofthe Plan conducted by 

our office was a rate reconciliation audit of contract year 2002. As a result ofthat audit, we 

found that the Plan's rating ofthe FEHBP was in accordance with the applicable laws, 

regulations and aPM rating instructions for the year audited. 

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

through 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 final 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 laws and regulations governing the FEHBP. 

We conducted this performance audit in 

accordance with generally accepted 

government auditing standards. Those 

standards require that we plan and perform the 

audit to obtain 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 

2003 through 2008 1

• For contract years 2003 

through 2007, the FEHBP paid approximately $102 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 conununity-rated carriers are designed to test carrier compliance with 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 ofthe 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 systems and such other auditing procedures as we 

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 an SSSG); and 

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

I The Subscription Income Report for 2008 was not available at the time this report was completed. 

FEHBP Premiums Paid to Plan 

$27 

$22 

$17 

$12 

$7 

$2 

• Revenue 

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 ofthe 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 performed in accordance with generally accepted government auditing standards, 

issued by the Comptroller General of the United States. 

The audit fieldwork was conducted 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 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 

deteniline 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
 
III. AUDIT FINDINGS AND RECOMMENDATIONS
 

Premium Rates 

1. Defective Pricing $80,713 

The Certificates of Accurate Pricing the Plan signed for contract years 2005 and 2008 were 

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

adjustment for each year. We applied the defective pricing remedies for the years in question 

and determined that the FEHBP is entitled to premium adjustments totaling $80,713 (see 

Exhibit A). We found that the FEHBP rates were developed in accordance with the 

applicable laws, regulations, and OPM rating instructions in contract years 2003,2004,2006, 

and 2007. 

Carriers proposing rates to OPM are required to submit a Certificate ofAccurate Pricing 

certifying that the proposed subscription rates, subject to adjustments recognized by OPM, are 

market price rates. OPM regulations refer to a market price rate in conjunction with the rates 

offered to an SSSG. If it is found that the FEHBP was charged rates that exceeded the 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. 

In contract years 2003 through 2008, the Plan used an adjusted community rating (ACR) 

methodology to develop the FEHBP rates. In some contract years, the SSSG rates were 

developed using a blend of an ACR methodology and a community-rating-by-class 

methodology. This only applied to groups that had an experience credibility that was Jess than 

100 percent. The ACR methodology is based on group specific claims experience, which is 

adjusted by factors such as trends, benefit changes, high-dollar claims, retention, and 

administrative fees to determine the required per-member-per-month (PMPM) revenue needed 

for the renewal period. The current billed rates and enrollment by tier are used to obtain the 

current PMPM. Once the current PMPM is calculated, the total is divided by the required 

PMPM to determine the percentage of rate increase or decrease. Each tier ofthe current billed 

rates is multiplied by the percentage increase or decrease to arrive at the groups' renewal 

rates. 

We agree with the Plan's selection of 

as the SSSGs for contract year 2005. Our analysis ofthe rates 

charged to the SSSGs shows that neither 

received a discount. 

In reviewing the FEHBP rates, we noted that the Plan charged the FEHBP an open access 

loading on its mental health benefits. The 2005 FEHBP benefit brochure states "Aetna offers 

Open Access to our members ...You can go directly to any network specialist for covered 

services without a referral from your primary care physician. Note: This does not apply to 

mental health and/or substance abuse services." The Plan did not remove the open access 

5
 
loading from the mental health or substance abuse sections of the benefit change factor 

calculation. Therefore, we changed the mental health and substance abuse open access factors 

from~o _ By removing the open access loading from the mental health and 

substance abuse benefits, the 2004 to 2005 benefit change percentage was reduced from the 

Plan-stated.percent to our audited .percent. 

We re-developed the FEHBP's rates by removing the open access loading from the mental 

health and substance abuse benefits. A comparison of our audited line 5 rates to the Plan's 

reconciled line 5 rates shows that the FEHBP was overcharged $25,886 in 2005 (see Exhibit 

B). 

We agree with the Plan's selection of as the SSSGs for
 

contract year 2008. Our analysis of the rates charged to the SSSGs shows that _
 

_ received a • percent discount, ofwhich. percent was applied to the
 

FEHBP's rates by the Plan in its rate reconciliation. _did not receive a discount.
 

The Plan originally calculated a_percent discount given to 

applied it to the FEHBP's rates. However, we determined that as 

only charged for a 20 visit limitation for physical and occupational therapies, while the group 

actually received a 40 visit limitation. Therefore, we changed the 20 visit limitation factor of 

•••to the 40 visit limitation factor of_inthe benefit change workbook. This change 

in factors caused the actual discount to increase from" percent to.percent. 

We fe-developed the FEHBP's rates by applying the.percent discount that _ 

_ received to the FEHBP's rates. A comparison of our audited line 5 rates to 

the Plan's reconciled line 5 rates shows that the FEHBP was overcharged $54,827 in 2008 

(see Exhibit B). 

Recommendation 1 

After receiving the draft report, the Plan returned $80,713 to the FEHBP for defective pricing 

in contract years 2005 and 2008. Since we verified that the Plan returned $80,713 to the 

FEHBP, no further action is required. 

2. Lost Investment Income $6,030 

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 2005 and 2008. We determined that the FEHBP is due $6,030 for lost
 

investment income, calculated through December 31, 2008 (see Exhibit C).
 

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 Certificate of Accurate Pricing, the rate shall 

6
 
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 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. 

Recommendation 2 

After receiving the draft report, the Plan returned $6,030 to the FEHBP for lost investment 

income on the defective pricing findings in contract years 2005 and 2008. Since we verified 

that the Plan returned $6,030 to the FEHBP, no further action is required. 

Plan's Comments (See Appendix): 

The Plan agrees with the defective pricing findings and the calculated lost investment income 

and submitted payment in the full amount of$86,743 ($80,713 + $6,030). 

7
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT
 

Community-Rated Audits Group 

Auditor-in-Charge 

Auditor 

Auditor 

Auditor 

Auditor 

Chief 

_ Senior Team Leader 

8
 
Exhibit A 

Aetna Open Access - Plan Code RD 

Summary of Questioned Costs 

Defective Pricing Questioned Costs: 

Contract Year 2005 

Contract Year 2008 

$25,886 

$54,827 

Total Defective Pricing Questioned Costs $80,713 

Lost InvesbnEmt Income 

Total Questioned Costs $66.743 
Exhibit B 

Aetna Open Access - Plan Code RD
 

Defective Pricing Questioned Costs
 

FEHBP Line 5 - Reconciled Rate 

FEHBP Line 5 Audited Rate 

Overcharge 

To Annualize Overcharge: 

3/31/05 enrollment 

Pay Periods 

Subtotal 

Total 2005 Defective Pricing Questioned Costs $25,886 

FEHBP Line 5 - Reconciled Rate 

FEHBP Line 5 - Audited Rate 

Overcharge 

To AmlUalize Overcharge: 

3/31/08 enrollment 

.P~y Periods 

Subtotal 

Total 2008 Defective Pricing Questioned Costs $54,82'7 

Total Defective Pricing Questioned Costs fSO,V3 
EXHIBITC 

Aetna Open Access· Plan Code RD
 

Lost InYestment Income
 

2008 

Audit Findinl!s: 

I, Defective Prici ng :1\0 $0 $25,886 $0 $0 $54,827 

Year 2003 2004 2005 2006 2007 

Totals (per year): $0 SO $25,886 SO $0 $54,827
 

Cumulative Totals: $0 $0 $25,886 $25,886 $25.886 $80,713
 

Avg. IntereSl Rate (per year): 3.6875% 4,250% 4.375% 5.4375% 5.5000% 4.9375%
 

Interest on Prior Years Findings'. SO SO $0 $1,408 SI,424 $1,278
 

Currenl Years Interest: $0 $0 $566 $0 SO SI,354
 

Total Cumulative [nrerest Calculated
 

Through December 31, 2008: $0 SO $566 $1,408 $1,424 S2,6321
 

Total 

:1\80,713 

$25,886 

$25,886 

$4,110 

S1,920 

$6,030 

I 
Appendix 930 Harvest Drive 

)~ Aetna" Mail Stop: U32N 

Blue Bell.PA 19422 

2009 HAR 16 MI 7: 39 

FEHBP Underwriting Manager 

National Accounts 

215-775-7004 

March 6, 2009 

Chief, Community-Rated Audits Group 

U.S. Office'ofPersonnel Management 

Office of the Inspector General 

1900 E Street. NW - Room 6400 

Washington, D.C. 204] 5-1100 

RE: Aetna's response to Draft Audit Report IC-RD-00-08-056 

DeaJ'_ 

Aetna agrees with the findings in the Draft Audit Report for Aetna Open Access Cincinnati ­

Plan Code RD (] C-RD-OO-08-056) under the Federal Employees Health Benefits Prog.ram. 

Enclosed. please find a check in the amount of $86.743. 

Please feel free to contact me with any questions at (215) 775-7004. 

FEHBP Underwriting