---- - - -

UNITED STATES OFFICE OF PERSO NNEL MANAGEMENT 

Wa~hin glon. DC 20-115 

Oftice of lh,:, 

In,p ~~\llr General March 14, 2011 

MEMORAN DUM FOR JOI-lNllERRY 	 • _ I 1/ 

Oneetor 	 L f1f~\ 

FROM: 	 PA r RlCK E. McFARLAND 0.~ Inspector General P ~ 

SU BJECT: 	 Review of the Payroll Functions Rel ated to the FederaJ 

Employees Health Benefits Program Enrollment Transactions 

for Annuitants (Repon No. I K-RS-OO··II -03..J.) 

Executive Summary 

The U.S. Office of PersOlU1cl Management (OPM ), Office of the Inspector General (O IG) has 

completed a review of the payroll functions rdated to the Federa l Employees Health Benefi ts 

Program (FEHBP) enrollmcnt transactions lo r Federal annuitant.s. All Federal an nuitants. unless 

speclfi call y excludcd by Jawor regulations_ arc eligible to partic ipate in the FEHBP. The 

FEI-IBP is jointly financed by conlributions rrmn the FeJeral Cjovernment and participating 

Federal annuitants throug.h premiums established by law or regu.la tions. 

This report describes the results of our review of OPM·s payroll func ti on related to the FEHBP 

enrollment transactions for annuitants. We found that overall OrM has an effective program to 

monitor employees' hea lth benefits transactions; however, there arc some areas which ni:cd 

improvement. 

111 addition, we identifi ed ano ther matter that needs immediate attention. Based Oil our review, 

we believe that the Centralized Enrollment Clearinghouse system 's (CLER) impact has resulted 

in a signitic ant decrease in ellfolhnent discrepanc ies to lhe point where orM should rcducc . or 

potentially remove, the I percent !ipec ia l premi um rale loading tor enrollment discrepancies 

currentl y offe red to the FEIIBP communi ty-rated carriers. This would rt= sult in tens of mi llions 

of dollars in program savings. 

[ntl-oduction 

OPM has overall authority for administeri ng the FEHBr. OPM's authority tor the program ~ 

cited ill Title 5 of the United States Code. Premiums are collected for Ihe FEHBP annuitants 

through OPM·s payroll office. OPM collects these run d~ and. through the U.S. Treasury. inVl'sts 

and pays ins urance carriers on behalf of the annuitants enrolled in the FEHBP. The fail ure to 

correcily and proll1ptly cotlect and transmit the appropriate amount of funds for the FE1IBP can 

result in the loss of income and increased costs to annuitants ~md , in some instances, the Federal 

Governl11eni. 
Honorable Jolm Berry 2 

Background 

To help resolve enrollment discrepancies, OPM requested the National Finance Center (NFC) to 

design, develop, and implement a system to automate FEHBP enrollment reconciliations 

between Federal agencies' payroll offi ces and the panicipating FEHEP carriers. Accordingly, 

the NFC developed CLER, a Web-based system that receives electronic enrollment data from the 

agencies and the FEHBP carriers to facilitate reconciliation and reporting. Agencies submit 

enrollment data quarterl y to the NFC [or processing in CLER. The FEHBP carri ers submit 

enrollment data quarterly to OPM' s Macon, Georgia data processing center. OPM then transmits 

the data provided by the FEHBP carriers to the NFC for CLER. The NFC is responsible for 

processing the emollment data. maintaining the reconci.I ed data, and assisting in resolving 

discrepancies between tJle payroll offices and tbe FEHBP carrier enrollment records. Once the 

data is processed. agencies review the data, take ap propriate corrective action, and document 

action taken in CLER. The FEHBP carriers are responsible for taking correcti ve action 

requested by the responsible agencies either by the receipt of Form SF-2S09. Health Benefits 

Election Foml; Fom] SF-2S1 0, Noti ce of Change in Heal th Benefits Emollment; or by other 

notification . 

Objectives, Scope, and Methodologv 

The objectives for this review were to detem]ine ifOPM's payroll office for annuitants: 

• 	 accurately and timely processes FEHBP enrollment transactions and tenninations with 

FEHBP carriers; 

• 	 reconciles l'EHBP eruoIIment transactions with CLER; 

• 	 proeesseslresolves reconciliation differences with carri ers; and, 

• 	 veriti es that the ann uitants' withholdings are correct based on th e anl1llitants' health 

carri er selection and type of enrollment (i .e., self only or self and fam ily). 

To accomplish our objecti ves, we obtained an understanding of the controls in place to monitor 

enrollment transactions. We randomly selected a sample of 50 annuitants fo r the pay period 

ending December 3 1,2008 and another 50 annuitants who made changes during the 200S Open 

Season for the pay period effecti ve January 1, 2009. 

Using each alU1Uitant's of1iciallile, the AImuitant Express System (an electronic mechanism 

used by annu itants to make changes to health insurance coverage, taxes, etc.), and OPM's payroll 

records, we conducted tests to: 

• 	 Determine if the health benefit codes indicated on the annuitants' Health Benefits 

Election Form (SF-2S09) agreed with the plan codes rep0l1ed in OPM 's payroll system. 

We also verified that annuitants' withholdings agreed with the offi cial subsc ription rates 

issued by OPM for the plan and option elected by each 31muitant. 
Honorable John Berry 3 

• 	 Detenlline iftbe health benefit codes indicated on the annuitants' Noti ce of Change in 

Health Benefits Enrollment Form (SF-28J 0) agreed with the plan codes reported in 

OPM's payroll system. 

• 	 VerifY that the ann uitants' withholdings agreed with the official subscription rates issued 

by OPM for the plan and option elected by each annuitan t. 

• 	 Determine whether the changes made thro ugh the Annuit ant Express System agreed with 

the plarl codes reported in the OPM payroll system. We also ve rifi ed that the an nuilarlts' 

withholdings agreed ,,\lith the onlcial subscription rates issued by OPM Cor the plan and 

option elected by each arl1luitant. 

• 	 Detemline compliance with applicable laws and regulations. 

We also analyzed the quarterly CLER summaries fo r the quarters endi ng: December 31 , 2008, 

March 3 1, 2009, June 30, 2009, arld September 30, 200910 determine ifOPM was applying 

appropriate procedures in reconciling the FEHBP enrollment transactions in CLER. 

Our review was not conducted in accordance with the Generall y Accepted GovenUllent Auditing 

Standards (GAGAS). The nature arld scope of the work performed was consistent with that 

expected of a GAGAS audit; however, because we consider this to be a review, the 

doc umentation, reporting, arld quality contro l standards are not as stringent. 

Results 

Enrollment Tr'ansactions for Annuitants 

Based on applying the procedures identilied p reviously, we found that OPM has implemented 

appropri ate controls related to enrollment transactions for arllluitants pa11icipating in thc FEHBP. 

However, we did identify an opporhmity fo r improvement. 

Our review revealed that OPM does not have a formal policy fo r reconciling discrepancies on the 

CLER Rep0l1. CatTier Letter No. 2003-34 allows FEHBP carriers to send a disemol lment lette r 

to active employees after a fa il count of tlu'ee or more for the' J60' error code, which occms 

when a calTien eports an enrollment, but no Federal agency reports that enrollmcnt. The Carrier 

Letter defines a fail count as the number of successive quarters that the same disc repancy is 

identified by CLER. The supervisor of thc Retirement Benefits CLER Team instituted an 

informal policy of resolvi ng disc repancies for large FEHBP ca rri ers when the discrepancy was a 

fail count of fi ve, and for small er carri ers with a I'ail count of three. 

For our testing, we selected the Rmal Carrier Bcnefit Plan for the third quarter of 2009 to review 

because we considered it to be a small carrier. Also, bccause of the number of discrepancies. we 

further narrowed our scope of the review to just error code'160.' The reason we selected error 

code '160' was because this error code can result in health claims being paid arld no premiullls 

co ll ected. Our review revealed that there were 1.552 .J60' code discrepancies reported for that 
Honorable John Berry 4 

quarter. Further analysis revealed that 513 of the discrepancies had a fail COWlt of three or less 

and 1,039 ofthe discrepancies had a fail count greater than three. 

It is our opinion that this reflects a low rate for resolving discrepancies in a timely manner. We 

further believe the low rate of resolution is because of OPM's informal policy not to attempt to 

resolve discrepancies until after a fail count of tlu'ee and to not involve the annuitant in the 

resolution process. 

Our review further revealed that 696, or 45 percent, ofthe '160' code discrepancies had a fai l 

count greater than eight, meaning the discrepancies had not been resolved for over two years. 

Also, nine discrepancies had a fail count of30. These discrepancies had 110t been resolved ill 

seven and one-half years. It is our opinion that resolving the'160' code discrepancies in a timely 

manner is crucial. The ' 160' code discrepancy is the main discrepancy that led to the I percent 

load for community-rated carriers. 

While we realize there are differences between active employees and alU1Uitants, our analysis 

showed that for active employees OPM resolved all types of errors ninety-six percent of the time 

within three quarters (fail COWlt of three). 

We believe that there are several reasons for the lower rate of resolving the discrepancies for 

almuitants. The most prevalent is OPM's informal policy not to attempt to resolve discrepancies 

until the discrepancy has occwTed for three quarters. For active employees, attempts to resolve 

discrepancies begin immediately and if the discrepancy appears for three quruters, the FEHBP 

cruTier solicits !lIe help of the enrollee. Tllis is done by having the carrier mail out the "Notice of 

Intent to Disenroll" letter. The assumption is made that if the enrollee is about to lose their 

health insurance coverage they will become very active in trying to resolve the discrepancy. 

CatTier Letter 2003-34 exempts alIDuitants from receiving !lIe "Notice ofIntent to Disenroll" 

letter. We believe that the policy should be the srune for both active employees and almuitants. 

It is our opinion that OPM is not resolving discreprulcies for annuitants ill a timely manner. The 

following are our recommendations: 

Recommendation 1: 

We recommend iliat for annuitants, OPM begin reconciliation efforts for discrepancies on the 

CLER Report after the first occurrence and not wait until the discrepancy appears tlll'ee times for 

small carriers and five times for larger carriers. Waiting to resolve the cllscrepancy can resull in 

premiullls not being withheld from the armuitant's check. 

Recommendation 2: 

We recommend that OPM or the FEHBP carrier either mail !lIe "Notice of Intent to Disenroll" 

letter after a fail count of three to the armuitanls or develop a similar process to encourage 

prompt resolution. We believe tllis procedme is very beneficial in resolving cllscrepancies. 
Honorable John Berry 5 

Recommendation 3: 

We recommend tbat aPM sbould vigorously start resolving discrepancies with the oldest fail 

count. Seven and one-half years is entirely too long for a discrepancy to continue to appear. If 

there is some reason the elTor can not be resolved, aPM should develop a new code to cover 

these situations. 

One Percent Special Premium Loading for Community-Rated Carriers 

aPM anlended the Standard Contract for the Federal Employees Health Benefits Program for 

contract year 1997. Tbe amendment to the contract allowed a J percent special premium load for 

FEHBP community-rated carriers. The 1 percent load was the result of negotiations between 

aPM and the ConJJllwllty-rated carriers. Its purpose was to account for unresolved enrollment 

discrepancies. 

When CLER was implemented in June 2002, one of the major objectives was to resolve 

discrepancies to the point where aPM can remove the 1 percent load. 

After CLER was implemented, the NFC produced a qua11erly report called CLER Production 

Recap. The report listed the tota] records processed by each carrier and the number of records in 

elTor. The report also gave the elTOf rate of each catTier, and the overall error rate. Because our 

main focus is on the elTor rate for conunullity-rated carriers, we had the NFC modify the repol1 

to only include conununity-rated cruTiers. We had this done for the period starting with the 

second quarter of2002 through the first qUat1er of2010. For the second qUat1er of2002, the 

rep0l1ed elTor rate was approximately 23 percent for commuruty-rated carriers. As ofMarch 31 , 

2010 the error rate was approximately four percent (See Attachment 1). The report clearly 

shows that CLER is achieving its objective of identifYing and resolving discrepatlcies. When tbe 

second quru1er of 2002 is compared to the first quarter of 2010, there is an 82 percent reduction 

in the error rate (23-4=19/23=.82). Even though the error rate has dropped significantly, aPM 

has not renegotiated the 1 percent load. 

Based on our inquires, it appears that aPM has not formally analyzed the impact of CLER on 

FEHBP community-rated carrier's enrollment discrepancies. This cOlTesponds to aPM not 

revisiting the possibility ofrenegotiating the special premium load since it was implemented in 

June 1997. As a result of not renegotiating the special premium load, aPM runs the risk of 

paying a cost which is no longer reasonable. 

For calendar yeat· 2008, the total premiums paid to FEHBP community-rated can-iers were 

approximately $6.8 billion. Applying the 1 percent special load to the premium dollars results in 

approximately $68 million paid to the carriers. If the special premium load was renegotiated to, 

for example, one-half of 1 percent, aPM could save approximately $34 million per year, or $340 

million over 10 years. 
Iionorable John Berry 6 

RecoOllllendation 4: 

We reconunend that aPM reenter negotiations with the FEl-IBP can iers to reduce the I percent 

load based on the reduction in enrollment discrepanc ies. 

Recommendulion 5: 

We recommend that the reduction in rale starL with contrac t year 20 12. The cost savings for 

201 2 of reducing the special premi um load to one·lmlf of I percent would be approximately $34 

million. 

Retirement and Benefits' Res ponse: 

Currently, OPl'vl 's Insurance Operations (1 0 ) is cond ucting an enro llment and premium 

info rmation pilo t, operating independentl y fro111 CLER. By usi ng the Enterprise Human 

Resources lnlegration data, the 10 will be able 10 transmit premium data to carriers at the 

individual enrollee level every pay period. We were lold that this efTort wi ll be fully operational 

across mosl agcncics and carriers in 20 II. 

Through our evaluation of this information, the 10 should bl;! able 10 give the FEH BP carriers 

enrollment associated with coll ected premiums. This information would eliminate the need for 

the 1 percent rate loading for comm unity-rated plans. Taking this nction in 201 1 will allow 

OPM to give adequate notice to the carriers prior to 2012 contract rate negoti ations, and will also 

allow adjustments for income shortfall. 

The In surance Operati ons agrees wi th the tu l nature o r lhe Inspector General's nnding and 

agrees that reducing the I percellt load to rates of FEHBP community-rated carriers is 

appropriate (Sec Anachment 2). 

Ole Comment : 

The 010 evaluated the Ins urance Operations' response 10 our No tifi cation of Find ings • .mel 

Recommendations. We concur with their posi tion to eliminale the 1 percent load by using the 

Enterprise Human Resources Integration datu. Also. it is our opinion thai if for some rcason 

there is a delay in ini tiating the new policy, OPM should begin negotiations with the FEHOP 

t:arriers \() reduce the loud starling with contract year 20 12, to reflect th e reduction in enrollment 

discrepancies. 

Please contact me if yo u have any questions regarding th i~ review, or someone 

wish to contact Michael R. Esser. Assistant Inspector Genera l for Audits, at 

Spec ial Assistant to the Assistant Inspector General for AIJdits, 

Attachments 

cc: Christine Griffin 

Deputy Director 
Honorable Jolm Berry 7 

Elizabeth A. Montoya 

Chief of Staff 

U,,·ec'.or, Exec'J1i '"" Secretariat and Ombudsman 

William 13 . Zielinski 


Associate Director, Retirement Sen ices 


John O"Brien 


Director, Healthcare ilnd Insurallce 

rectOr for Federal Employee Insu rance Ope rations 

nlern,,1:lvclrsi!lln and Compliance 

DCDU!V u'uec.o,r. lmemal Oversight and Compliance 

ASiSo·ciatc ['in"",, Employee Services and 


Chief Iluman Capital Officer 

C

•

•

• 

0 

Q. 

25 

I 

J:iMO Carrier:s Error Rate . 

~ 

, 20 

.... 15 

. 

10 

5 ~ 

A 

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0 

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Years 
Attachment 2 

UNfTED STATES OFFICE OF PERSONNEL MANAGEMENT 

WJ.5hingtoll, DC 2.0415 

Retirement and July2 1, 2010 Benefits 

MEMORJU'.JDUM FOR: -

Deputy Assistant inspector General 

TIIROUG H: Will iam Zielinski jJJ~~I/~~ ,

Associate Director ro r Retirement anA;l;fi y....-.....- ...­

FROM: 

Operations 

DATE: Ju ly 2 1.20 10 

SUBJ ECT: RESPONSE TO IG FIND ING ON fl, I-1B I% LOADING 

This is in response to your notificatio n and finding on Special Premium Load for 

Community-Rated Carriers. 

Currently Insurance Opcratio ns (1 0) is (.:o ndllcting an enrollme nt and premium 

infonnalio n pilot, ope rating independently [rom Centra lized enrollment clearing house 

CLl R). By lIsing En terp rise IllImOl n Resources fntegration (EHRI) data, (0 will be able 

to r~tnSlllj t premium data to carriers at the individual en rollee leve l every pay period . 

Th15 effort will be fully operationa l across most agencies and carriers in 20 t J. Through 

our eval uation o f tillS infonnatioll, fa should be able to give ll eallh Plans eiU"ollment 

associated with collected prcmiwn. This illfonnalion would eliminate the need for the 

1% rate loading f:or community rated plans. Taki ng this action in 20 Il will allow us to 

give adequate advanct: notice to the carrie rs prior 10 201 2 contract and rate negotiati ons, 

and will also allow adjustme nts lor income shortfall. 

Insurance Opemtions agrees the factuaL nature of tile Inspector General's finding. 

Ins urance Operations agrees that reducing the 1 % load to rates of f El lB communityrated carriers is approp riate. 

CC: 

www.opm.gov Rccrui!. Retain and Honor a World·Ch ss \\'orkforc~ 10 S~rve lh ~ American People 
OFFfCE OF PERSONNEL MANAGEMENT 

OFFICE OF T HE INSPEC rOR GENERAL 


OFFICE OF AUDITS 


Review of the Payroll Fu nction Related to tbe Federal E mployees Hea lth Benefits 


Prog,·am Eurollment T ransactions for Annuit an ts 


Notifica tio n of Findings and Recommendations CNFR) 

General info rmation: 

We have identified the following issue as a potential finding for inclusion in a draft 

report. We encourage you to provide us with any additional infomlation that may be 

relevant to ensure that the finding presented provides an accurate and fair presentation of 

the issue. If you have any questions, concerns, have additional infonnation for our 

review, or need additional time to respond to this NFR please contact Charles E. Gibbons 

on 606-4720 or charles.gibbons@opm.l!ov or j eff Cole, Deputy Assistant Inspector 

General for Audits at 606-1200 or jcff.coleUUopm.gov. 

-

fssued to: Acting Associate Director 

Approved by: 


N FR number: I 


Dale NFR Issued: 


Subjec t: Special Premium Load for Communi ty-Rated Carriers 


\VIP Reference(s): 


Background : 

OPM amended the Standard Contract for the Federal Employees Heahh Benefits 

Program (FEHBP) for contract year 1997. The amendment to the contract allowed a one 

percent special premium load for community-rated carriers. The one percent load was 

the result of negotiations between OPM and the community-rated carriers to account for 

unresolved enrollment discrepancies. 

To help resolve enrollment discrepancies OPM implemented the Centralized Enrollment 

Reconciliation Clearinghouse (CLER). The purpose o[CLER is to facilitate em·ollment 

reconci liation between Federal payroll o rri ces and health plans to identify and resolve 

discrepanGies~CLER. was implemente..d...June 2002. 

One oftbe major objectives ofCLER W<iS to resolve discrepancies to the point where 

OPM can remove the one percent load. 
Page 2 

Condition : 

When CLER was implemented in June 2002, the National Finance Center (NFC) 

produced a qualterly report caJled the CLER Production Recap. The report listed the 

total records processed by each caiTier and the number of records in error. The report 

also gave the error rate for each carrier, and the overall error rate. Because our main 

focus is on the error rate for community-rated carriers, we had the NFC modify the report 

to only include community-rated carriers. We had this done for the period starting with 

the second qual1er 2002 tlU'ough the first quarter 20 1 O. For the second quarter 2002, the 

reported error rate was approximately 23 percent for community-rated carriers. As of 

March 31,2010 the error rate was approximately 4 percent (see attached graph). The 

reports clearly show that CLER is achieving its objective of identifying and resolving 

discrepancies. When the second quarter 2002 is compared to the first quarter 201 0, there 

is an 82 percent reduction in the error rate (23-4=19/23:0::.82). Even though the error rate 

has dropped significaOlly, OPM has not renegotiated the one percent load. 

C l'it eria; 

FAR 31.201 -3 Detelming Reasonableness: "A COS! is reasonable if, in its nature and 

amount, it does not exceed that which would be incurred by a prudent person in the 

conduct of competitive business." 

C:ltlSe: 

Base on ollr inquiries, it appears that OPM has not formally analyzed the impact ofCLER 

on community-rated carriers' enrollment discrepancies. This corresponds to a PM not 

revisiting renegoti ating the spe.cial premium load since its was implemented in June 

1997. 

Effe ct: 

As a resul t ofl1ot renegotiating the special premium load, OPM runs the risk of paying a 

cost which is no longer reasonable. 

For calendar year 2008, the total premiums paid to community-rated caniers were $6.8 

billion. Applying the one percent special premium load to the premium do llars results in 

------- $68...milliOlLbcing_l2f!i<ito the carriers. lfthe special premium load was renegotiated to 

halfpercent, OPM could save approximately $34 million per year, or $340-million-over --­

10 years. 

Recommendatio n 1: 

We recommend that OPM consider reentering negotiations with the carriers to reduce the 

one percent load based on the reduction in enrollment discrepancies. 
Page 3 

Please indicate your response in the space provided below or as an attachment and return 


to us no later than June 14,2010. Your written response will be considered when 


preparing the draft audit report. 


Audit ec Response: 


/ Management concurs with the factual accuracy of the find ing. 

/ Management does not concur with the factual accuracy of this finding. 

Additionals Comments: 

Signature of Agency Offic· 

4JScU.Jc/Jiltthr - j}jir~ ti 47's 

Title of Agency Official