Audit of Anthem Insurance Company's Unfunded Pension Costs for 1991 Through 2002

EXECUTIVE SUMMARY:

Our objectives were to:  (1) determine if the accumulated unfunded pension costs identified in our prior reviews were accounted for properly; (2) determine if pension costs for the audit period (1991'2002) were funded in accordance with the Federal Acquisition Regulations (FAR) and the Cost Accounting Standards (CAS); and (3) identify and properly account for any additional accumulated unfunded pension costs, including the identification of the unallowable and reassignable portions of the accumulated unfunded pension costs.  We found that Anthem properly accounted for previously identified unfunded pension costs in accordance with Federal regulations.  For the current audit period, Anthem funded its pension costs in accordance with the FAR and CAS.  However, as a result of the merger with Blue Cross Blue Shield of Connecticut, Anthem has unallowable unfunded pension costs for the Other segment.  The accumulated unallowable pension cost is $6,052,895 as of January 1, 2003.

We recommended that Anthem: (1) identify $6,052,895 of accumulated unallowable pension costs as of January 1, 2003, and (2) identify and properly track unallowable unfunded pension costs in subsequent years.  Anthemagreed with our finding and recommendations and stated that it had already implemented policies and procedures to ensure that unallowable unfunded pension costs were properly tracked in the future.