Review of Medicare Contractor's Pension Segmentation Requirements at CIGNA for the Period January 1, 1991, to January 1, 2004

EXECUTIVE SUMMARY:

The objectives of our review were to determine whether CIGNA complied with the Medicare contracts' pension segmentation requirements while: (1) identifying the Medicare segment's initial asset allocation and (2) updating the Medicare segment's assets from the initial asset allocation to January 1, 2004. We found that CIGNA complied with the Medicare contracts' pension segmentation requirements when identifying the Medicare segment's initial assets as of January 1, 1991. However, it did not comply with the contract when updating the segment's assets to January 1, 2004. The understatement primarily resulted from the update of assets and the actuarial approach used in allocating contributions and prepayments to the Medicare segment. As a result, CIGNA understated the January 1, 2004, Medicare segment assets by $99,898.

We recommended that CIGNA: (1) increase Medicare segment pension assets by $99,898 as of January 1, 2004, and (2) implement controls to ensure that the Medicare segment's assets are updated in accordance with the Medicare contracts. CIGNA disagreed in part with our original recommendation to increase Medicare segment assets by $158,339. However, CIGNA did agree to update future Medicare segment assets in accordance with Medicare contracts.