Review of Pension Costs Claimed by Medicare Reimbursement by Community Mutual Insurance Company

EXECUTIVE SUMMARY:

This final report provides the results of our review of Pension Costs Claimed for Medicare Reimbursement by Community Mutual Insurance Company for Fiscal Years 1988 through 1995. During this period, the allowable Medicare pension costs were $2,043,579. However community Mutual Insurance Company (Community Mutual) claimed pension costs of $3,035,551 for Medicare reimbursement. As a result, Community Mutual claimed $991,972 in pension costs that were not allowable. The over claim occurred primarily because Community Mutual's pension cost calculations were based on incorrect asset values for the Medicare segment, and were not computed in accordance with the Cost Accounting Standards (CAS). Additionally, Community Mutual used an inappropriate cost component when computing its indirect Medicare line of business (LOB) percentage, which resulted in an overstatement of the pension costs assigned to indirect Medicare operations. We recommended that Community Mutual revise its Final Administrative Cost Proposals to eliminate the unallowable pension costs, and that Community Mutual base future claims for pension costs on costs calculated in accordance with the CAS. We also recommended that Community Mutual revise its methodology of calculating the indirect Medicare LOB percentage.