Palmetto Received $14K in Unallowable Medicare SERP III Costs
Palmetto Government Benefits Administrator unintentionally misfiled SERP III costs during the fiscal years 2010 and 2011.
- Recently, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) released the audit results of Palmetto Government Benefits Administrator. It was discovered that Palmetto claimed just under $14,000 in unallowable Medicare Supplemental Executive Retirement Plan III costs for the fiscal years of 2010 and 2011.
The Centers for Medicare & Medicaid Services (CMS) reimburses a portion of its contractors’ Supplemental Executive Retirement Plan (SERP) costs. By claiming SERP, contractors are required to follow cost reimbursement principles contained in the Federal Acquisition Regulation, Cost Accounting Standards and Medicare contracts. Previous audits of this process has found inconsistencies.
During the audit period, Palmetto was a subsidiary of Blue Cross Blue Shield of South Carolina. It administered Medicare Part A fiscal intermediary and Medicare Part B carrier contract operations under cost reimbursement contracts with CMS. The audit examined SERP III costs claimed by Palmetto under provisions of its fiscal intermediary and carrier contracts.
It was discovered that SERP III claims for the financial years of 2010 and 2011, under the provisions of its fiscal intermediary and carrier contracts, were unallowable for Medicare reimbursement. This totaled $13,784 for Medicare reimbursement.
According to the study, this happened because Medicare contracts require SERP costs be calculated in accordance with the Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS). Blue Cross Blue Shield of South Carolina defined its SERP III as a nonqualified defined-benefit pension plan and calculated the plan’s costs as specified in CAS 412. However, the SERP III did not offer a benefit that is payable for life at the option of the employees, therefore it does not qualify as a “pension plan.” SERP III should have been claimed as a deferred compensation plan and should then have calculated those costs in accordance with the FAR and CAS 415.
The OIG recommends that Palmetto revise its FACPs and eliminate its claim of $13,784 for Medicare SERP III costs.
Palmetto did not agree with the recommendation for two reasons. The first is that the change it made in its SERP III (removing the benefit of payable for life at the option of the employee) was unintentional. The intent was for SERP III to continue to be recognized as a pension plan and removing the lifetime payout option does not change this status. The second issues is that because the SERP III plan document was amended, reinstating the lifetime payout option to make the plan compliant would be burdensome.
“Palmetto thus suggested, as an alternative to our recommendation, a course of action in which Palmetto would correct its ‘inadvertent change’ to the SERP III by restoring the offer of a benefit that is payable for life at the option of the employee,” the report reads.
Despite the disagreement, OIG noted that it would not change its recommendation.
