Palmetto Government Benefit Administrator, LLC, Overstated Its Excess Plan Medicare Segment Pension Assets as of January 1, 2017

During our audit period, Palmetto was a subsidiary of Blue Cross Blue Shield of South Carolina (BCBS South Carolina), whose home office is in Columbia, South Carolina. Palmetto administers Medicare operations under the MAC contracts for Medicare Parts A and B Jurisdiction 1 and Jurisdiction 11 effective October 25, 2007, and May 21, 2010, respectively, as well as other CAS-covered and FAR-covered contracts. Currently, Palmetto is the Medicare Parts A and B contractor for Jurisdictions J and M (formerly Jurisdiction 11). Palmetto also continues to perform Railroad Retirement Board contract operations under a specialty MAC contract awarded on November 27, 2012. During our audit period, CMS and BCBS South Carolina entered into an agreement called the “Advance Agreement Regarding the Computation of Nonqualified Defined Benefit Pension Plan Costs for the Periods Beginning January 1, 2015” (agreement). This agreement allowed BCBS South Carolina to change its accounting methodology from a pay-as-you to an accrual method. This agreement also closed costs prior to January 1, 2015. Starting with January 1, 2015, the Excess Plan would, under the terms of this agreement, have three Medicare segments: (1) Palmetto, (2) Companion Data Services, LLC (CDS), and (3) Partial Medicare. This report addresses Palmetto’s compliance with the pension segmentation language under the provisions of Federal requirements and its Medicare contracts. We are addressing the Excess Plan Medicare segment pension assets for the CDS and Partial Medicare segments in separate audits. BCBS South Carolina sponsors the Excess Plan. The purpose of the Excess Plan is to provide benefits in excess of the limits imposed by the Employee Retirement Income Security Act of 1974 for participants in BCBS South Carolina’s qualified defined-benefit plan.