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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Review of Pension Segmentation Requirements at Premera Blue Cross, a Terminated Medicare Contractor," (A-07-05-00191)

July 3, 2006

Complete Text of Report is available in PDF format (801 kb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


Our objectives were to determine if Premera complied with the Medicare contract’s pension segmentation requirements:  (1) while updating Medicare segment assets from January 1, 1995, to December 31, 2004, and (2) in determining Medicare’s share of excess liabilities as a result of the termination of the Medicare contract. We found that Premera did not comply with the Medicare contract’s pension segmentation requirements while updating the Medicare segment’s assets from January 1, 1995, to December 31, 2004.  As a result, Premera understated the Medicare segment assets by $481,681.  The understatement occurred primarily because Premera did not allocate net investment earnings to the Medicare segment in accordance with the Cost Accounting Standards requirements.

We recommended that Premera decrease Medicare’s portion of the Medicare segment’s excess pension liabilities by $856,522, and therefore recognize $190,637 as Medicare’s portion.  Premera partially concurred with our findings.  Premera did not agree that the segment’s accrued benefit liability was overstated by $369,752.