Medicare Trust Funds Actuarial Estimates:

Efforts Have Been Made to Improve Internal Control over Projection Process but Some Weaknesses Remain

GAO-03-247R: Published: Mar 4, 2003. Publicly Released: Mar 4, 2003.

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Medicare spending growth remains one of the most pressing and complex issues facing the Congress and the nation. During calendar year 2001, the most recent year for which complete data were available at the time of our review, over 40 million Medicare enrollees received $240.9 billion in benefits from the trust funds maintained for Hospital Insurance and Supplementary Medical Insurance, Medicare's two components. The Boards of Trustees of the trust funds are required to report annually on the current and projected financial status of the Medicare program to the Congress and the American people. The Centers for Medicare and Medicaid Services' (CMS) Office of the Actuary (OACT) provides estimates to the boards to assist them in setting certain assumptions about HI and SMI future performance that are needed to prepare long-range and short-range projections of the financial status of the trust funds for the Trustees' reports. Based on the boards' assumptions, OACT then prepares the projections and the Trustees' reports for the boards. In its 2002 annual report, the Board of Trustees estimated that, under current rules, HI expenditures would begin to exceed tax revenue in calendar year 2016, causing the trust fund to be exhausted in 2030. Our specific objectives were to identify and evaluate the adequacy of OACT's (1) control activities over the projection process, (2) human capital practices related to workforce planning, and (3) tracking and resolution process to address recommendations from technical panels and other reviewers.

Since fiscal year 2000, OACT has taken significant steps toward improving internal control over its trust fund projection processes. During 2000, the Department of Health and Human Services (HHS) engaged KPMG Consulting6 to perform a study of OACT's workload and workforce. Assisted by KPMG Consulting, OACT addressed the consultants' initial recommendations by developing a guide for preparing work products, developing a workforce management plan, beginning implementation of those tools, and beginning to address recommendations of a fiscal year 2000 Technical Panel. Although the Technical Panel found OACT's work to be of excellent quality, room for improvement exists, as important elements of OACT's recently planned initiatives have not yet been fully implemented and several controls over its projection processes for Trustees' reports are not formalized, thus increasing the risk that errors in OACT's future projections of Medicare trust funds' financial status would go undetected. Our review found that OACT had not documented a comprehensive, detailed description of the processes necessary to prepare the long-range projection for the Trustees' report and that documentation of the procedures performed by OACT's staff and reviewers during the projection process was limited. We also found that documentation of criteria for adjustments and reviews and the changes to data made by staff were lacking. Documentation weaknesses were also reported by two previous independent reviewers of OACT. Without explicit documentation of OACT's work processes and work performed, reviewers' opportunity for beneficial oversight was reduced, and the risk that errors in the projection process would go undetected was increased. While no errors have been identified in reviews of OACT's actuarial assumptions and methodologies, these reviews have also pointed out the need for increased documentation. According to OACT officials, resource constraints were a key reason limiting the extent to which documentation was prepared. OACT has developed a human capital management plan that focuses on workforce planning activities and addresses, among other issues, succession planning. As part of this plan, OACT has determined that approximately one-fourth of the group that prepares the Trustees' report would be eligible to retire over the next 5 years. Also, as part of the plan, OACT has begun to implement a professional development program, which identifies key technical and professional competencies for staff. However, OACT has not yet developed a formal training plan to align targeted training opportunities with the key competencies established by the professional development program. OACT officials indicated that a lack of resources has limited the the number of training and professional development opportunities they have been able to offer staff. With impending staff retirements and without fully implemented programs to enhance staff knowledge and expertise, the risk that OACT staff could fall short of developing skills needed to achieve organizational goals is increased. In 2000, HHS initiated two studies of OACT--the aforementioned KPMG Consulting study and the Technical Panel review--that resulted in a number of recommendations related to workforce planning, actuarial methodology, and assumptions. While OACT has taken steps to prioritize and resolve some of these recommendations, it lacks a formal monitoring policy and standard process for (1) tracking recommendations it has received, (2) deciding which recommendations should be implemented, (3) determining the priority recommendations should receive, and (4) documenting the resolution of each recommendation. Without a formal tracking and resolution process, OACT leaves open the possibility that identified deficiencies or important initiatives may not be resolved, and operations may not be improved in a timely manner.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To address the internal control weaknesses GAO identified related to documentation, workforce management, and monitoring follow-up of external review recommendations, the Administrator of CMS should direct the Chief Actuary to develop and implement a formal policy to track, follow-up, and resolve findings and recommendations of external audits and reviews.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: To implement this recommendation, OACT expanded its tracking document to include the "cost/feasibility" of recommendations it had received, an "action/date" for each recommendation, a "responsible" official to oversee each recommendation's implementation, and a "risk/priority." In addition, the updated tracking document OACT provided now includes recommendations from the KPMG study and from the GAO report.

    Recommendation: To address the internal control weaknesses GAO identified related to documentation, workforce management, and monitoring follow-up of external review recommendations, the Administrator of CMS should direct the Chief Actuary to fully implement the professional development program and develop a formal training curriculum that includes identification of appropriate training opportunities linked to key competencies.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: OACT's professional development program has been fully implemented. As part of this program, OACT has implemented a leadership development program, developed a master list of training opportunities for staff linked to its key competencies, and met with staff to discuss targeted training opportunities.

    Recommendation: To address the internal control weaknesses GAO identified related to documentation, workforce management, and monitoring follow-up of external review recommendations, the Administrator of CMS should direct the Chief Actuary to fully implement plans to document the supervisory and management reviews.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: OACT has developed checklists which include a step-by-step description of the process used to run the projection model. The steps listed in the checklists are initialed by the reviewer and dated, indicating that the work has been reviewed. In addition, each table and figure included in the Trustees Report is initialed by a reviewer to indicate that it was reviewed.

    Recommendation: To address the internal control weaknesses GAO identified related to documentation, workforce management, and monitoring follow-up of external review recommendations, the Administrator of CMS should direct the Chief Actuary to fully implement plans to document the work performed by staff to prepare projections.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: OACT has improved its documentation of the work performed by staff as it enhanced the description of the step-by-step process used to run the projection model included in checklists designed for both the HI and SMI programs. The steps listed in the checklists are initialed and dated when completed, indicating that the work has been performed. In addition, each table and figure included in the Trustees Report is initialed by the preparer to indicate that it has been completed.

    Recommendation: To address the internal control weaknesses GAO identified related to documentation, workforce management, and monitoring follow-up of external review recommendations, the Administrator of CMS should direct the Chief Actuary to fully implement plans to document the current procedures needed to prepare the projections, including acceptable criteria for reasonableness tests.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: OACT has developed detailed checklists for both its HI and SMI programs and has prepared documentation detailing the long-range and short-range assumptions used in the Trustees' Report, and how these assumptions were determined. In addition, OACT has developed a file listing anomalies found during preparation of the 2004 Trustees' Report, and has begun analyses of expected versus actual results.

    Recommendation: In addition, to overcome the challenge of limited resources, the Administrator of CMS should, in consultation with the Chief Actuary, consider use of alternative approaches, such as additional contractor assistance, to address the above recommendations.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: The Office of the Actuary (OACT) continues to consider the use of contractors for several initiatives and, in the past year, used two contractors.

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