U.S. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Au.dlt Report 

.Subject: 

Audit oftbeFederalEmployees fl~althBenefits.. . ", c ,_.' . 

···.Progr~m Operatio~lS of Kaiser FQl1Ii<l3tionHealth .. ·. . .... . PIall, Inc.H3waiiRegion . . 

Report No. 1<::-63-00~09~034

Date: Aug~st 6,2009

-- CAUTION,.­ . . 

.Thislludit reporl has been distributed to Federlll.oflicials who ar~ responsible for the administration of the audited program. This 

audit report may contain proprietary data which isprotetted by Federal law (18 U.S.c. [905). Ther:efore, while this aUi:!il reporlh 

available under the Freedom of ~llformalion Act and made available to the public On the OIC webpage, caution needs to be exercised 

before releasing the report to the general public as it may contain rroprielary information that w'asrcdaCled from tlie pUblicly· 

dislti bUled copy. 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

rnspector General 

AUDIT REPORT
 

Federal Employees Healtb Benefits Program 

Commuuity-:Rated Health Maintenance Organization 

Kaisci' Foundatioll Health Plan, Inc. Hawaii Region 

Contract Numbcl' 1060 - Plan Code 63 

Honolulu, Hawaii 

Report No. 1C-63-00-09-034 Date: August 6, 2009 

2l?FrL-


Michael R. Esser 

Assistant InspectOi' Gencl'al 

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 ))Ian, Inc. Hawaii Region
 

Contract Number] 060 - Plan Code 63
 

HOllolulu, Hawaii
 

Repol-t No. IC-63-00-09-034 Date: Aug}] st 6, 2009 

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

Program (FEHBPl operations at Kaiser Foundation Health Plan, Inc. Hawaii Region (Plan). The 

audit covered contract years 2006 through 2008 and was conducted at the Plan's office in 

Honolulu, Hawaii. The audit sho\ved that the Plan's rating of the FEHBP was in accordance 

with applicable laws, regulations, ancl the Office of Personnel Management's rating instructions 

for the years audited. 

www.opm.gov www.usajobs.gov 
CONTENTS
 

Page 

EXECUTIVE SUMMARY , .i
 

1. INTRODUCTION AND BACKGROUND 1
 

II. OBJECTIVES, SCOPE, AND METHODOLOGY 3
 

III. RESULTS OF AUDIT 5
 

N. 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, Inc. Hawaii Region (Plan). The audit covered contract years 

2006 through 2008 and was conducted at the Plan's office in Honolulu, Hawaii. The audit was 

conducted pursuant to the provisions ofContract CS 1060; 5 U.S.C. Chapter 89; and 5 Code of 

Federal Regulations (CFR) Chapter 1, Part 890. The audit was pelformed 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 OPM through regulations codified in Chapter I, 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 caniers 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 Contracts/Members 

FEHBP subjects the carriers to the Federal Employees March 31 

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 ofthe 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. 

TIle 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. 

2008 

8,089 

2007 

8,496 

2006 

8,696 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

a 

16,000 

14,000 

• Contracts 

o Members 15,822 15,418 15,242
The Plan has participated in the FEHBP since 1960 and provides health benefits to FEHBP 

members throughout the islands .of Kauai, Maui, Oahu, and Hawaii. The last full-scope audit 

covered contract years 2000 through 2005. There were no findings. 

The prcIirninary 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 ofthe 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 wen~ 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. 

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 2008. For these contract years, the FEHBP paid 

approximately $172.6 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 ofinternal 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. 

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 

3 

FEHBP Premiums Paid to Plan 

$0 

$50 

$25 

$75 

• Revenue
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 Honolulu, Hawaii, during March 2009. 

Additional audit work was completed at our office in Washington, D.C. 

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 ifthe 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 of the Plan's rating 

system. 

To gain an understanding ofthe 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 ne<;:essary 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 2008. 

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

necessary. 

5
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Community-Rated Audits Group 

Auditor-In-Charge 

Lead Auditor 

Senior Team Leader 

CRAG Group Chief 

6