Review of Postretirement Benefit Costs Claimed by Highmark, Inc.

EXECUTIVE SUMMARY:

Our objective was to determine the allowability of the postretirement benefit (PRB) costs Highmark claimed for Medicare reimbursement on an accrual basis for fiscal years (FY) 1998 through 2002.  We found that the PRB costs Highmark claimed on an accrual basis for FYs 1998 through 2002 were allowable.  However, Highmark 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 1998 through 2002, Highmark did not claim $2,961,526 of PRB costs that was allowable for Medicare reimbursement.

We recommended Highmark should revise its FACPs for FYs 1998 through 2002 or submit a claim for additional allowable PRB costs of $2,961,526. Highmark did not agree with our calculations of allowable PRB pension costs.  Highmark also stated that it did not need to seek CMS approval for its change in accounting practice for PRB costs, because it was a continuation of the prior PBS program.  Additionally, Highmark disagreed with our statement in the Other Matters section that Highmark should be precluded from including unfunded PRB costs in any future claims to the Federal Government.  Highmark believed that 'by requiring contractors to use [S]FAS 106 in calculating PRB costs, the FAR irreconcilably conflicts with the [Internal Revenue Service] limitations on VEBA funding.'