Review of Medicare Contractor's Pension Segmentation Requirements at Arkansas Blue Cross Blue Shield and Pension Plan Termination

EXECUTIVE SUMMARY:

The objective of our review was to determine whether Arkansas complied with the Medicare contract's pension segmentation requirements while: (1) implementing the prior audit finding; (2) updating Medicare segment assets from January 1, 1996, to May 1, 1999; and (3) determining the excess assets that should be remitted to Medicare as a result of the termination of its defined benefit pension plan. Arkansas properly implemented the prior audit recommendation; however, it did not comply with the Medicare contract's pension segmentation requirements while updating the Medicare segment's assets from January 1, 1996, to May 1, 1999. As a result, Arkansas overstated the Medicare segment assets by $546,859. In addition, Arkansas did not comply with the cost accounting standards in determining Medicare's share of the excess pension assets as of May 1, 1999. Arkansas calculated and remitted to the Federal Government $1,125,543 as Medicare's share of the excess pension assets, which is a $16,711 overstatement.

We recommended that Arkansas decrease Medicare's share of the excess pension assets by $16,711, and adjust its Final Administrative Cost Proposal to properly reflect Medicare's share of the excess assets. Arkansas generally disagreed.