REPORT ON EXAMINATION OF GOVERNMENT EMPLOYEES HEALTH ASSOCIATION CONTRACT CS 1065 FOR THE PERIOD FROM NOVEMBER 1, 1961 THROUGH OCTOBER 31, 1962

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87-00868R000100090025-0
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 11
• Document Creation Date: December 22, 2016
• Document Release Date: August 20, 2009
• Sequence Number: 25
• Publication Date: October 31, 1962
• Content Type: REPORT

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IN REPLY PLEASE REFER TO
UNITED STATES CIVIL SERVICE COMMISSION
BUREAU OR RETIREMENT AND INSURANCE
WASHINGTAN 25, D.C.
President
Government Employees Health Associa-~ion
P. 0. BOX ~63
Washington 4, D. C.
RS: #tW0 : pal .
the books and records of the Mutual of Omaha Insurance Company at Omaha,
Nebraska, and the General Agent at Washington, D. C. applicable to the STAT
Government Employees Health Association operations under the health
benefit program were examined in accordance with. section 11(b) of the
Federal. Employees Health Benefits Act of 1959 and paragraph q of Con- STAT
tract CS 1065. Copies of the report covering the results of the ex-
amination of the second contract term Annual Accounting Statement are
enclosed.
As a result of the examination covering the first contract term certain
adjustments-were recommended which were properly incorporated into the
.Annual Accounting Statement for the .second contract period. As noted
in the report, certain adjustments for the second contract term are to
be ineluded'in the Annual Accounting Statement for the third contract
term.
Tlie officers and employees of "Mutual" and the Agent were again most
courteous to and cooperative with the members of my staff during the
examination.
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REPORT ON EXAMINATION
OF
GOVERNMENT EMPLOYEES HEALTH ASSOCIATION
CONTRACT CS 1065
FOR THE PERIOD FROM NOVEMBER 1, 1961 THROUGH OCTOBER 31, 1962
Systems and Audits Office
Bureau of retirement and Insurance
U, S., Civil Service Commission
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REPORT ON EXAMINATION
OF
GOVERNMENT EMPLOYEES HEALTH ASSOCIATION
CONTRACT C5 1065
FOR THE PERIOD FROM NOVEMBER 1, 1961 THROUGH OCTOBER 31, 1962
.The Government Employees Health Association, an employee organization
with headquarters in Washington, DEC., contracted with the Commission in
Contract CS 1065 under section 4(3) of the Federal Employees Health Benefits
Act of 1959 to offer members of the Association an indemnity-type. health
plan for the period July 1, 1960 to October 31, 1962. Representatives of
the U.S, Civil Service Cgmmission examined the Plan's accounting state-
ment together with its related exhibits and records as of October 31, 1962
for the second contract period then ended..
General Comments
The Association administers the contract which is underwritten by the
Mutual of Omaha Insurance Company at Omaha, Nebraska. The Underwriter`s
Policy provides that all financial and statistical reports sha11 be
furnished as requested by~the Commission. Subscriptions were received by.
the Association and forwarded to the Underwriter`s Home Office at Omaha,
Nebraska via the Underwriter`s Agent at Washington, D.C,
For the contract period the Plan earned subscription charge income
totalling $1,680,684. Of-this amount the Plan reported $1,398,426 as
charges for health services and $137,991 for administrative expenses,
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taxes, commissions and risk charges. The Plan had a carry-forward loss of
$98,000 from the first contract period, At the end of the second contract
period the Plan held $46,266 in its Special Reserve to be used for charges
against this contract in subsequent periods, In addition, the Contingency
Reserve being held by the Commission for the. Plan, including interest
credits amounted to $111,689.
The Underwriter's books. of account were maintained in conformity
with the generally accepted principles of accounting; however, certain
adjustments were necessary as a result of the examination.
Accounting Statement
The Plan's accounting statement and supporting schedules of adminis-
trative expense appear in the report under EXHIBITS A-C, The adjustments
that were made during the examination appear in the report under
APPENDIX B,
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Health Benefits
Payments for health benefits during the second contract period
amounted to of which 6l% represented hospitalization
charges and 39% represented physicians and related charges,. Benefits
reimbursements made to the Association by the Underwriter's Agent
were supported by listings certified by the Association's representa-
tive. Each of these listings contained the number and value of claims
paid, supported by the Association's working papers, which showed
the computation of the amount of each claim paid,
Subsequent to reimbursement all of the working papers were trans-
mitted by the Underwriter's Agent to its Home Office at Omaha, Nebraska
where they were post-audited and filed.
Survey o# Accounting System
A survey was. made of the Underwriter's system of accounting and
its revised method of allocation and distribution of costs to the Plan.
The system and methods were found to be in conformity with the generally
accepted principles of cost accounting,
Administrative Charges
The contract provides that the administrative charges allocated
to the Plan shall be the actual necessary incurred expense determined
on an equitable and reasonable basis with proper accounting support;
-and, that such charges will be subject to adjustment as agreed upon
by the Carrier and the U.S. Civil Service Commission on the basis
of the Commission`s examinations.
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Underwriter's Administrative Charge - The contract further provides
that the Underwriter's administrative charge should not exceed 2.O~~o
The Plan's schedule in support of its Underwriter's administrative
of the subscription charges during the contract period.
expense showed the amount incurred a~
as the adjustment to the prior period's charge. This resulted in
(1.8~ of subscrip-
tion charges) which was shown as having been increased b~
the .total. charge of
1.99 of subscription charges) to
the second contract period which appeared on the Plan's accounting
statement as part of the Underwriter?s Administrative Expense. The
General Agent's charges for administrative expense were overstated
and the Agent agreed that this amount would be reported
as ~, deduction to the charges for the third contract period.
Special Reserve
The Plan's accounting statement showe as the amount
being held in its Special Reserve as of the end of the second cones
tract period. In recognition of the ad,~ustments to the Underwriter's
books of accounts as a result of the examination, the Underwriter
should also include the amount of0 as part of the Plan's Special
Reserve as of November 1, 1862 for use in computing the amount of in-
come investment earned by the Plan during the third contract period.
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Scope of ExEUnination
Subscription charges (received and accrued) shown by the Plan's
accounting statement were verified to the records of the U. S. Civil
Service Commission and those of the Underwriter.
Postings of paid claims to the Underwriter's records were veri-
fied to cleared drafts on a test-check basis; and, the total amount
paid, as shown by the Plan's accounting statement, was verified to
the Underwriter's books of account.
The amount of accrued benefits-for the period was verified to
the Underwriter's records and an evaluation of the accrual as of
October 31, 1962 was made based upon the claims paid during the
four-month period immediately following the second contract period.
A survey of the Underwriter's accounting system and revised
methods of allocation anal distribution of costs was made.
All administrative expenses were verified to the Underwriter's
books of account and a representative number of accounts was veri-
fied to the source documents.
Taxes paid were verified to the Underwriter's records and
books of account.
The computation of the commissions, override and risk charge
was verified.
The Plan's investment income together with its Special Reserve
-was verified to the Underwriter's records as of the end of the con-
tract's second period.
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IJNIT?E? S?C~-'fES CIVIL SERVICE C?MMISSI?N
BUEZEAIJ ?F' FtO:TIR~M~N'T' AND iNSUF2ANCE
WASFiIMGTON, D.O. 20415
STAT
STAT
As yon. will soon be preparing the Anax~.a~. Acco~.nting Statement on the operam
-bion,s o~ yoa~? plan ~~der the ~'edera~. ~;p~oyee~ Hea?th }3ene~its Pr?ogx?aan, we
bei.~.eve a review s~f some Hof tYl.e ~e~~zi~ements ~o~ .the preparation e,~' the
~?~atement may be appropriate ? ~CY?e statement shall cover operations for
the period fr?~m ~Ic~vember ~., 1g~2 throu~~x Octr~`ber 35., 193 a St should be
received in the Oomxnissio~. n~a later than ~`ebruary ~., ~.q6~.. I~c~wever, ure
wc~~ai.d appreciate receiving ~.t at the ear~.ies?t date possib~.e ? We hope
y~,u will folle~~r closely the "~~planatox~y 1Votes Applicable to Snteri;n and.
.Pb~:a]~ Accounting StatemeritsTP pre4~i.ousl.y f~irni5hed yo?~~ o 'S`he s~ibmission
of a?~~. necessax?y supporting schedules and work papers wi~.S. also faci~.i-
tate our review?
~n the attachme~at we are advising y~aaa of tYie amo~xnt of subscr~i.~a~k,a,or.~. t?harges
paid acid accrued duz?ing the ~;~intraet peris~d 1~QV~m`ber ~, ~.96~ tl~z.o~~;.~,tY E,r.~;o~-
ber 3~, x.963? S'lease verify our am~sunts to your x?ecords before c:o~~apa.~~,n
yo~,ar Annual Aceo~.nting Statement and if any ,discrepancies are n~~ted, we
~~i~u~d appreciate yoT~? bringing ~~hem tc~ ~~? attention befox?e ree~.easing yotar
~;;tatement ?
S':~e~,se remem`~er tha?~ the accrued subscription charges as of ?et?sber 3~., ~.9~3
.y be shrawn on ?bhe ~~aur S~ :S166a ? s immediate~.y fcsl,3.owing that date i e a ,
I+3'o~ember ~ ~ovemlaer ~5 IDecem`ber lei and S~ce~tber ~~Fth o Subscription ~r.~.~ v rf~ ~;
, s ~ ..
f'or pay periods ending 11~"ovember 99 wi11 be included in the Po ~~.~),~' ` , ; ;a
anc~. ~riox?~' classificatie~r.?, on these ?~.cYaersa
~i~e ~~`~ammission is re~,uired to report to ~;~ngress each year on ?bhe re suits
~f opeavatic~ns u~~sder the I~ea"Lth benefits ~awo It is important therefore
~?ha?~:. ?~;l~e r~ealth pe~.efits laid reported ~,~. tkie Stateme~~t `be ire agreement
~~ith or readily recc~ncilab:ie ~`>o tht~ c~nso~.~.dation of you: twe~L~re Nionth~.y
~~,~,ry ~~f Krising Olaims a3~.d ~'la~..sns 1 a~yments reports sent to ~1r . ~;isma~ra,
if yo?~r? plan submits suc"rg reports v
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the reporting of ~Iealth Henefits Accrued has been sirnp~.iL?ied 1:Yaiu yeax?, ~.o
a one~line item. However, the amoaa.nts reported as the inc?urred beat unpaid
~aenefits as of October 31~: 1963 must still be supported `by ~att'~.ched sched~
ales showing in detail the method by whicki the aevxu~.l is~dexived? Summary
data on the 1.ig,uidation of acexuals established at prior contxact year?~ends
sho~r.ld be retained in order to be avai~.able for our on-site review.
We again remind you tYa_.at the actual incurred administrative e~cpenses must
not exceed the amount of percentage limitations of total subscription
charges pxo?~ided in your contxact for this item? In supp?rt c,~f these
amounts we would appreciate schedules or x?eproduction of work papers
wYaich sFammarize the amount of expense incurred by type of service ? ~?his
schedule will be subject to audit and must be supported by books and re~
cords. 'Your attention is also drawn to that portion of your contract
which pr5vi.des that the administrati~re charges shall be only the `"actual,.
necessary incurred expenses determined orb an equ.itabl~ and reasonable
basis with proper justification axed accounting ~~pport??' 0ertain items
of expense such as advertising and promotion for new business, entertain?
merit, donations and contributions are not allowable costs under this con?
tx^act .
One .of the mayor,changes from previous repoxting requirements is the
necessity to show all. line items by high and low option (where the plan
has two options) ? ?~his is particularly tx?~ae in the section for Ouzmala?
five Gain or ]Loss of the Annual Accounting Statement; it 'being tY^e in?
tent that the last line of the statement shall reflect the results, by
o tiOn, of the plan's operation fre~m its inception to Octolaer 31, 19~?
1~or the fourth contract period there will acre no crbange in the reporting
dates, nor the dates the reports are due in the Gc~aarnission?
~?or your information, the. Conta.ngency i~eser~re Pincl~~zd~.r~g ~.r?terest income)
held in the ~?ederal Employees Health benefits F~:rnd for your plan as of
Octobex? 31, 1963 is shown on the attachments It is suggested that any
reports yp'u prepare for internal. informational puxpa~ses within y?ur
organisation include this item as a foe~tnote. 1?t requires no accounting
treatment.
'~o~x wi~..1 notice the attachment also shows the number of enrollees from
whom nee health benefits deductions were made 'by virtue of being in a
ne~r3mpay status .
We wish to express our appreciation for the'co~speration accorded us by
yorx and your staff throu~;~iout the past contr~;ct period ?
Sincerely yo
Harold ~; ? Hunsaker
Ohief, Systems & Audits Office
Attachment
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