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 Coventry Health Care of
 

Louisiana
 

Report No. lC-BJ-OO-ll-008 

Date: March 24, 2011 

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

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copy. 
UNITED STATES OFfICE OF PERSONNEL MAKAGEMENT 

\Vashingl\lll. DC :!04J)" 

Ofti ....'c of the 

Jn~p<.'Ltor General 

AUDIT REPORT
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

Coventry Health Care of Louisiana
 

Contract Number 2050 - Plan Code BJ
 

St. Louis, Missouri
 

Report No. IC-BJ-00-ll-008 Date: 3/24/2011 

Michael R. Esser 

Assistant Inspector General 

for Audits 

www,opm.gov www.usajobs.gov 
UNITED STATES OFFICE OF PERSONNEL '\1ANAGEMENT
 

W;:.t:-,hinglon. DC 2().;1.15
 

Oftice llf the 

Impector General 

EXECUTIVE SUMMARY
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

Coventry Health Care of Louisiana
 

Contract Number 2050 - Plan Code BJ
 

St. Louis, Missouri
 

Report No. lC-BJ-00-ll-008 Date: 3/24/2011 

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

Program (FEHBP) operations at Coventry Health Care of Louisiana (Plan). The audit covered 

contract years 2007 through 2010 and was conducted at the Plan's of1ice in SI. Louis, Missouri. 

We found that the FEHBP rates were developed in accordance with applicable laws, regulations, 

and the Ot1ice ofPersonnel Management's rating instructions for the years audited. 

www.opm.goY www,usajobs.gov 
CONTENTS
 

Page 

EXECUTIVE SUMMARY .i
 

I. INlRODUCTION AND BACKGROUND 1
 

11. OBJECTIVES, SCOPE, AND METHODOLOGY 3
 

III. RESULTS OF THE AUDIT 5
 

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

Introduction 

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

at Coventry Health Care of Louisiana (Plan). The audit covered contract years 2007 through 

2010 and was conducted at the Plan's office in St. Louis, Missouri. The audit was conducted 

pursuant to the provisions of Contract CS 2050; 5 U.S.C. Chapter 89; and 5 Code of Federal 

Regulations (CFR) Chapter I, Part 890. The audit was perfonned 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 

Healthcare and Insurance Office. The provisions of the 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 various health insurance carriers 

that 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 Contracts/Members 

which March 31 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. 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. 

5,000 

4.000 

2007 

• Contracts 1, 722 

o Members 4,028 

2008 

1,652 

3,776 

2009 

1,438 

3,149 

2010 

1,270 

2,646 
The Plan has participated in the FEHBP since 1986 and provides health benefits to FEHBP 

members throughout the New Orleans area. The last audit conducted by our office was a rate 

reconciliation audit for contract year 2006. We agreed with the Plan's 2006 proposed reconciled 

rates. 

The preliminary results ofthis 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 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 olTered 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 perforn1ance 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 2007 

through 2010. For contract years 2007 through 2009, the 

FEHBP paid approximately $43.8 million in premiums 

to the Plan. I 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 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. 

I The premiums paid report for 2010 was not available at the time this report was completed. 

3 

FEHBP Premiums Paid to Plan 

• 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 ofthe 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 performed in accordance with generally accepted governrnent auditing standards, 

issued by the Comptroller General of the United States. 

The audit fieldwork was performed at the Plan's office in St. Louis, Missouri, during November 

20 IO. Additional audit work was completed at our offices in Jacksonville, Florida, and 

Washington, D.C. 

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 was 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 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 necessary to meet our audit objectives. 

4
 
III. RESULTS OF THE AUDIT
 

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

regulations, and OPM's rating instructions to carriers for contract years 2007 through 2010. 

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 

Chief 

eamLeader 

6