Review of Postretirement Benefit Costs Claimed by Pennsylvania Blue Shield

EXECUTIVE SUMMARY:

Our objective was to determine the allowability of the postretirement benefit (PRB) costs Pennsylvania Blue Shield (PBS) claimed for Medicare reimbursement on an accrual basis.  PBS did not include in its Final Administrative Cost Proposals (FACPs) all of the PRB costs that were allowable pursuant to Federal regulations.  As a result, for FYs 1994 through 1997, PBS did not claim $153,675 of PRB costs that were allowable for Medicare reimbursement.  In addition, PBS did not receive CMS approval for its change in accounting practice for PRB costs.  PBS should revise its FACPs for FYs 1994 through 1997 or submit a claim for additional allowable PRB costs of $153,675.  After addressing the issues raised under Other Matters, PBS should seek approval for its change in accounting practice.

PBS disagreed with our report and stated that:  'The cost allocation method used by PBS differed from the one used by the auditors in preparing this report.  In addition, several of the data input numbers used by the auditors are not consistent with PBS data.'  PBS also stated that it did seek CMS approval for its change in accounting practice for PRB costs.  Additionally, PBS disagreed with our statement in the Other Matters section that PBS should be precluded from including unfunded PRB costs in any future claims to the Federal Government.  PBS believed that by requiring contractors to use SFAS 106 in calculating PRB costs, the Federal Acquisition Regulations irreconcilably conflicts with the Internal Revenue Service limitations on Voluntary Employee Benefit Association funding.