REPORT DIGEST

 

DEPARTMENT OF HEALTHCARE AND FAMILY SERVICES -

TEACHER HEALTH INSURANCE SECURITY FUND

 

FINANCIAL AUDIT

For the Year Ended:

June 30, 2008

 

Summary of Findings:

Total this audit                      2

Total prior audit                    1

 

Release Date:

July 8, 2009

 

 

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

AUDITOR GENERAL

 

 

 

To obtain a copy of the Report contact:

Office of the Auditor General

Iles Park Plaza

740 E. Ash Street

Springfield, IL 62703

(217) 782-6046 or TTY (888) 261-2887

 

This Report Digest and Full Report are available on

the worldwide web at

www.auditor.illinois.gov

 

 

 

 

 

 

 

 

SYNOPSIS

 

  • The Department did not obtain an independent internal control review of its third parties involved with the processing of health insurance claims for the Teachers Retirement Insurance Program.

 

  • The Department did not charge the correct health insurance premium rates for the Teachers Retirement Insurance Program.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

{Financial Information and Activity Measures summarized on the reverse page.}


 

 

DEPARTMENT OF HEALTHCARE AND FAMILY SERVICES

TEACHER HEALTH INSURANCE SECURITY FUND

FINANCIAL AUDIT

Year Ended June 30, 2008

 

FINANCIAL OPERATIONS (in thousands)

FY 2008

Additions

Contributions

Employer...…….....................................................

State...……...........................................................

Plan Member:

Activities...……...............................................

Retirees...…….................................................

Federal government Medicare Part D......................

Consolidated Omnibus Budget Reconciliation Act

Total contributions............................................

Interest income...…….................................................

Total additions..................................................

           

Deductions

Benefit payments.........................................................

Administrative expense................................................

Total deductions...............................................

 

Net increase/(decrease) ..........................................

 

Net assets held in trust for

other postemployment benefits

Beginning of year..................................................

End of year..........................................................

 

 

                $ 63,458

                   68,596

 

                   84,611

                 140,248

                   19,930

                        209

                 377,052

                     3,122

                 380,174

 

 

                 380,852

                     2,867

                 383,719

 

                   (3,545)

                         

 

 

                   65,790

                $ 62,245

 

SUPPLEMENTARY INFORMATION

FY 2008

Number of retirees and beneficiaries receiving benefits……......

Number of waived retirees who may elect healthcare coverage in the future...……..............................................................

Number of terminated plan members entitled to but not yet receiving benefits……........................................................

Number of active plan members...............................................

Total…........................................................................

 

Number of participating employers...........................................

62,936

                 

  15,507

 

15,521

165,572

259,536

 

1,005

 

AGENCY DIRECTOR

 

During Audit Period:  Mr. Barry S. Maram

Currently:  Mr. Barry S. Maram           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


No assurance to prevent errors or irregularities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


No third party independent internal control review obtained for 1 of 4 third party service providers

 

 

 

 

 

15% of health insurance expenses processed by third party service providers have no internal control review

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Department disagrees with auditors

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Auditor’s comment

 

 

 

 

 

 

 

 

 

 

 

 

 

Reports not obtained until after auditors requested them

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health care premium rate-setting methodology not adequate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Teacher Retirement System benefit recipients and dependent beneficiaries overcharged a total of $155,529

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Department agrees with auditors

 

 

 

 


Auditor’s comment

 

INTRODUCTION

 

This digest covers the financial audit of the Teacher Health Insurance Security Fund for the year ended June 30, 2008.  The financial audit report includes two significant deficiency in internal control findings.

 

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

THIRD PARTY INTERNAL CONTROL REVIEWS NOT OBTAINED

 

The Department did not obtain an independent internal control review (SAS 70 Report) of its third parties involved with the processing of health insurance claims for the Teachers Retirement Insurance Program.  Without a review, the Department did not have assurance that information system controls to prevent errors or irregularities were established.

 

When a user organization like the Department of Healthcare and Family Services uses service organizations, transactions that affect the Local Government Health Insurance Reserve Fund’s financial statements are subjected to controls that are, at least in part, separate from the Department’s.  Consequently, it is good business practice to obtain a report from the service organization’s auditors concerning controls placed in operation and in some cases results of tests concerning operational effectiveness.  These types of reports are commonly referred to as SAS 70 Reports.

 

The Department contracts with four different third party health insurance service providers to process health insurance claims.  Each of the health insurance service provider uses their own computer system to process these health insurance claims.  During our review of third party health insurance service providers, we noted that the Department did not obtain an independent internal control review for one of the service providers during fiscal year 2008.

 

Of the health insurance payments made to the four third party health insurance service providers totaling $292,678,137 in fiscal year 2008, $44,572,976 (15%) of the health insurance payments were processed under a third party health insurance service provider from which the Department did not obtain an independent internal control review.

 

The Department stated that they negotiate long term contracts with the parties involved in processing insurance claims for the health care plans.  Typical healthcare contracts have five year initial periods and up to five one-year renewal periods.  One contract cited was initially negotiated with a five-year contract in 2001, for fiscal year 2002 implementation, without a “SAS 70” requirement.  The contract is currently in a one-year renewal period without a “SAS 70” requirement.  The Department previously submitted the relevant portions of the Sarbanes Oxley audit pertaining to internal controls as they relate to the audited financial statements for this contract.  (Finding 1, pages 17-19)

 

We recommended the Department require that each third-party health insurance service provider engage independent auditors to perform an annual independent internal control review on the controls placed in operation and the tests of their operating effectiveness.

 

Department officials disagreed with our finding and recommendation and stated that the contract was originally executed prior to industry acceptance of “SAS 70.” 

 

Department officials continued to state that the Fiscal Year 2010 contract and renewal for the vendor not submitting “SAS 70” audits have already been negotiated and have been signed by the vendor.  In order to implement this requirement for the vendor, the Department would have to renegotiate their contract.  Renegotiating the contract at this date would jeopardize the contract beginning July 1, 2009.  Negotiating an additional audit into the renewal would also increase the cost of the contract.  The Department will include a “SAS 70” requirement to all future contracts bid with third parties involved with the processing of health insurance claims.

 

In an auditor’s comment, we noted that we requested all third party internal control reviews from the Department and, for the contract noted above, the Department indicated that they relied on “equivalent” reviews. 

 

With regard to the contract, the Department did provide the auditors with what they called a “Sox Report” (Sarbanes Oxley Report).  The documentation that the Department provided was an excel spreadsheet that documented computer controls.  This spreadsheet was not accompanied by any type of cover letter or auditor’s report.  After the auditors questioned the “Sox Report,” the Department contacted the vendor and the Department was informed that the “Sox Report” is actually part of the vendor’s “SAS 70” Report. 

 

The Department cannot state to the auditors that they are relying on these "equivalent" reports if they do not obtain them unless requested by the auditors.  There is clearly no internal controls to obtain and review these reports.

 

 

INCORRECT HEALTH INSURANCE PREMIUM RATES CHARGED

 

The Department did not charge the correct health insurance premium rates for the Teachers Retirement Insurance Program. 

 

The Department set the fiscal year 2008 health insurance premium rates for Teachers Retirement System benefit recipient and dependent beneficiaries by increasing the prior year rate by 5%.  The Department did not take into account the percentage that was to be paid by the Teacher Health Insurance Security Fund.  As a result, we noted that the Department did not have an adequate rate-setting methodology used to determine the amount of the health care premiums to be charged.  In addition, the Department did not present the rate-setting methodology (included but not limited to utilization levels and costs) used to determine health care premiums to the Teachers Retirement System by April 15th as required.

 

We also noted the following 2008 premium rates of Teachers Retirement Insurance Program health insurance were not in compliance with parameters established in State statute.

 

·        The monthly health insurance premium rate charged for a Teachers Retirement System dependent beneficiary who is Medicare primary was $240.09; however, the health insurance premium rate should have only been $229.63.  The beneficiaries were overcharged a total of $152,643 during fiscal year 2008.

 

·        The monthly health insurance premium rate charged for a Teachers Retirement System benefit recipient for ages twenty three and under selecting the major medical coverage program was $139.54; however, the health insurance premium rate should have only been $117.17.  The benefit recipients were overcharged a total of $2,617 during fiscal year 2008.

 

·        The monthly health insurance premium rate charged to a Teachers Retirement System benefit recipient for ages twenty three and under selecting the medical coverage program was $69.77; however, the health insurance premium rate should have only been $58.58.  The benefit recipients were overcharged a total of $269 during fiscal year 2008.  (Finding 2, pages 20-22)

 

We recommended the Department ensures health insurance premium rates are set for the Teachers Health Insurance Program as required by the State Employees Group Insurance Act of 1971.  We also recommended the Department ensures adequate rate setting methodologies are established and make annual required reports to the Teachers Retirement System.

 

Department officials agreed to the finding and recommendation and stated that the Department has submitted draft legislative language to address the issue and clarify that the determination of premiums shall be limited solely to an increase of no more than 5% of the prior year.

 

In an auditor’s comment, we noted that:  1) the Department’s corrective action plan noted in its response is overly simple and an unreasonable resolution to the issues addressed in the finding; and 2) a rate setting methodology should be developed annually and include but not be limited to utilization levels and costs as currently required by the State Employees Group Insurance Act of 1971.

 

 

AUDITORS’ OPINION

     

Our auditors state the financial statements of the Teacher Health Insurance Security Fund as of June 30, 2008, are fairly presented in all material respects.

 

 

 

 

 

___________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:TLD:pp

 

AUDITORS ASSIGNED

 

This audit was performed by the staff of the Office of the Auditor General.