Audit of Medicare Contractor's Segmented Pension Cost, Blue Cross and Blue Shield of Maryland

This final report provides the results of our audit of Blue Cross and Blue Shied of Maryland's (Maryland) implementation of its Medicare contract clause on pension plan segmentation. Our review showed that Maryland had as of January 1, 1991, understated Medicare pension assets by $1.9 million. Maryland calculated an asset fraction as of January 1, 1984 rather than as of January 1, 1981. Using the correct 1981 asset fraction increases the pension assets of the Medicare segment by $1,394,145 as of 1986. Maryland's update of the Medicare segment assets from 1986 through 1990 understated the assets of the Medicare segment by another $539,352. The understatement occurred because Maryland's update (1) omitted certain cost centers and (2) did not consider participant transfers into and out of the Medicare segment. We recommended that Maryland increase the January 1, 1991 assets of the Medicare segment by $1,933,497 ($1,394,145 plus $539,352). We also recommended that Maryland include participant transfers in Medicare segment updates after 1991. Maryland agreed with our recommendations.