Audit of Blue Cross Blue Shield of South Carolina's Medicare Contract Pension Segmentation for 1993 Through 2001

EXECUTIVE SUMMARY:

Our objectives were to determine if South Carolina:  (1) implemented our prior audit recommendation, and (2) complied with the Medicare contracts' pension segmentation requirements while updating the Palmetto and TrailBlazer Medicare segment assets from January 1, 1993, to January 1, 2002.  We found that South Carolina implemented our prior audit recommendation to increase Medicare segment assets by $394,005.  However, South Carolina did not comply with the Medicare contracts' pension segmentation requirements while updating the Palmetto and TrailBlazer Medicare segment pension assets.  South Carolina understated Palmetto's Medicare segment assets by $1,106,482 and overstated TrailBlazer's Medicare segment assets by $345,006.  South Carolina did not have adequate controls to ensure that its Medicare segments were identified in accordance with the Medicare contracts and that segment assets were updated in accordance with Cost Accounting Standards (CAS) 412 and 413.  We recommend that South Carolina:  (1) increase Palmetto's Medicare segment pension assets by $1,106,482 as of January 1, 2002, (2) decrease TrailBlazer's Medicare segment pension assets by $345,006 as of January 1, 2002, and (3) implement controls to ensure that Medicare segments are identified in accordance with the Medicare contracts and updated in accordance with CAS 412 and 413.  South Carolina agreed with the findings and recommendations.  However, they requested an explanation of the allocation of interest on accumulated prepayment credits and additional input on the determination of those areas that should be included in the Medicare segment.