Audit of Pension Costs Claimed for Medicare Reimbursement by Blue Cross and Blue Shield of Texas, Inc.

EXECUTIVE SUMMARY:

Texas administered Medicare Part A and Part B operations under cost reimbursement contracts with the Centers for Medicare and Medicaid Services from the start of the Medicare program until the contractual relationship was terminated effective September 30, 1999.  The objectives of the audit were to determine whether (1) claimed allowable pension costs for Medicare reimbursement for fiscal year (FY) 1999 and (2) implemented a prior audit recommendation pertaining to FY 1994.  Texas allocated total company CAS pension costs to Medicare for FYs 1995-99.  Separately calculated Medicare segment pension costs were materially lower than the claimed allocated pension costs for this same period.  The Medicare contract required that pension costs for a Medicare segment be separately calculated when such calculation materially affected the pension costs allocated to the Medicare segment.  Because Texas did not separately calculate costs, it overclaimed $2,149,372 in  pension costs on its Final Administrative Cost Proposals (FACP) for FYs 1995-99.  Also, Texas did not implement a prior audit recommendation to adjust pension costs on its FY 1994 FACP.  We recommended that Texas remit $3,023,483 ($2,149,372 for FYs 1995-99 and $874,111 for FY 1994) to the Federal Government for the unallowable pension costs claimed on its FACPs as of FY 1999.