U.S. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE fNSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

Audit of the Federal Employees Health Benefits
 

Program Operations of Kaiser Foundation Health
 

Plan of Ohio
 'c. 

Report No. lC-64-00-09-003 

Date: December 17, 2009 

-- CAtJTION-­

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distributed copy. 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector Genera1 

AUDIT REPORT
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

Kaiser Foundation Health Plan of Ohio
 

Contract Number 1182 - Plan Code 64
 

Cleveland, Ohio
 

Report No. 1C-64-00-09-003 Da~: December 17. 2009 

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
 

Community-Rated Health Maintenance Organization
 

Kaiser Foundation Health Plan of Ohio
 

Contract Number 1182 - Plan Code 64
 

Cleveland, Ohio
 

Report No. 1C-64-00-09-003 Date: December 17, 2009 

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

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

covered contract years 2006 through 2009 and was conducted at the Plan's office in Cleveland, 

Ohio. The audit showed that the Plan's rating of the FEHBP was developed in accordance with 

applicable laws, regulations, and the Office of Personnel Management's rating instructions for 

the years audited. 

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CONTENTS
 

Page 

EXECUTIVE SUMMARY ' i
 

1. INTRODUCTION AND BACKGROUND 1
 

II. OBJECTIVES, SCOPE, AND METHODOLOGY. 3
 

III. RESULTS OF A·UDIT 5
 

IV. MAJOR CONTRlBUTORS TO THIS REPORT 6
 
I. INTRODUCTION AND BACKGROUND
 

Introduction 

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

at Kaiser Foundation Health Plan of Ohio (Plan). The audit covered contract years 2006 through 

2009 and was conducted at the Plan's office in Cleveland, Ohio. The audit was conducted 

pursuant to the provisions of Contract CS 1182; 5 U.S.c. Chapter 89; and 5 Code of Federal 

Regulations (CFR) Chapter I, Part 890. The audit was performed 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 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 of the 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 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 ContractsfMembers 

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. 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. 

March 31 

9,000 

8,000 

7,000 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

o 

_Contracts 

o Members 

2006 

4,250 

8,512 

2007 

4.097 

7,933 

2008 

4,078 

7,753 

2009 

4,128 

7,712 
The Plan has participated in the FEHBP since 1985 and provides health benefits to FEHBP 

members throughout the Cleveland and Akron metropolitan areas. The last audit conducted by 

our office covered contract years 2002 through 2005. All questioned costs 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 applicable laws, regulations, and instructions, we did not issue a draft 

report. 

2
 
II. 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. 

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 2006 

through 2009. For 2006 through 2008, the FEHBP 

paid approximately $106 million in premiums to the 

Plan. l 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 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 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 Subscription Income Report for 2009 was not available at the time this report was completed. 

3 

FEHBP Premiums Paid to Plan 

$40 

$35 

$30 

$25 

$20 

$15 

$10 

$5 

$0 

.Revenue 
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 ofthe United States. 

The audit fieldwork was performed at the Plan's office in Cleveland, Ohio, during March 2009. 

Additional audit work was completed at our offices in Washington, D. C. and Cranberry 

Township, Pennsylvania. 

Methodology 

We examined the Plan's federal rate submissions and related documents as a basis for validating 

the market price rates. Further, we examined claim payments to verify that the cost data used to 

develop the FEHBP rates were accurate, complete, and valid. 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 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. RESULTS OF AUDIT
 

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

laws, regulations, and OPM's rating instructions to carriers for contract years 2006 through 2009. 

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 

Lead Auditor 

Lead Auditor 

Chief 

Senior Team Leader 

6