US OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPE;CTOR GENERAL 

OFFICE OF AUDITS .. 

. ',' - '".".' "", ". "., - '-.' - '.'"..: ' ..~,. -' .... .: -', " , . - - .. - .:...' .- .' ": -" . . - . . . ',' . . ."' . . . . 

.•. FinalAUdit··;R~p6ft·
 

Subje~l:

D~te:
 

~~CAUTION "~ . . '. ". ". . '. . " . 

. This audit report has beendist~ibutedto'Federai and non-Federal officialswho are responsible for the . 

.. administration of theauditedcontract. This report may contain proprietary data which is protected by 

Federal law (18 UXC, 1905); therefore, while this report is available under the Freedom of Inforination Act, 

caution needs to be exercised before releasing the report to the genenil public. 
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
 

Health Alliance Health Plan
 

Contract Number 1092- Plan Code 52
 

Detroit, Michigan
 

Report No. lC-52-00-09-027 Dak: June 2, 2009 

Michael R. Esser 

Assistant Inspector General 

for Audits 

www.opm.gov www.usaJobs.gov 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

InspectorGeneral 

EXECUTIVE SUMMARY
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

Health Alliance Health Plan
 

Contract Number 1092 - Plan Code 52
 

Detroit, Michigan
 

Report No. lC-52-00-09-027 Date: June 2, 2009 

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

Program (FEHBP) operations at Health Alliance Health Plan (Plan). The audit covered contract 

years 2005, 2007, and 2008 and was conducted at the Plan's office in Detroit, Michigan. The. 

audit showed that the Plan's ratings of the FEHBP were developed in accordance with applicable 

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

audited. 

www.opm.goY www.usajobs.goY 
CONTENTS
 

Page 

EXECUTIVE SUMMARY ~.i

I. INTRODUCTION AND BACKGROUND 1
 

II. OBJECTIVES, SCOPE, AND METHODOLOGy .3
 

III. RESULTS OF AUDIT 5
 

IV. MAJOR CONTRIBUTORS TO rnrs REPORT 6
 
I. INTRODUCTION AND BACKGROUND
 

Introduction 

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

at Health Alliance Health Plan (plan) in Detroit, Michigan. The audit covered contract years 

2005,2007, and 2008. The audit was conducted pursuant to the provisions of Contract CS 1092; 

5 U.S.C. Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Part 890. The audit 

was performed by the Office ofPersonnel 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 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, FeiBP Contracts/Members 

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, OPM 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 ofthe FEHBP. 

The chart to the right shows the number of 

FEHBP contracts and members rep.orted by 

the Plan as of March 31 for each contract 

year audited. 

March 31 

2007 

11,169 

22,948 

2008 

10,332 

22,185 

I
 
The Plan has participated in the FEHBP since 1962 and provides health benefits to FEHBP 

members in Detroit and Southeastern Michigan. The last audit conducted by our office covered 

contract year 2006. As a result ofthat audit, we found that the Plan's rating of the FEHBP was in 

accordance with the applicable laws, regulations and aPM rating instructions for the years 

audited. 

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 the 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 2005, 

2007, and 2008. Forthese contract years the FEHBP 

paid approximately $257 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 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 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. 

FEHBP Premiums Paid to Plan 

$90 

$80 

$70 

• 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 of the data generated by 

the various information systems involved. However, nothing came to our attention during our 

audit testing utilizing the corriputer-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 Detroit, Michigan during February 

2009. Additional audit work was completed at our offices 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 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 2005, 2007, and 

2008. 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 

Senior Team Leader 

Chief 

6