oversight

Audit of Long Term Care Partners, relating to the Federal Employees Dental And Vision Insurance Program - Portsmouth, New Hampshire

Published by the Office of Personnel Management, Office of Inspector General on 2009-11-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                         UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                            Washington, DC 20415



  Office of the
Inspector General




                                          AUDIT REPORT




                         Federal Employees Dental and Vision Insurance Program

                               RFP OPM-OI-RFP-0016, VBP Amendment


                              Long Term Care Partners, LLC/BENEFEDS

                                     Portsmouth, New Hampshire





                  REPORT NO.IG-LT-OO-08-062                         DATE: November 4, 2009




                                                                    Michael R. Esser
                                                                    Assistant Inspector General
                                                                      for Audits




         www.opm.goy                                                                       www.usajobs.goY
                       UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                            Washington, DC 20415



   Office of the
Inspector General




                                    EXECUTIVE SUMMARY




                       Federal Employees Dental and Vision Insurance Program

                             RFP OPM-OI-RFP-0016, VBP Amendment


                              Long Term Care Partners, LLC/BENEFEDS

                                     Portsmouth, New Hampshire





                REPORT NO.IG-LT-OO-08-062
                                                                    DATE:November 4, 2009

       The Office of the Inspector General has completed a performance audit of the 2005 through
       July 2008 BENEFEDS operations related to the Federal Employees Dental and Vision Insurance
       Program (FEDVIP), as administered by Long Term Care Partners, LLC (LTCP). BENEFEDS is
       the voluntary benefits portal developed by LTCP for FEDVIP, the Federal Flexible Spending
       Account Program, and the Federal Long Term Care Insurance Program. The primary objective
       of the audit was to determine if LTCP administered BENEFEDS in compliance with the contract
       (OPM-OI-RFP-0016, Voluntary Benefits Portal Amendment) and the FEDVIP regulations,
       5 CFR Part 894. The audit was conducted in Portsmouth, New Hampshire from August 11
       through August 29, 2008.

       The audit showed that LTCP administered BENEFEDS relating to FEDVIP in compliance with
       the contract and applicable regulations.




         www.opm.gov                                                                     www.uSlljobs.gov
                              CONTENTS
                                                      PAGE


        EXECUTIVE SUMMARY                               i


  I.    INTRODUCTION AND BACKGROUND	                    1


 II.	   OBJECTIVES, SCOPE, AND METHODOLOGy             3


III.	   AUDIT RESULTS                                  7


IV.	    MAJOR CONTRIBUTORS TO THIS REPORT              8


        SCHEDULE A - SUMMARY OF PROGRAM OPERATIONS

                I. INTRODUCTION AND BACKGROUND


INTRODUCTION


This report details the results of our audit of the BENEFEDS program relating to the
Federal Employees Dental and Vision Insurance Program (FEDVIP), which is
administered by Long Term Care Partners, LLC (LTCP). The audit was performed by
the Office of Personnel Management's (OPM) Office of the Inspector General (OIG), as
established by the Inspector General Act of 1978, as amended.

BACKGROUND

LONG TERM CARE PARTNERS, LLC.

LTCP was formed as a joint venture, owned 50 percent by John Hancock Life Insurance
Company and 50 percent by Metropolitan Life Insurance Company, to provide and
administer the benefits under the Federal Long Term Care Insurance Program (FLTCIP).
In December 2001, a seven year contract (OPM-OI-RFP-0016) expiring April 30,2009
was awarded to L'TCl' and operations began on March 25, 2002. (A new contract was
awarded to John Hancock upon the expiration of the original contract.)

On March 1, 2005, an amendment was made to the contract between aPM and LTCP to
include the development, maintenance and administration of a voluntary benefits portal
(VBP) to facilitate the provision of the FLTCIP, FEDVIP, and the Federal Flexible
Spending Account (FSAFEDS) programs. The duties and responsibilities of LTCP
included the following:

   a.	 Develop the VBP in accordance with the LTC Partners VBP Requirements
       Definition-Payroll, the LTC Partners VBP Requirements Definition-Portal, and
       the LTC Partners VBP Solution Proposal dated June 6,2005;
   b.	 Administer a web-based enrollment system;
   c.	 Notify applicable carriers of enrollments, including demographic and family
       member information;
   d.	 Process applicable payroll or annuity deductions with or from the applicable
       agency payroll office;
   e.	 Remit enrollee identifying information to applicable carriers or contractors and.
       for other than FSAFEDS, remit deductions to applicable carriers;
   f.	 Take action with payroll offices and enrollees to resolve instances in which
       requested deductions were not remitted; and
   g.	 Staff a teleservice center to answer enrollment and related questions and refer
       detailed benefit questions to the appropriate carrier or contractor.

As a result of the development work performed for the FEDV1P, LTCP was entitled to a
reimbursement of no more than $2 million.
BENEFEDS

BENEFEDS is the voluntary benefits portal developed by LTCP. BENEFEDS consists
of the systems and business structures necessary to administer the enrollment and/or
premium administration functions associated with multiple voluntary Federal benefits',
including the FEDVIP, the FSAFEDS, and the FLTCIP. There are three major
components to BENEFEDS:
    • An enrollment website (www.BENEFEDS.com)
    • A premium administrations system; and
    • A customer service system.

FEDERAL EMPLOYEES DENTAL AND VISION INSURANCE PROGRAM

The Federal EmployeesDental and Vision Benefits Enhancement Act 0[2004 resulted in
the signing of Public Law 108-496, 118 Statute 4001, on December 23, 2004. This law
established a dental benefits and vision benefits program for Federal employees,
annuitants, and their eligible family members. The following 10 FEDVIP carriers all
signed contracts with aPM to provide dental or vision insurance services:

              Dental
              • Aetna Life Insurance Company
              • Government Employees Hospital Association, Inc.
              • MetLife Inc.
              • United Concordia Companies, Inc.
              • Group Health, Inc.
              • CompBenefits
              • Triple-S, Inc.

              Vision
              • BlueCross BlueShieJd Association
              • Spectera, Inc.
              • Vision Service Plan

The first effective date of coverage was December 31, 2006. Eligible individuals must
enroll through BENEFEDS to enroll in a dental and/or vision plan.

This was our first audit of BENEFEDS' program operations.




                                           2

            II. OBJECTIVES, SCOPE, AND METHODOLOGY


OBJECTIVES


The objectives of our audit ofLTCPfBENEFEDS relating to FEDVIP was to determine
compliance with the contract (OPM-01-RFP-0016, VBP Amendment) and the FEnVIP
regulations, 5 CFR Part 894.

Our specific audit objectives for this audit were as follows:

       Administrative Expenses
       •	 To determine if the start-up costs LTCP incurred for the development of
          BENEFEDS relating to FEDVIP were allowable and actual.
       •	 To determine whether administrative expenses charged to FEDVIP were
          allowable based on the contract and Federal Acquisition Regulations 31.201-2.
       •	 To obtain an understanding ofLTCP's cost accounting system and verify that
          expenses charged to FEDVIP were reasonable and correctly allocated.

       Premiums
       •	 To determine if the FEDVIP premiums were collected and paid to appropriate
          carriers and if the fees deducted from the premiums were calculated correctly.

       Cash Management
       •	 To determine ifFEDVIP funds were held in an interest bearing bank account
          separate from LTCP's other lines of business.

SCOPE

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and
conclusions based on the audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on the audit
objectives.

We reviewed BENEFEDS' premium amounts collected and disbursed for contract year
2007 through July 2008 and program costs incurred for contract years 2005 through
July 2008. During this period, BENEFEDS collected approximately $588 million in
premiums and disbursed approximately $550 million to participating health carriers.
LTCP and aPM received approximately $23 million and $11 million, respectively, to
administer the FEDVIP program. Additionally, L'TCl' was reimbursed $2 million for the
development of the FEDVIP portion of the BENEFEDS voluntary benefits portal,

In planning and conducting our audit, we obtained an understanding of
LTCPfBENEFEDS' internal control structure to help determine the nature, timing, and
extent of our auditing procedures. This was determined to be the most effective approach


                                              3

to select areas for audit. For those areas selected, we primarily relied on substantive tests
of transactions and not tests of controls. Based on our testing, we did not identify any
significant matters involving LTCPIBENEFEDS' intemal control structure and its
operation. However, since our audit would not necessarily disclose all significant matters
in the internal control structure, we do not express an opinion on LTCPIBENEFEDS'
system of internal controls taken as a whole.

In conducting the audit, we relied to varying degrees on computer-generated data
provided by LTCPIBENEFEDS. Due to time constraints, we did not verify the reliability
ofthe data generated by the various information systems involved. However, while .
utilizing the computer-generated data during audit testing, nothing came to our attention
to doubt its reliability. We believe that the data was sufficient to achieve the audit .
objectives.

We also conducted tests to determine whether LTCP/BENEFEDS had complied with the
contract, the applicable procurement regulations (i.e., Federal Acquisition Regulations),
and the laws and regulations governing the Program. The results of our tests indicate
that, with respect to the items tested, LTCP/BENEFEDS complied with all provisions of
the contract and the federal procurement regulations.

METHODOLOGY

To test LTCPIBENEFEDS compliance with the contract, we reviewed the following
areas:

Administrative Expenses

•	 To determine ifLTCP/BENEFEDS was in compliance with the contract provisions
   .relative to program start-up costs, we reviewed:
        o	 The development cost cap determined by aPM in the contract between L TCP
            and aPM;
        o	 A summary of all the start-up costs relating to the development work for
            FEDVIP. We did a cursory review of all the start-up invoices for
            reasonableness. To determine if these invoices were actual, allowable, and
            reasonable, we judgmentally selected, based on highest dollar amount, one
            invoice totaling $437,500 out of a universe of seven invoices totaling $2
            million for review; and
        o	 The amount and the method that LTCP was reimbursed for their development
            costs regarding FEDVIP.

•	 To determine if the administrative expenses were actual, necessary, and reasonable,
   we reviewed:
      o	 A list and a description of all FEDVlP cost centers to determine if they
          appeared to be allowable based on their function;




                                              4

        o	 Descriptions of all natural accounts relating to the FEDVIP cost centers to
           determine if the expenses captured by these accounts appeared to be allowable
           costs; and
        o	 Management fees to determine if they were actual and correctly reported to
           aPM.

•	 To obtain an understanding of the L TCP/BENEFEDS cost accounting system and
   verify that expenses charged to FEDVIP were reasonable and correctly allocated, we
   reviewed:
       a	 The cost accounting processes and procedures; and
       a	 A sample of the natural account invoices to determine that the expenses
           charged to FEDVIP were allocable and reasonable. We judgmentally selected
           our sample from the natural account transaction detail for the] 2 months
           ending September 30, 2007. We selected 5 out of23 natural accounts with the
           highest expense totals for fiscal year 2007 and then selected the 5 months with
           the highest costs (] month for each of the 5 natural accounts). The total
           amount ofthe sample was $371 ,850 out of a universe of $] ,995,208.




•	   To determine if the FEDVIP premiums were collected and paid to appropriate carriers
     and if the fees deducted from the premiums were calculated correctly, we:
         a Reviewed agreements between aPM and L TCPIBENEFEDS to determine the
             components of the premiums;
        a	 Obtained an understanding of the processes and procedures for collecting
             premiums from payroll offices, deducting any administrative fees, and paying
             the FEDVIP carriers;
         o	 Reviewed L TCP reports and bank statements to determine the amount of
             FEDVIP premiums collected from the payroll offices. We judgmentally
             selected the period July 23, 2008 to July 31, 2008 because it was the last week
             of our audit scope, and another period around a similar time in the prior year
             (July 18, 2007 to July 26, 2007). For the sample period July 18,2007 to
             July 26, 2007, the sum of the premiums collected was $],339,769 out ofa
             universe total of $3] 1,982,427 in premiums collected in the year 2007. For
             the sample period July 23, 2008 to July 31, 2008, the sum of the premiums
             collected was $16,304,653 out of a universe total of$275,665,170 in
             premiums collected from January through July 2008. We also used these
             sample periods to review all L TCP fees, aPM fees, and the payments to the
             FEDVIP carriers;
        a	 Determined if administrative fees were properly deducted and transferred to
             the appropriate accounts; and
        a Reviewed bank statements to determine the FEDVIP carriers' portion of the
             premiums collected.




                                              5

Cash Management

•	 Finally, to determine ifLTCPIBENEFEDS was in compliance with the contract
   provisions relative to cash management activities, we reviewed bank accounts and
   flowcharts relating to all FEDVIP funds.

Because the samples we selected and reviewed in performing the audit were not
statistically based, the results could not be projected to the universe since it is unlikely
that the results are representative of the universe taken as a whole.

Additionally, we also reviewed the financial statements and workpapers completed by
LTCP's Independent Public Accountants to identify any potential program concerns
relating to BENEFEDS and FEDVIP.




                                               6

                            III. AUDIT RESULTS


Based on our review of administrative expenses, premium payments, and cash
management activities, we found that the FEDVIP operations for 2005 through
July 2008, as administered by LTCPIBENEFEDS, were administered in accordance with
the contract and regulations.




                                        7

          IV. MAJOR CONTRIBUTORS TO THIS REPORT

Special Audits Group

              Auditor-In-Charge

                Auditor


                  Senior Team Leader

                  Group Chief




                                       8

                                                                                                                                  SCHEDULE A

                                                      Long Term Care Partners, LLCIBENEFEDS
                                                             Portsmouth, New Hampshire

                                                          Summary of Program Operations
                                                          Contract Years 2005 - July of 2008



                                                            2005                  2006              2007           2008*           Total

Revenue
  Premiums collected                                                  $0                       $0   $311.982,427   $275,665,170   $587,647,597

Expenses
  Premium disbursements to health carriers                            $0                       $0   $289,442,151   $259,855,105   $549,297.256
  aPM administrative expenses                                          0                        0      5,932,945      5.237,330     11,170,275
  LTCP administrative expenses                                         0                        0     12.311.859     10,611,127     22,922.986
                        Total expenses            I                   $0                       $0   $307,686,955   $275,703,562   $583,390,517

Start-lip Costs
  Start-up costs to develop the BENEFEDS portal                $842.439             $1,157.561               $0             $0      $2,000,000


*Through July 31,2008 only.