The Federal Employees Health Benefits Program (FEHBP) is the largest employer-sponsored health insurance program in the U.S., covering over 8 million federal employees, retirees, and their families. With an annual budget exceeding $60 billion, the program is should be a model of efficiency and transparency. But as I have highlighted before, audits into the plans within the FEHBP—particularly those administered by BCBS entities—highlight a deeply troubling pattern of mismanagement, inefficiency, and overpayments that continue to drain taxpayer funds. This audit of the Florida Blue FEHBP program is no different. More. Of. The. Same.
Every few months, new Office of Inspector General (OIG) audits are quietly published on OPM’s website with no fanfare or deserved public outrage revealing the same systemic failures. OIG consistently flags the same problems—late returns on health benefit refunds, mishandled claims, and untimely cost recoveries, to name just a few. The Government Accountability Office (GAO) has also raised alarms over these issues, yet the status quo remains unchanged. Despite ongoing findings, recommendations, and calls for reform, the BCBS entities that administer the majority of these plans, like Florida Blue, continue to benefit from this broken system.
The consequences are significant. Not only do these failures impact federal employees and retirees, but they also burden taxpayers who fund the program. In a recent audit, nearly 40% of the claims tested in this audit had serious issues. For example, 98% of medical drug rebates were returned late, totaling $249,632 in questioned rebates and $21,003 in lost interest income (LII). Similarly, 100% of Special Plan Invoices (SPIs) were returned late, leading to $29,443 in questioned amounts. These numbers are just the tip of the iceberg.
The problem isn’t just that these issues exist—it's that they keep recurring without any significant corrective action. Provider offset refunds, totaling $20,586, weren’t returned as required. Excess working capital of $125,946 was held unnecessarily, which could have been better used to support the program. Despite these repeated findings, corrective actions remain minimal at best. Florida Blue will likely continue to transact business as usual, putting the cookies back in the cookie jar when they are caught.
Rather than being an example of how health plans should be run, the FEHBP has become the antithesis of what employers and health plan purchasers should aspire to. The failure to take meaningful corrective actions has real financial consequences for taxpayers and perpetuates inefficiency in the healthcare system. These audits show us that the issues are systemic, but the solution remains elusive. Below, I provide a more detailed look at the audit findings which sheds more light not only the problems facing the FEHBP, but potential solutions.
Claim Overpayment Recovery Efforts: A Systemic Breakdown
The audit revealed serious lapses in Florida Blue’s efforts to recover overpayments from both healthcare providers and FEP members. These efforts were not just insufficient but inadequate under the terms of the contract. Specifically, the Plan failed to recover or return $6.79 million in FEP claim overpayments, including $2.24 million owed to two major
providers, Network Provider South Florida and Network Provider Central Florida. Florida Blue simply did not pursue additional recovery methods, like using provider offsets (deducting the owed amount from future payments to providers) or involving third-party collections. In addition, they improperly wrote off more than $3 million in claim overpayments through a settlement with Network Provider Central Florida, completely bypassing standard recovery practices. As the audit points out, despite these overpayments exceeding $10,000, which demands “diligent efforts to recover” under the contract, these actions didn’t meet the requirements for proper debt recovery.
Even more concerning is the cross-plan offsetting that occurred. The Plan’s approach to recovery was deeply flawed because some of the claim overpayments, rather than being recovered directly from FEP claim payments, were offset against non-FEP claims. This meant that the Plan was using non-FEP funds to recover FEP overpayments, which is not only a violation of standard recovery practices but an issue of fiduciary duty, as seen in various court rulings. In effect, the Plan’s mishandling of the process leaves taxpayers and members in the dark about how much the FEHBP was actually harmed—we don’t even know how much of the $6.79 million was truly recoverable due to these poor practices. With a lack of transparency, and no documentation justifying the write-offs or recovery methods used, the extent of the mismanagement remains unclear. As the audit suggests, these 135 claim overpayments should have been vigorously pursued, but Florida Blue simply failed to do so, underscoring the systemic failures in place.
Florida Blue, however, disagrees with the findings, explaining that their provider contracts conflict with the recovery process. They argue that the contracts, as negotiated with providers, restricted them from pursuing certain recovery methods, such as provider offsets or third-party collections. While a substantial portion of OIG's response to Florida Blue's assertion is redacted, it is clear that OIG strongly disagreed with their position, pointing out that provider agreements do not override the FEHBP's contract requirements. OIG stated: "Provider negotiations do not excuse the Plan from following the overpayment recovery requirements set forth in the FEHBP contract (e.g., regarding provider offsets and/or third-party collections)."
Subrogation Recoveries: A Classic Case of Delayed Actions
Subrogation is another area where Florida Blue’s failures are glaring. $968,644 in questioned subrogation recoveries represent a serious issue of late action and poor follow-through. The Plan failed to return two monthly subrogation recovery amounts, totaling $804,721, to the FEHBP by the required deadline. These funds were only returned after the audit notification, highlighting a fundamental lack of financial discipline. Similarly, 62 other monthly subrogation recovery amounts, totaling over $39.5 million, were also returned late, leading to an additional $157,682 in lost interest income (LII). What stands out here is the consistent failure to comply with the contractual obligation to deposit recoveries into the FEP investment account within 30 days, and to return them to the Letter of Credit Account (LOCA) within 60 days. The audit findings make it clear that Florida Blue had ample time and resources to act, yet it was either unwilling or unable to do so efficiently.
Cross-plan offsetting also played a role here, with some of the subrogation recoveries being deposited late into the Plan’s dedicated FEP investment account before being returned. For example, OIG notes that "...62 other monthly subrogation recovery amounts, totaling over $39.5 million, were also returned late, leading to an additional $157,682 LII [with]... cross-plan offsetting [] play[ing] a role here..." The practice skirts basic recovery protocols and only worsens the financial impact on the FEHBP. As the audit points out, the $1.3 million refund advance Florida Blue calculated to cover these recoveries was underfunded by approximately $200,000, leaving a significant gap in their financial oversight. The fact that these funds were not tracked properly—or worse, not pursued properly—has led to further delays in returning taxpayer funds. This audit finding only reinforces the conclusion that Florida Blue's practices are neither timely nor diligent, contributing to a growing concern over how funds are handled across FEHBP plans.
Late and Unreturned Medical Drug Rebates
In the case of medical drug rebates, the audit revealed some deeply troubling findings. 98% of medical drug rebates were returned late—yes, 98%. This resulted in $249,632 in questioned medical drug rebates and an additional $21,003 in lost interest income (LII). But it doesn’t stop there: the audit also uncovered $4.6 million in rebates that were untimely returned during the audit period. Although these rebates were eventually returned, the fact that the funds were late—sometimes by as much as 162 days—means that the FEHBP was deprived of timely access to these funds, resulting in a significant financial impact, especially when interest is considered.
When auditors use the term "questioned," they're calling out these amounts because they were not returned within the required time frames, and as a result, the FEHBP may have been shortchanged—all due to sloppy management and a failure to comply with basic contractual obligations. These aren't minor errors; they are clear, significant lapses that suggest a pattern of carelessness and disregard for financial responsibility. The sheer $4.6 million in untimely rebates alone should raise serious red flags about the efficacy and accountability of the entire system.
To be clear, the term "questioned" here is a polite way of saying these funds weren't handled properly, and the moneys are likely owed to the FEBHP. The fact that such a large portion of the rebates were delayed calls into question the integrity of the entire process. Given that these are federal dollars, the sheer scale of the financial mismanagement is hard to ignore. It’s clear that this issue is not an isolated occurrence; it’s a sign of a much broader, systemic problem with how these funds are managed across the board. And given that these types of audit findings show up regularly, it's reasonable to assume that many, if not all, of the other FEHBP plans might be struggling with the same issues.
Special Plan Invoices (SPIs)
The audit also found widespread issues with Special Plan Invoices (SPIs), which are typically used for health benefit recoveries. A staggering 100% of SPIs were returned untimely, leading to $29,443 in questioned amounts. SPIs are a key component in the reconciliation process of health benefit refunds, and untimely returns or mismanagement can lead to both financial waste and a lack of transparency. These types of errors often result from procedural missteps, and given the scale of the program, this issue is likely not confined to just one plan. Across the broader FEHBP, delayed or mishandled SPIs can quickly add up to millions in overpayments that should never have occurred in the first place. This continued pattern of inefficiency sends a clear message: proper oversight and accountability remain sorely lacking.
Out-of-System Adjustments (OSAs)
The OASs section of the audit is rather troublesome to me, not just for the amounts called in to question, but the fact that these were the result of self-disclosed findings by Florida Blue and not an actual audit by OIG. "While preparing for our audit during our pre-audit phase, the Plan self-disclosed net overcharges of $138,843 to the FEHBP for several OSAs...[ and] ...we reviewed and accepted the Plan’s self-disclosed OSA exceptions." That's right, Florida Blue seems to have made a calculated decision to self-disclose and return just enough to evade an actual audit of all OSAs that may have been problematic.
Just what did they self-disclose? For contract years 2018 through 2022, Florida Blue net overcharged the FEHBP a total of $138,843 due to several unallowable and unallocable costs. They incorrectly included $92,880 in vendor costs that didn’t benefit the FEHBP, alongside $46,539 in overcharges for employee benefit payments that were erroneously calculated using employees not enrolled in the plan. Finally, they self-disclosed a $256 charge for first-class airfare.
Conclusion: A Systemic Crisis in Need of Urgent Reform
As I have stated, these audit findings from Florida Blue and the FEHBP are not isolated incidents—they are part the disturbing, recurring pattern that OIG has highlighted time and again in numerous audits. Over the years, I have attempted to elevate the findings of these audits and sound the alarm on the documented failures in this system: late returns on health benefit refunds, mishandled claims, improper overpayment recoveries, and lost interest income, to name a few. Yet, despite these repeated findings, there are remarkably few calls for reform and nothing changes.
The ongoing inefficiencies and mismanagement are not just a matter of technical oversights; they represent a profound failure in fiduciary responsibility to the American taxpayer. It’s no longer enough to simply point out the issues—we must demand accountability and real solutions. Unfortunately, the status quo is not working, and as the audit reveals, it’s unlikely to change without bold intervention.
My proposal for an approach to fix this broken system is pretty straightforward, but not easy: those in charge must recognize that OPM’s current approach is flawed and that the organization is fundamentally incapable of effecting meaningful change. The relationships, interests, and political realities that have kept the system in place are too entrenched to expect any real reform from within. Instead, what’s needed is the intervention of a turnaround management professional, someone with the authority to act decisively and with the expertise to navigate the complexities of such a vast program.
Much like a Chapter 11 trustee, this individual would have the power to break contracts, make difficult decisions, and prioritize the financial health of the program over the interests of entrenched vendors. They would be tasked with implementing immediate fixes—ensuring that claims are processed correctly, overpayment recoveries are enforced, and lost interest income is fully recovered. These are not insurmountable challenges; they are technical fixes that can be addressed with the right leadership.
However, the real challenge lies in the willingness to appoint someone with the vision and determination to take on the task of reforming the FEHBP. This person would need to be empowered to hold all government vendors, including BCBS entities accountable, break through the institutional resistance, and ensure that taxpayer funds are spent efficiently. It’s not just about addressing the symptoms—it’s about fundamentally restructuring the system to eliminate the inefficiencies that have plagued it for years.
This proposal is not a pie-in-the-sky idea; it is a serious, actionable plan to restore integrity and accountability to one of the largest and most important health programs in the country. But for it to succeed, it requires the political will to make tough decisions and the leadership to implement real change.
Will anyone rise to the occasion—or will we continue to watch as the system spirals further into dysfunction, leaving taxpayers and federal employees to pay the price.
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