Review of Medicare Contractor's Pension Segmentation, Health Care Service Corporation

Under its Medicare contracts, Health Care Service Corporation (HCSC) was required to identify and report pension assets and costs separately (called segmentation) for its Medicare line of business. This required HCSC to determine Medicare's pension assets as of 1986 and then annually determine Medicare's pension costs and assets for subsequent years. The HCSC's update of the Medicare segments' assets from January 1, 1986 to January 1, 1992 understated the Medicare segments' assets by $1,055,458. The understatement primarily occurred because HCSC did not (1) properly calculate Medicare's pension costs and (2) consider participant transfers into and out of their Medicare lines of business. We recommended that HCSC increase the January 1, 1992 Medicare pension assets by $1,055,458.