-- CAUTION -- 

This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit 

report may contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available 

under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before 

releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy. 

U.S. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report

Subject: 

Audit of the Federal Employees Health Benefits 

Program Operations at SelectHealth 

Report No. 1C-SF-00-14-014 

Date: 
-- CAUTION -- 

This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit 

report may contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available 

under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before 

releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy. 

 

AUDIT REPORT 

 

 

 

 

 Report No. 1C-SF-00-14-014 Date: _________________ 

 

 Michael R. Esser 

 Assistant Inspector General 

 for Audits 

Federal Employees Health Benefits Program

Community-Rated Health Maintenance Organization

SelectHealth

Contract Number CS 2925 - Plan Code SF

Murray, Utah
i 

 

 EXECUTIVE SUMMARY

 

 

 

 Report No. 1C-SF-00-14-014 Date:

The Office of the Inspector General performed a rate buildup audit (RBA) of the Federal 

Employees Health Benefits Program (FEHBP) operations at SelectHealth (Plan). The Plan 

elected to participate in the 2012 Medical Loss Ratio (MLR) Pilot Program offered to FEHBP 

carriers. The RBA covered the 2012 FEHBP premium rate development, and was conducted at 

the Plan’s office in Murray, Utah. We found that the FEHBP premium rates were developed 

using accurate, complete and current data, and in accordance with the Plan’s standard rating 

methodology. We also found that the FEHBP premium rates were developed in accordance with 

the Office of Personnel Management’s rules and regulations in contract year 2012. 

Federal Employees Health Benefits Program

Community-Rated Health Maintenance Organization

SelectHealth

Contract Number CS 2925 - Plan Code SF

Murray, Utah
CONTENTS 

 Page 

 EXECUTIVE SUMMARY .............................................................................................. i 

 I. INTRODUCTION AND BACKGROUND ................................................................... 1

II. OBJECTIVES, SCOPE, AND METHODOLOGY ......................................................... 3

III. RESULTS OF THE AUDIT ............................................................................................ 5

IV. MAJOR CONTRIBUTORS TO THIS REPORT............................................................ 6

 
1

I. INTRODUCTION AND BACKGROUND

Introduction 

We completed a rate buildup audit (RBA) of the Federal Employees Health Benefits Program 

(FEHBP) operations at SelectHealth (Plan). The Plan elected to participate in the 2012 Medical 

Loss Ratio (MLR) Pilot Program offered to FEHBP carriers. The RBA covered the 2012 

FEHBP premium rate development, and was conducted at the Plan’s office in Murray, Utah. 

The RBA was conducted pursuant to the provisions of Contract CS 2925; 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 (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 Healthcare and Insurance Office. 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. 

Under OPM’s MLR methodology, the premium rates 

charged to the FEHBP are to be developed in 

accordance with OPM Rules and Regulations and the 

Plan’s state-filed standard rating methodology (or if 

the rating method does not require state filing, the 

Plan’s documented and established rating 

methodology). All FEHBP pricing data are to be 

supported by accurate, complete and current 

documentation. 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. 

2012

Contracts 568

Members 1,794

0

250

500

750

1,000

1,250

1,500

1,750

2,000

FEHBP Contracts/Members 

March 31
2

The chart above shows the number of FEHBP contracts and members reported by the Plan as of 

March 31, 2012. 

The Plan has participated in the FEHBP since 2011, and provides health benefits to FEHBP 

members in Northern and Southern Utah. This was our first audit of this Plan. 

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

in subsequent correspondence. Since the RBA concluded that the Plan’s rating of the FEHBP 

was in accordance with its standard rating methodology, as well as applicable laws, regulations, 

and OPM’s Rate Instructions to Community-Rated Carriers (rate instructions), a draft report was 

not issued. 
3

II. OBJECTIVES, SCOPE, AND METHODOLOGY 

Objectives 

The primary objective of this performance audit is to determine whether the Plan is in 

compliance with the provisions of its contract and the laws and regulations governing the 

FEHBP related to premium rate development. Specifically, we verified that the plan offered a 

fair premium rate, based on its underwriting guidelines, rating methodology and OPM rules and 

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

with the provisions of the laws and regulations governing the FEHBP. 

Scope 

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 the FEHBP premium rate development charged for contract year 

2012. The RBA did not include tests of the Plan’s MLR calculations and will remain subject to 

future audit. For this year, the FEHBP paid approximately $8.0 million in premiums to the Plan. 

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

contract, applicable laws and regulations, and the 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 of the 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 rates charged the FEHBP are developed in 

accordance with the Plan’s standard rating methodology and the claims, factors, trends, and other 

related adjustments are supported by complete, accurate and current source documentation. 

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. 
4

The audit fieldwork was performed at the Plan’s office in Murray, Utah during November 2013. 

Additional audit work was completed at our office in Cranberry Township, Pennsylvania.

Methodology 

We examined the Plan’s standard rating methodology and practices as a basis for validating its 

federal rate submission and related documents. In addition, we verified that the factors, trends, 

and other related adjustments used to determine the FEHBP premium rates were supported by 

accurate, complete and current source data. Further, we also examined claim payments to verify 

that the pricing data used to develop the FEHBP rates was accurate, complete and current. 

Finally, we used the contract, the Federal Employees Health Benefits Acquisition Regulations, 

and the rate instructions 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 policies and procedures, interviewed appropriate Plan officials, and 

performed other auditing procedures necessary to meet our audit objectives. 
5

III. RESULTS OF THE AUDIT

Our audit showed that the pricing data used to develop and support the FEHBP premium rates 

were accurate, complete and current, and was in accordance with applicable laws, regulations, 

rate instructions and the Plan’s standard rating methodology for contract year 2012. 

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

necessary. 
6

IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Community-Rated Audits Group 

, Auditor-in-Charge 

 Chief 

 Senior Team Leader